Feedback summary - Draft Tax Administration Laws Amendment Bill 2014
17 September 2014
Posted by: Author: Pieter Faber
Author: Pieter Faber (SAIT Technical Executive: Tax Law & Policy)
SARS 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.
SAIT’s 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.
The 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 legislative process.
Set out below are some of the main matters discussed at the workshop:
1. Right to object & appeal against a decision not to remit and underestimation penalty under par 20 Fourth Schedule
1.1 Deletion 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.
2. Refund of dividends tax
2.1. Dividend in specie return (s64K ITA)
The proposed amendments in section 64K will be reworded so that it does not result in a duplicate return requirement.
2.2 Refunds of payments in error (new)
SARS 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.
2.3 Timing of the refund from SARS on exempt dividends (s64L ITA)
Concerns 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
3.1 Latest preceding year of assessment – 14 days (par 19 of the Fourth Schedule)
SARS 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 proposal.
3.2 ‘Basic amount’ 8 per cent escalation (par 19 of the Fourth Schedule)
In 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.
3.3 Inclusion of rebates in provisional tax estimation (par 19 of the Fourth Schedule)
The 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 concerns.
Furthermore, 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.
3.4 Double penalty for underestimation (par 20 of the Fourth Schedule)
The 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)
4.1 Circular reference of ‘international tax agreement’ definition (s1 TAA)
SARS conceded that the definition is circular and will redraft it.
4.2 ‘International tax agreement’ & ‘spontaneously’ (s3 TAA)
SARS 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 inthe 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.
4.3 ‘Due diligence’ requirement for third party returns (s26 TAA)
SARS 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
5.1 ‘..in the opinion of SARS…’ (s1 TAA)
SARS 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.
5.2 Format of relevant information (s46(4) TAA)
SARS 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.
5.3 Definition of ‘return’ (s1 TAA)
SARS 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
6.1 Policy on general reporting requirement by participants (s34 TAA)
A 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.
SARS would also consider removing ‘service fee’ from the definition to narrow the scope.
6.2 ‘Principally responsible’ (s34 TAA)
It was 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.
6.3 Arrangements listed by notice (s35(2) TAA)
The 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.
6.4 Excluded listed arrangements (s36 TAA)
A 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.
6.5 Remittance of penalty (s212 TAA)
SARS 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.
6.6 Effective date
SARS 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 Officials (‘SSO’)
7.1 Personal appearance by SSO (s59 TAA)
SARS 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.
7.2 Procedures for setting aside warrants (s66(2) TAA)
Concerns 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
8.1 Simplification of requirements (s164)
Concerns 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
9.1 Recovery 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.
9.2 Retrospective effective date
SARS 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)
SARS 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.
10.2 Business rescue debt waivers (s198 TAA)
SARS 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
11.1 Suspension during criminal proceedings (s240 TAA)
SARS 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’)
12.1 Fulfilled relevant material request as requirement (s256 TAA)
SARS 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 proposed change.
12.2 Notice prior to withdrawal (s256 TAA)
Concerns 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 considered.
13. Voluntary Disclosure Program (‘VDP’)
13.1 Ambit of audit exclusion (s226 TAA)
Concerns 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.
13.2 ‘Default’ and assessed loss (s227 TAA)
The 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
A 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’.