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FAQ - 20 November 2014

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

1.  Is a tax practitioner compelled to inform SARS of tax evasion by a client?

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.

2.  Getting SARS to unfreeze a bank account

Q: We submitted a return for a client, who then received a refund from SARS and then 3 days later SARS froze her account. When we contacted them they said the company did not pay PAYE and they are currently auditing her and the company. What grounds do we have for SARS to unfreeze the account, because according to the tax administration act SARS must treat clients fairly? 

They are not doing this at the moment with the client. What can we do to assist the client with unfreezing the account? According to me the refund that was paid out should be reversed, because the company did not pay PAYE so the client cannot receive her refund, but tax was deducted what now?

A: To "freeze” the bank account SARS would have to get a preservation order in terms of section 163 of the Tax Administration Act.  The provisional order obtained by SARS requires confirmation by the court, whereby the taxpayer can make a case that it not be made final or have it set aside (section 163(4)).

A notice should have been sent to the taxpayer in this regard (section 165 TAA).

From a practical approach, the taxpayer would have to contact the bank and SARS Call Centre to confirm that a preservation order applies.  If the bank cannot produce the preservation order obtained by SARS they should be instructed to "unfreeze” the account or be added as party to any legal application. 

We can only think that SARS would follow this approach if the employee and company are connected persons. 

Please confirm whether a preservation order applies and whether the employee/employer are connected persons. 

The matter can be reported to the Tax Ombud, but should follow if SARS did not follow the law in freezing the account, though it is in itself probably not a practical remedy to the problem at hand.

3.  Preservation order in terms of sec 163 of the TAA

Q: I assisted a client with its vat returns from 2009 to date. SARS has now selected certain periods for verification and we gave them everything including the contract that the vendor concluded with x to build Low costs houses. The refund was later finalised and paid into the vendor’s bank account. When the vendor utilised some money to pay my fees. Two days later, Bank y froze both my and the vendor’s account. I need your advise please.

A: To "freeze” the bank account SARS would have to get a preservation order in terms of section 163 of the Tax Administration Act.  The provisional order obtained by SARS requires confirmation by the court, whereby the taxpayer can make a case that it not be made final or have it set aside (section 163(4)).

A notice should have been sent to the taxpayer in this regard (section 165 of the Tax Administration Act).

From a practical approach, the taxpayer and you will have to contact the bank and SARS Call Centre to confirm that a preservation order applies.  If the bank cannot produce the preservation order obtained by SARS they should be instructed to "unfreeze” the account or be added as party to any legal application.  

We can only come to the conclusion that SARS would follow this approach if the employee and company are connected persons.  We would advise that you confirm whether a preservation order applies and whether the employee and employer are connected persons. 

Section 180 provides that a person is personally liable for any outstanding tax debt of the taxpayer to the extent that the person's negligence or fraud resulted in the failure to pay the tax debt if -

(a) the person controls or is regularly involved in the management of the overall financial affairs of a taxpayer; and

(b) a senior SARS official is satisfied that the person is or was negligent or fraudulent in respect of the payment of the tax debts of the taxpayer.

4.  Directors of tax services firm not registered tax practitioners, but junior employee is registered

Q: I have heard of instances where the directors of a firm offering tax services are not registered tax practitioners but the junior tax consultant is registered. Is it ethical for the directors to 'ride on the coat tails’ of the junior in order for them to continue offering tax advice?

A: It would seem as if the firm is relying on sec 240(2)(d)(ii) of the Tax Administration Act (No. 28 of 2011) (hereinafter ‘TAA’) to prevent the directors or senior consultant from registering. The said section states the following (emphasis mine):

‘(2) The provisions of this section do not apply in respect of a person who only—

(d) provides the advice or completes or assists in completing a return—

(ii) under the supervision of a registered tax practitioner who has assigned or approved the assignment of those functions to the person.’

Sec 240(2)(d)(ii) therefore contains a dual test. First of all the work of the non-registered directors must be performed under the supervision of the registered tax practitioner and the tax practitioner needs to assign or approve the functions that need to be performed by the non-registered members.

In terms of the normal master-servant principle, it is highly unlikely that a junior staff member would supervise and sign off the work of more senior staff members (not to mention directors of the firm). It is furthermore highly improbable that the junior employee would refuse to sign off work done by the senior personnel and accordingly refuse to submit the work performed to the client.

Even though the directors may factually be absolved from registering due to the application of sec 240(2)(d)(ii), the mandate of the different employees and directors would need to be investigated to determine whether there is a clear reporting line running up to the junior employee and whether the junior employee in fact signs off all of the work and accepts responsibility therefore in terms of sec 240(2A).

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.


 

WHY REGISTER WITH SAIT?

Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.

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