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Documentary proof to satisfy SARS of inter-company loan accounts and complaints against unreasonable

06 November 2014   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

Q: 1. what documentation would suffice to give to SARS for a VAT audit on amounts received on intercompany loan accounts and shareholder loan accounts as short term financing? Does the loan agreement have to stipulate the amounts (as there are many transactions that occur on a monthly basis). 

2. If you feel that a SARS auditor is being completely unreasonable, what recourse do you have?

One of our clients is currently undergoing a VAT audit by a particularly unfriendly SARS auditor. The client has large VAT refunds due to them and the audit findings (which we have lodged an objection to) are in the region of R100k. SARS is not paying over the balance of the refunds. The main VAT raised on audit was due to the auditor inspecting the bank statements and raising output VAT on intercompany and shareholder loans received by the company. 

We have provided loan agreements stating that the related parties will provide short term financing and the terms and conditions of the financing arrangement. However, we did not include amounts, as on a monthly basis, various amounts are flowing between the company and the shareholders/ other related entities. We have also given the auditor copies of the pastel loan accounts from each entity as well as copies of the bank statements. Now the auditor is saying that we must redo the loan accounts to stipulate the amounts. 

A: You state that the client ‘is currently undergoing a VAT audit’ and that you ‘lodged an objection to’ the section 42(2)(b) letter.  We assume that you are referring to the taxpayer’s (vendor in this case) response in terms of section 42(3).  If an assessment was issued and objected to the guidance provided may not be appropriate.  

With regard to the refund section 190(2) states that SARS need not authorise a refund … until such time that a verification, inspection or audit of the refund … has been finalised.  If the audit is complete the refund can no longer be withheld.  

We don’t understand why ‘the auditor is saying that we must redo the loan accounts to stipulate the amounts’ or what the auditor expects the taxpayer to do.  We submit that what is required is for to taxpayer to explain the transaction and nothing more.  

With respect to the treatment of taxpayer in this case we believe that the comments made by Judge Ponnan (in the recent Pretoria East Motors case) are relevant.  The Judge was of the view that SARS must engage the taxpayer in an administratively fair manner.  The taxpayer’s recourse would be to bring an administrative review action against SARS.  

The client could also raise the matter with the Tax Ombud, particularly where SARS still withholds the refund whilst the audit was completed.  

Disclaimer: Nothing in this query and answer should be construed as constituting tax advice or a tax opinion. An expert should be consulted for advice based on the facts and circumstances of each transaction/case. Even though great care has been taken to ensure the accuracy of the answer, SAIT do not accept any responsibility for consequences of decisions taken based on this query and answer. It remains your own responsibility to consult the relevant primary resources when taking a decision.


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