Documentary proof to satisfy SARS of inter-company loan accounts and complaints against unreasonable
06 November 2014
Posted by: Author: SAIT Technical
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
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
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
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
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
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.