'Till they got a hold of me. I opened doors for little old ladies, I helped the blind to see. I got no friends 'cause they read the papers. They can't be seen with me and I'm getting' real shot down And I'm feeling mean. No more Mister Nice Guy
It is commonly accepted that professionals have a duty to exercise a level of care, skill and diligence that is commensurate with their standing in society. In addition to these higher rules of conduct a professional is also bound by contract law to perform tasks competently.
In common law jurisdiction it is accepted that a professional owes this duty to his client. In the famous Duke of Westminster (1936) case the court held that "Every man is entitled, if he can, to order his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be".
Many tax professionals may therefore argue that "it is the ethical duty of a tax practitioner to offer their clients all legally available options to reduce their taxation liabilities". However the dark side of this argument is that it may lead to a proliferation of aggressive tax planning.
In response regulators develop general anti-avoidance provisions and demand that tax practitioners be subjected to regulation.
Section 241(2) of the Draft Tax Administration Amendment Bill amends the Tax Administration Act, 2011 and introduces significant new reporting powers to SARS in order to combat reckless, incompetent and corrupt practices performed by tax practitioners. Tax practitioners that do not perform their work with the required due diligence will be subject to disciplinary action by their controlling bodies. In addition SARS will be able to prosecute tax practitioners that knowingly provide false or misleading information to SARS.
The guiding principle for these regulations is the duty to "know your client". South Africa first adopted this approach in the financial services industry and this principle is fast becoming prevalent throughout professional practice. Accountants are held liable in terms of the Companies Act if they knew or ought to have known that an adjustment will cause the financial statements to be misleading, The Consumer Protection Act introduces the concept of "strict liability". The "strict liability" regime mandates that the supplier of the goods or service be held liable irrespective of whether the harm caused to a consumer resulted from any negligence on the part of the supplier. If a person claims for damages, the service provider or supplier will have to prove that they are not responsible.
The "know your client" and strict liability regimes will require a fundamental shift in the way we, as tax practitioners relate to our clients. In the past tax practitioners, unlike auditors and accounting officers, were not subject to regulation. Regulation has now also reached our shores.
Are we business advisors or tax practitioners? Are we accountants or tax specialists? Are we part of the family or are we professionals? Clients very often view their tax practitioners as part of their business, as a staff member or "go-to guy" if things get though when the "taxman cometh".
This will have to change and the relationship should become much more formal and disciplined. Working papers will have to be reviewed and expanded. Quality control policies and procedures will have to be implemented and monitored. Are we ready?
SAIT is the only professional/controlling body that has issued taxation standards. These standards are similar to audit and review standards as required in the Companies Act 2008. Adherence to these standards will ensure that our members comply with the "due diligence" requirements as set by SARS.
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.