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The Practice of Due Diligence

Tuesday, 26 March 2013   (0 Comments)
Posted by: Authors: Charl Geldenhuys & Ronel de Kock
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Source: Charl Geldenhuys & Ronel de Kock

In the recent past there was no governance by any recognised body for tax practitioners in South Africa. The Tax Administration Act 2011 only required tax practitioners to register with the South African Revenue Service (SARS). Section 240(1) of the amended Tax Administration Act No 28, 2011 requires that a tax practitioner should not only register with SARS, but with a recognised controlling body as well. These controlling bodies determine that their professional members should perform their duties with care, skill and due diligence.

Section 241(2) of the Tax Administration Act introduces significant new reporting powers to SARS in order to combat reckless, incompetent and corrupt practices performed by tax practitioners. This will allow a Senior SARS Official to lodge a complaint with a recognised controlling body, if registered tax practitioners have performed their duties with gross negligence, incompetence or knowingly provide false or misleading information. Section 241(2)(a) specifically states that tax practitioners should exercise their practices with due diligence.

There are currently around 34 000 tax practitioners registered with SARS, with only half of them registered with a recognised controlling body. If these practitioners who are not registered with a controlling body, continue as they are without registering before the 1st July 2013 deadline, they will be contravening the law and will be committing a criminal offence. 

Stiaan Klue, Chief Executive of the South African Institute of Tax Practitioners (SAIT), has stated that this regulation has been long awaited and is needed desperately. The requirement to exercise due diligence, means that a tax practitioner will not be able to hide behind an outdated tax law, be negligent or do a rush job. SAIT is the only controlling body that has issued taxation standards. These standards are similar to the audit and review standards as required by the Companies Act 2008 and will ensure that tax practitioners comply with due diligence requirements.

But what is meant by the practice of due diligence? The Oxford Dictionary defines due diligence as the necessary steps that a reasonable person would take to avoid committing a tort or offence. Professionals adhere themselves to higher rules in order to not dilute the standards of their professions.

Circular 230 of the Department of Treasury, in the United States of America, lays down the duties and restrictions of tax practitioners before the Internal Revenue Service (IRS). According to the Circular, a tax practitioner must exercise due diligence in the preparation of tax returns, assistance with the preparation of tax returns, affidavits and other documentation relating to the IRS. It’s also needed when determining the correctness of oral or written representations that are made. It further states that practitioners may be sanctioned if practitioners perform their duties in a reckless, incompetent manner or fails to comply with key provisions.

Incompetent and disreputable conduct includes criminal convictions, fraud and corruption, tax evasion, the provision of false or misleading information or the provision of a false opinion. Improper practice also includes bribing or intimidating IRS employees, misappropriating client funds, misleading clients about their qualifications or access to special treatments.

A good solid foundation is the most important piece of any structure. SAIT has implemented the necessary skills, integrity and excellence as the foundations of a modern-day tax practitioner. SAIT requires their members to comply with their code of conduct which has the following fundamental principles. Integrity, directness, and also honesty in all professional and business relationships. They should not be biased, avoid any conflict of interest and have a continuing duty to maintain professional knowledge and the necessary skills to ensure that they provide a client or employer with competent professional services based on current developments in practice, legislation and techniques. They are required to act diligently and in accordance with applicable, technical and professional standards when providing their services. Show respect for the client in terms of confidential information received as a result of their professional and business relationships and should not disclose any such information to third parties without proper and specific authority, unless there is a legal or professional right or duty to do so. A tax practitioner should comply with the relevant laws and regulations and should avoid any actions that may discredit the tax profession. A guiding principle will also be for tax practitioners to know the environment of their clients.

Therefore, to practice due diligence, tax practitioners must perform their duties to the best of their abilities and must be professional, honest, consistent and up to date with the most recent legislative changes.

Tax authorities are taking on a "No More Mister Nice Guy” approach in order to get tax practitioners to be more responsible and to take adequate care when dealing with their client’s tax affairs. SARS has placed tax practitioners on a higher level of supervision to ensure they stay on top. 



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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