Is a tax practitioner compelled to inform SARS of tax evasion by a client?
13 November 2014
Posted by: Author: SAIT Technical
Author: SAIT Technical
Q: A client sold
his business as a going concern from his close corporation (CC), causing a
capital gain. The member then withdrew all funds out of the CC in anticipation
of deregistration. The tax returns have never been submitted by me/the firm to
SARS since the member has not signed the financial statements. Without
consulting me and without my knowledge the member voluntary liquidated the CC.
To my knowledge neither the member nor the attorney took any action to inform
SARS of the tax owed before liquidation leaving SARS no recoverability options
before the liquidation was granted by the court. I am concerned that I have a
responsibility as tax practitioner to report this matter to SARS or face
negative consequences as well should SARS not be informed.
A: Paragraph .06
of South African Taxation Standard 6000:
Knowledge of Error: Tax Return Preparation states the following with
regards to your obligation in this specific situation:
‘A SAIT tax practitioner should inform the taxpayer promptly
upon becoming aware of an error in a previously submitted return or upon
becoming aware of a taxpayer’s failure to submit a required return. A SAIT tax
practitioner should recommend the corrective measures to be taken. The SAIT tax
practitioner is not obliged to inform SARS, and a SAIT tax practitioner may not
do so without the taxpayer’s permission, except when required by law.’
We are not aware of any law that would require you to
disclose this type of non-compliance and it is strongly advised that you
contact the public officer of the CC to inform him/her of the consequences of
non-declaration of the gain through not submitting a return. You are correct in
stating that you should consider whether continuing a professional relationship
with the client should the client refuse to correct the non-compliance.
We would like to draw your attention to sec 155 of the Tax
Administration Act (No. 28 of 2011) (hereinafter ‘TAA’) which may hold the public
officer of the company liable for the tax debt (in our opinion SARS has
reasonable grounds to invoke this provision). Furthermore, sec 180 and 183
would entitle SARS to recover the tax debt from the financial manager or person
assisting with the dissipation of assets respectively.
There would also be criminal offences in terms of sec 234(d)
and (o) of the TAA.
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.