Feedback summary - Draft Tax Administration Laws Amendment Bill 2014
17 September 2014
Posted by: Author: SAIT Technical
Author: Pieter Faber (SAIT Technical Executive: Tax Law & Policy)
and National Treasury held its public workshops on tax administrative matters on
the 12th of September 2014 to discuss the proposals in the draft Tax
Administration Laws Amendment Bill, 2014, in respect of the proposed amendments
to the Income Tax Act (No. 58 of 1962) (‘ITA’) and Tax Administration Act (No.
28 of 2011) (‘TAA’). The workshop attempted to address some of the concerns
raised by the public, including those raised at the presentations held in the
Standing Committee on Finance in parliament on the 26th August 2014.
Technical Department attended the workshop and was represented by Erich Bell
(Acting Head of Tax Technical), Pieter Faber (SAIT Technical), Lesedi Seforo
(SAIT Technical). The discussions at these workshops do not create binding
undertakings on either SARS or National Treasury but rather serve as a method
for them to get further input and clarity on the concerns raised by the public.
The proceedings were conducted based on the agenda of matters drafted by SARS
and therefore only covers matters on which SARS still requires further clarity on.
workshop accordingly did not deal with all the public submissions made on tax
administrative matters, however, the discussions that we’ve had with SARS were
very constructive and SAIT encourages members to contribute even more to the
out below are some of the main matters discussed at the workshop:
to object & appeal against a decision not to remit and underestimation
penalty under par 20 Fourth Schedule
of par 20 in section 3(4) of the ITA (s3(4) ITA)
The purpose of the deletion of the reference to par
20 in section 3(4) of the ITA was to ensure that the objection to the penalty
is aligned with the other fixed percentage based penalties and any remittance
should be dealt with under Chapter 15 of the TAA.
of dividends tax
in specie return (s64K ITA)
proposed amendments in section 64K will be reworded so that it does not result
in a duplicate return requirement.
of payments in error (new)
has acknowledged that a problem exists as to the mechanism for refunds in
respect of payments in error of dividends tax, as the TAA’s refund mechanism is
only available to the recipient of the dividend. SARS will look at the matter
raised and respond in due course.
of the refund from SARS on exempt dividends (s64L ITA)
were raised regarding the timing of the refund by payor companies where
exemption declarations were not received timeously, namely that it is one year
after the declaration was received by the payor. SARS will look at the matter
though the timing was kept simple to keep the system manageable.
3. Provisional tax amendments
preceding year of assessment – 14 days (par 19 of the Fourth Schedule)
proposed deleting the proviso in par 19 as to the determination of the ‘latest
preceding year of assessment’ due to the fact that eFiling nearly immediately
generates the assessment causing this determination to be easier in practice.
However, concerns were raised that tax practitioners required some minimum time
between determining the latest preceding year of assessment and finalising the
estimate of the taxpayer. If this changed at any time, the calculation would
have to be redone before submission. SARS would therefore reconsider this
amount’ 8 per cent escalation (par 19 of the Fourth Schedule)
respect of the automatic annual escalation of the ‘basic amount’, SARS
acknowledge that the original intention was to have an annual 8 per cent
increase from year one, but on request from certain tax practitioners and
bodies this was amended to its current form, which results in no adjustment for
the first 18 months and a 16 per cent adjustment for the period immediately thereafter
(i.e. second estimate for second year after latest preceding year of
assessment). Thereafter the normal 8 per cent escalation per annum would apply.
of rebates in provisional tax estimation (par 19 of the Fourth Schedule)
inclusion of the normal tax rebate in the provisional tax estimate was
welcomed, however, the proposal still excluded other rebates and credits such
as the medical tax credit and the s6quin credit. SARS would address these
SARS would consider proposing a retrospective introduction date of 1 March 2014
instead of 1 March 2015 as the 2015 year of assessment has not been completed.
However, SARS will not consider an earlier date and taxpayers who have had
penalties assessed but had no tax payable due to a rebate would have to raise an
objection as a remedy.
penalty for underestimation (par 20 of the Fourth Schedule)
amendment in 2012 which should have resulted in relief by including tax already
paid for the purposes of the estimation, resulted in a double late payment
penalty, though the proposed elimination of the penalty overlap does eliminate
a part of the problem. SARS will look into the wording to ensure that the
penalty is only limited to the amount underestimated.
4. International tax agreement and exchange of
information (s1 & 3 TAA)
reference of ‘international tax agreement’ definition (s1 TAA)
conceded that the definition is circular and will redraft it.
tax agreement’ & ‘spontaneously’ (s3 TAA)
conceded that use of the word ‘spontaneously’ in its normal grammatical sense
seemed incorrect, however, this was the wording used in international
agreements and the OECD model for this purpose. SARS would consider adding an
explanation in the Draft Memorandum on
the Objects of the Tax Administration Laws Amendment Bill, 2014 (‘EM’) to
ensure that it is interpreted according to that meaning and not out of context
in its mere normal grammatical meaning.
diligence’ requirement for third party returns (s26 TAA)
confirmed that this requirement was inserted to meet the future reporting
standards that may be imposed in terms of the international information sharing
agreements (e.g. such as the requirements under the US Foreign Account Tax
Compliance Act (‘FATCA’)) entered into by the fiscus.
5. Definition of ‘relevant material’ in section 1
of the TAA
the opinion of SARS…’ (s1 TAA)
noted that this amendment was brought about by taxpayers resisting valid
requests for relevant material on the basis that the taxpayer was of the
opinion that the information was not relevant for purposes of the
administration of a tax Act as set forth in section 3 of the TAA. SARS remained
of the opinion that where the taxpayer did contest the validity of the request
for information it did have other remedies. SARS will, however, look into
issuing guidelines as to what information would reasonably comply with the law
and which requests would not and to provide some checks and balances for
taxpayers against frivolous or irrelevant information requests.
of relevant information (s46(4) TAA)
have conceded that it should only request information in the format as lawfully
required to be retained, especially in respect of third party information.
Where some form of processing is required, such request would be subject to a
reasonability measure as to the obligation imposed. SARS will consider issuing
an internal Standard Operating Procedure to regulate this in practice.
of ‘return’ (s1 TAA)
noted the concerns and practical complications created by extending the scope
of a ‘return’ to include ‘relevant material’ and conceded that this proposal
extended the scope beyond what was intended or practical. SARS is considering
withdrawing this amendment.
6. Reportable Arrangements
on general reporting requirement by participants (s34 TAA)
concern was raised that the extension of the reporting requirement does not
target the real persons, namely tax evader who would in any event not report.
SARS noted the extension but remained of the opinion that someone other than
that party would report the arrangement to enable it to identify the relevant
avoidance transaction and behaviours.
would also consider removing ‘service fee’ from the definition to narrow the
responsible’ (s34 TAA)
noted that the reportable arrangement regime has morphed beyond what it was
originally designed for, namely structured finance transactions. A concern
exists that the ‘promoter’ is now the person principally responsible for any of
the listed matters, including finance. In this regard, a bank who provided
finance but who was not party to the arrangement would under the current
definition be a promoter as it principally financed the arrangement. SARS
conceded that the scope is very wide and would relook at the definition,
especially as relating to the obligation on the financier of the transaction.
listed by notice (s35(2) TAA)
listed arrangements do not follow the scheme of requirements in section 35(1)
and it was difficult or impossible to determine who is getting the tax benefit
or is a participant in the listed arrangements. The notice should therefore set
out who is deemed to be the participant. SARS noted this and will consider
changes in this regard.
listed arrangements (s36 TAA)
concern exists that the listed arrangements in section 35(2) do not carry a
threshold for the tax benefit that results from the transaction and that it
should be limited to arrangements with a material tax benefit. SARS noted the
proposal for a de minimus in respect
of the listed arrangements and would look into it.
of penalty (s212 TAA)
conceded that the reportable arrangement regime was very complex and the chance
for error was great. It noted that the current remittance threshold was low
given the nature of the transactions involved. However, as this was also a
policy matter, SARS will only reconsider the matter in the next legislative
round in 2015.
will consider concerns regarding the 16 July 2014 effective date and reword it
to reflect their intention. SARS noted that it intended the effective date to
operate in a manner that the ‘new’ provision would exclude transactions
completed before 16 July 2004 but would apply to transactions entered into and
only partially completed before this date. Its intention was that the reporting
obligation should be complied with within 45 days after promulgation of the
amendments and not 45 days after the retrospective effective date.
7. Application for warrants by Senior SARS
appearance by SSO (s59 TAA)
have noted that they are in process of finalising the list of SSO’s for public
notification. However, the SSO need only authorise the application for the
warrant and procedurally there is no reason why such application should be in
person by an SSO once it has been considered and authorised.
for setting aside warrants (s66(2) TAA)
were raised that the recent High Court judgement in Huang & Others (Incl. Mpisi Trading 74 (Pty) Ltd) – HC 1-2013
NG had incorrectly set the procedure for setting aside invalid warrants as
being section 66(2) of the TAA and not Uniform Court Rule 6(12)(c) as the
former dealt with return of information under valid warrants. SARS noted the
procedural concern for further investigation and if required would consider
clarifying the procedure at a later stage.
8. Suspension of disputed tax
of requirements (s164)
were raised that the listed requirements for suspension of payment pending
objection/appeal was overly burdensome and administratively complicated,
especially since the risk related to potential non-payment which some of the
criteria do not affect at all. SARS conceded that it would have to relook these
requirements but that it would involve a substantive change and therefore could
only be revisited next year.
9. Recovery of tax debts
from other persons (s184 TAA)
SARS noted that to the extent that the amendment created a personal
liability as opposed limited liability in a representative capacity for the
third party, it was an oversight and they would reword it accordingly.
conceded that the effective date is retrospective but noted that this was
necessary as the deed resulting in the liability could be historical.
10. Temporary write-off of debt
10.1 Business rescue proceedings debt
reinstatement (s195 TAA)
noted the concerns by stating that it was a misunderstanding as the provision
was not intended to revise irrecoverable debt at a later date but rather to provide
SARS with a mechanism to write-off debt as soon as the company goes into
business rescue and then to subsequently ‘revive’ the debt if the rescue plan
is not adopted.
rescue debt waivers (s198 TAA)
noted the concerns in respect of the administration regarding the SARS claim
determination in business rescue proceedings but noted that it has concerns
regarding the current status quo of
SARS’ debt claim and ranking and will discuss the policy on the matter with the
Department of Trade and Industry before considering amendments.
11. Suspension of tax practitioner
during criminal proceedings (s240 TAA)
rejected that the suspension of a tax practitioner should be deferred until
after completion of the criminal proceedings on the basis that the risks were
too great to the public and the fiscus.
SARS noted a proposal to move the timing of the suspension until a later more
exact date such as when charges are instituted by the National Prosecuting
Authority rather than merely relying on a decision to prosecute.
12. Tax Clearance Certificates (‘TCC’)
relevant material request as requirement (s256 TAA)
conceded that the proposed requirement that a request for relevant material be
complied with before a TCC may be issued was too wide as these requests may be
subject to deferral depending on the circumstances. SARS will remove this
prior to withdrawal (s256 TAA)
were raised that the automatic withdrawal of the TCC for historical matters was
overly punitive as the taxpayer may not even be aware thereof (e.g. SARS
journals and historical new missing returns) and that SARS should provide the
taxpayer with a notice and a period for compliance/contestation in these
instances. SARS accepted that where the TCC was issued in error due to
historical compliance status, it should give notice to the taxpayer. However,
SARS reiterated that automatic disqualification would still apply for non-compliance
after the date of issue/enquiry. In respect of the latter, SARS noted that a
system whereby the taxpayer could send a single use pin to a third party to
verify compliance status on the future real time system would be
13. Voluntary Disclosure Program (‘VDP’)
of audit exclusion (s226 TAA)
were raised that the ambit of the audit is exclusion was too wide as it applied
notwithstanding the fact that the audit was in respect of another tax or
period, thus limiting the understatement penalty relief. SARS noted this
concern and would discuss the matter internally from a policy perspective.
and assessed loss (s227 TAA)
qualification requirements for VDP include that the application must be in
respect of a ‘default’ as defined in section 221 of the TAA. This has the
effect that it must result in tax chargeable notwithstanding that for
understatement penalties a reduction of an assessed loss will also result in
the penalty applying when the tax payable is still Rnil. SARS will discuss this
internally first and get back to the public.
13.3 Bona fide error
concern was raised that SARS may decline VDP applications on the basis that the
default involves a ‘bona fide inadvertent
error’. However, the error will only qualify as such once SARS accepts it to be
a bona fide inadvertent error. Before
that, it remains a default risk to the taxpayer. SARS noted the problem and conceded
that it may address the matter by including defaults that may potentially
qualify as bone fide inadvertent errors.
The end result is that a taxpayer may apply for VDP if it has a default even
though the default may potentially qualify as a ‘bona fide inadvertent error’.