World:Tax legislation plays catch up
23 June 2014
Posted by: Author: EY Tax Insights
Author: EY Tax Insights
One of the key lessons that governments around the world learned from the global financial and Eurozone crises is that tax dollars really do matter. In response, they are focusing on mending and modernizing tax regimes that in many respects have failed to keep pace with the rise of globalization and the digital economy.
New laws aim to ensure more money ends up in the government’s treasury. Whether it is the implementation of new general anti-avoidance rules, proposals from the OECD to address base erosion and profit shifting (BEPS) or proposals for country-by-country reporting, firms should prepare for more change ahead.
To learn more about tends in South Africa, we spoke with George Trollope, General Manager Tax at South Africa’s Sasol, an energy and chemical company.
Tax Insights: To start, can you touch on some high-level tax trends that are playing out in South Africa?
George Trollope: We are seeing a trend where the tax authorities are passing some of the administrative burden on to us. Very recently, we received from the South African Revenue Service (SARS) something called an agency appointment, where they have appointed us to pay the tax from third parties and from certain employees.
Of course, on the issue of tax disclosure, we found that they have made it more demanding. They have escalated the kind of disclosure that they want: more on transfer pricing and financial services. They want us to provide more information in order for them to better understand and analyze filings.
Another trend is we have suddenly seen a lot more audit activity from the tax authorities globally at Sasol. We have operations in South Africa, Canada, the USA, Europe and the Middle East, and all over, colleagues are suddenly saying there is more audit activity.
The tax authorities have become more active through legislation and through audits. In South Africa, the Tax Administration Act has been introduced, which strengthens SARS. It is putting the responsibility on taxpayers to provide more information, and it has pushed up our cost of compliance.
Can you give more details about how South Africa’s new Tax Administration Act is impacting your business?
In the short period since it has been introduced, we have experienced an increasing likelihood of SARS charging penalties and interest under that Act. In the past, if someone in the organization made a mistake and submitted a VAT return one day late, or the electronic payment did not hit the SARS bank account on 30 June due to some banking problem, but it was in their bank on 1 July, that one-day-late payment could be explained.
In the past, SARS would waive interest and penalties in those circumstances. Under the Tax Administration Act, SARS imposes an automatic 10% late payment penalty. If it is one minute late and it is a ZAR100million payment, they would immediately impose a ZAR10million (US$1million) penalty. They have used the Act to increase their collection of interest and penalties from taxpayers.
You spoke earlier about this new agency appointment from SARS that is also part of the new Tax Administration Act. How does this work?
it is related to the employees having to submit tax returns. If they did not do that, then the tax authority would raise a penalty on the employee. That penalty is payable by the employee. They have now come to the employer and said, "Please pay this penalty and you can have the hassle of collecting that penalty from your employee.”
SARS have moved collection of these penalties to the employer. The law does provide for this, but is a new practice for us as employers. This is the first year this has happened to my organization. We now have to audit those penalties and say to the employees, "Go submit your tax returns.”
It is not a company obligation to submit those returns; it is totally an employee obligation. It has consumed a lot of our tax department’s time in the last four months.
So instead of chasing these relatively small penalties from each employee, which is quite difficult to collect, SARS is focusing its employees on audits.
Are you seeing greater cooperation between South African tax authorities and their counterparts abroad? What is the impact on tax policy?
There is a greater exchange of information around the world — and not just regarding SARS. We have come across Norwegian tax inspectors who are providing assistance to the Mozambique tax authority. The main function of the assistance was to audit tax returns and also to transfer skills.
Norway is an oil-rich country, so they have capabilities in oil and gas. Lately, linking to that, I cannot say it is a direct link, but Mozambique has put forward proposals to introduce new tax laws around oil and gas.
We have noticed the capabilities of the tax authorities have dramatically increased to their advantage in the last two or three years, and I think going forward, we will see more of that. What this will all lead to is probably a greater focus on cross-border transactions. If the 35 African tax authorities are getting together regularly, one can see a greater exchange of important tax information between them.
This article first appeared taxinsights.ey.com