Taxation Laws Amendment Bill & Tax Administration Laws Amendment Bill Update

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The 2016 draft taxation laws amendment bill and draft tax administration laws amendment bill has been published for public comment. Comments are due by 8 August 2016.

2016 Draft Tax Administration Laws Amendment Bill

The draft Tax Administration Laws Amendment Bill, 2016, is hereby published for comment. The draft legislation gives effect to matters presented by the Minister of Finance in the Budget Review 2016, as tabled in Parliament earlier this year.

Members of the public are invited to submit comments on the draft legislation by no later than 8 August 2016 to:

Adele Collins at acollins@sars.gov.za

Click here to download the bill.

2016 Draft Taxation Laws Amendment Bill

Click here to download the bill.

BPR239: Cash Contributions made to a Special Purpose Vehicle Established to Provide Housing to Mine Workers

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This ruling determines the income tax consequences resulting from cash contributions to be made by the applicant to a special purpose vehicle (separate property company) established to provide housing for the employees of the joint venture and the group of companies of which the Applicant forms part. The separate property company (SPV) will obtain funding and provide housing to mine workers, in order for the company to apply for a renewal of its mining rights.

Upon completion of the housing projects undertaken by separate property company, all surplus cash and profits shall be applied to programmes that have as its object the improvement of the social conditions of the communities in or around the area in which the Applicant carries on its business.

Click on the button below to view and download the SARS Binding Private Ruling: BPR 239 Document:

[button url=”http://www.sars.gov.za/AllDocs/LegalDoclib/Rulings/LAPD-IntR-R-BPR-2016-24%20-%20BPR239%20Cash%20Contributions%20made%20to%20a%20special%20purpose%20vehicle.pdf” target=”” size=”small” style=”black” icon=”” popup=”” title=””]BINDING PRIVATE RULING: BPR 239[/button]

BPR 237: Reinstatement of a Deregistered Company to Transfer Immovable Properties

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This Binding Private Ruling deals with the reinstatement of a deregistered company in order to complete a transfer of immovable properties, pursuant to an amalgamation transaction. It concerns section 44(13) of the Income Tax Act, section 8(25) of the VAT Act, and section 9(1)(l)(iB) of Transfer Duty Act.

Click on the button below to view and download the SARS Binding Private Ruling: BPR 237 Document:

[button url=”http://www.sars.gov.za/AllDocs/LegalDoclib/Rulings/LAPD-IntR-R-BPR-2016-22%20-%20BPR237%20Reinstatement%20of%20a%20deregistered%20company%20to%20transfer%20immovable%20properties.pdf” target=”” size=”small” style=”black” icon=”” popup=”” title=””]BINDING PRIVATE RULING: BPR 237[/button]

Charging VAT on Supplies Made by Another?

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The recent case of D v Commissioner for South African Revenue Service (VAT 1390), which is an appeal referred by the taxpayer to the Western Cape Tax Court after being dissatisfied with the decision by the Tax Board, reconfirms that supplies made by an independent contractor to the taxpayer and recovered from customers by the taxpayer is subject to VAT in the hands of the taxpayer.

The facts of the case are briefly that a taxpayer had engaged the services of certain drivers to collect and deliver goods to customers . The taxpayer would invoice the customer a VAT inclusive charge and would plainly list the amount payable to the driver on the invoice excluding VAT.  The customers would settle the full invoice amount and the taxpayer would in turn pay over the disbursement charge to the relevant driver.

The Tax Court held that the taxpayer is liable for the VAT on the disbursement as representing consideration received by the taxpayer for rendering services by the taxpayer to its customer. The fact that the drivers were independent contractors and the fact that the amounts were required to be paid over to the drivers were held by the court to be irrelevant.

Taxpayers who are required to pay amounts invoiced by them over to third parties should take care to ensure VAT is correctly accounted for and it is recommended that professional advice be sought in this regard. Failure to correctly account for VAT gives rise to penalties, interest and possible criminal prosecution.

Tax Dispute Resolution Process: Current status

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The tax dispute resolution process, contained in the Tax Administration Act, No. 28 of 2011 as well as the rules promulgated under section 103 of that act was designed to ensure efficient and simple resolution of tax disputes. Of late, however, our experience has been quite the opposite.

It is evident that the current economic climate has taken its toll on the tax dispute resolution process within SARS as well. SARS are, no doubt, inundated with objections, requests for reasons and appeals from taxpayers trying to save where they can and unfortunately, based on the responses being received from SARS over the last few months in relation to tax disputes,  the wheels appear to be coming off!

Objections are being declared invalid for invalid reasons, disallowed on incorrect reasons, and sometimes just figuring out what SARS is trying say in response to an objection can be challenging with the response being, plainly, an incoherent blabber, that is if a response is received at all.   Similarly, concerns raised from the tax industry with the introduction of the alternative dispute resolution process on appeal also now seems to be coming to a head with either no facilitation taking place at alternative dispute resolution hearings or failure by SARS to try and amicably resolve the dispute to close the matter.

While SARS should indeed be commended for the massive strides forward on the tax dispute resolution process to date, the current status, in our experience, does not compliment their hard work in the past.

In the current, unfortunate status of the process, taxpayers and tax practitioners may feel powerless and frustrated resulting in disputes being abandoned or otherwise not being resolved.  Having a competent team of professional tax dispute resolution experts is now more important than ever to ensure disputes are resolved fairly, efficiently and within reasonable amount of time.

SARS Ignoring Dispute Time Periods?

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Aggrieved taxpayers are provided with a legislative mechanism in order to resolve disputes with SARS, the latest version of which came into effect on 11 July 2014 and was promulgated in terms of section 103 of the Tax Administration Act, No.28 of 2011. These legislative mechanisms are commonly referred to as “the tax dispute resolution Rules” and they were put in place in an effort to align with international trends which seek timeous and fair resolution of tax disagreements with the fiscus.

The tax dispute resolution rules prescribe various time periods to which both taxpayers and SARS must adhere in order for a dispute to be finalised efficiently and fairly. An example of such a time period is contained in Rule 7(1) of the tax dispute resolution rules, which provides that taxpayers are afforded 30 business days (from date of assessment/ reasons for an assessment by SARS) within which to lodge an objection to such an assessment. Where a taxpayer does not comply with this time period the dispute may not progress or may never be resolved.

A further example is contained in Rule 9 of the tax dispute resolution rules which places a specific obligation on SARS with regard to when SARS should make a decision on objection. Such a decision must be made within 60 business days of the delivery of an objection by a taxpayer. However, taxpayers are increasingly placed in a position where SARS do not adhere to this time period with seemingly no consequence for SARS.

While it can be appreciated that SARS receives thousands of objection on regular basis, it is also not administratively fair towards taxpayers to plainly accept non-compliance with the tax dispute resolution rules. So, what can you do about it?

Where the time periods provided for in the Rules are not be complied with by SARS, an aggrieved taxpayer may address the issue with the relevant SARS branch and/or SARS’ call centre and where not resolved, the issue will have to be reported to SARS’ Complaints Management Office (CMO), which has replaced the SSMO office within SARS. Should the CMO not be able to resolve the matter, the taxpayer may, only after a taxpayer has exhausted SARS’ internal administrative complaints resolution process (unless a taxpayer is able to demonstrate that there are compelling circumstances as to why the Tax Ombud may be approached directly), approach the Tax Ombud for further assistance.

Approaching the CMO and/or Tax Ombud, whilst mostly effective to get administrative issues resolved, can be extremely time consuming and where, for example, an objection should have been finalised already, going through all these channels just to get timeous feedback on an objection is counterproductive.

While litigation should always be a last resort, it is unfortunately sometimes the fastest way in getting non-compliance with the rules resolved and in the case of non-compliance by SARS with the tax dispute resolution rules, applying for default judgment is a sure fire way to get SARS’ immediate attention.

Tax litigation is however complex and full of technical and procedural landmines which can trigger disastrous results for your case if stepped on. It is therefore recommended that a competent team specialising in tax dispute resolution be consulted for assistance in calling SARS to action om missed deadlines.

Practical Issues in the Dispute Resolution Process: Objection Phase

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SARS recently changed their dispute process on e-filing to include additional functions such as allowing taxpayers to request suspension of payments online or submitting a request for remission of interest and admin penalties.

The system furthermore compiles the DISP01 on your behalf and only requires the taxpayer to select the amounts under dispute and to provide descriptions in the ‘Grounds for Dispute’ and ‘Reasons for Late Submission’ blocks where applicable.

We herewith list some issues experienced with the new system on a practical level:

Grounds for Dispute to be completed in full

Generally together with the DISP01 form the taxpayer or tax practitioner acting on behalf of the taxpayer, will submit a comprehensive Grounds for Objection letter together with the supporting documents.

As the grounds on which the objection is based are described in detail in the accompanying grounds for objection letter, taxpayers often only refer to the latter referenced letter in the ‘Grounds for Dispute’ field on the form. SARS has however indicated that the taxpayer should in short include the reason for the objection as well the grounds on which it is based and cannot only make reference to the supporting document. Where taxpayers do not comply with the request, SARS have warned that such objections may be declared invalid.

Assessment Results

When making the selection of which amounts the taxpayer is objecting to on the prescribed DISP01 form, the system collects these amounts as well as their SARS source codes from the latest assessment. This amount is referred to as the ‘Dispute Amount’ on the DISP01 form. On a practical level, the system often either does not display any values under the relevant SARS source codes, despite income disclosed under the source codes on the assessment or displays the incorrect amount.

As taxpayers are unable to change the incorrect ‘Dispute Amount’ blocks on the DISP01, the objection is to be submitted as is. Despite bringing the system error to SARS’ attention on the DISP01 form, SARS declares the dispute as invalid due to the incorrect amount displayed in the ‘Dispute Amount’ blocks and steps need to be taken for SARS to treat the objection valid.

Limitation on Number of Objecting Source Codes

The taxpayer is only allowed to object to five items per objection as the new system limits the number of SARS source codes when completing the DISP01 form. Where there are more than five items in dispute, the taxpayer should wait for the finalisation of the first objection and only thereafter submit another objection against the remaining incorrect source codes. This often results in the later objection being declared invalid as a result of being late and steps need to be taken to for SARS to treat the objection as valid.

The Role of the SARS Compliant Management Office

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SARS provides unhappy taxpayers with the following three ways to submit a complaint:

  1. Via E-filing;
  2. At a SARS branch; and
  3. Through the SARS Compliant Management Office (CMO)

The CMO should be contacted telephonically on 0860 12 12 16 and taxpayers should only submit a compliant where they have the relevant case reference number.

As the CMO replaced the previous SARS Service Monitoring Office (SSMO), the SSMO is no longer contactable on SSMO@sars.gov.za.

Working in South Africa: The Tax & Fiscal Implications

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South Africa is one of the expatriate jurisdictions where proactive planning makes a significant difference to the tax and exchange control implications of an international mobile employee. The primary reasons are:

  • Unlike most other countries, with good planning, you only become ‘tax resident’ in the beginning of your sixth year in South Africa; and
  • There are various tax provisions which provide specific tax relief for expatriate employees, as well as various South African Revenue Service (SARS) practice notes and binding rulings that gives additional relief.

Typical mistakes you should avoid:

The following are examples of things that may sound like a good idea, but, from a South African tax perspective, is not:

  • Open ended contracts and applying for permanent residency too soon. These are examples of items which SARS and the South African Reserve Bank often use to determine whether you have an intention to reside permanently in South Africa thus making you ordinarily resident and therefore, tax resident in South Africa. Not only will you then be liable to tax in South Africa on world-wide income, but you will also be subject to South African exchange control regulations. We have in recent months defended expatriates who SARS held to be tax resident in South Africa on the basis of an open ended employment contracts. Good planning would be entering into a fixed term contract with the option to renew.
  • Housing or accommodation related allowances are never good ideas because they are fully taxable with no tax relief. Company provided accommodation either directly or through outsourced provider qualifies for various exemptions.
  • Expatiates based in South Africa but who travels internationally qualifies for various exemptions. Whilst the principles are complex and there is no ‘one-size –fits-all’, it dates back to 1946 and states that days worked outside South Africa by a non-resident is exempt from South African tax.

A word of caution:

Whilst South African tax law has favourable provisions for expatriates, SARS has a dedicated audit focus on expatriates, for example, in the SARS standard payroll questionnaire, there is an entire section dealing with expatriates to ensure correct treatment and to identify abuse of favourable provisions.

The rule of thumb is that the employment contract or secondment agreement should be optimally structured from a tax perspective. This must be done before the work permit application.

2015/16 Budget Updates

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Taxpayers are reminded to take into account some of the changes announced in by Finance Minister Nhlanhla Nene in his budget speech on 25 February 2015:

  • Contributions to an Income protector no longer tax deductible;
  • The primary rebate has been increased to R13 257; and
  • The medical scheme fees tax credit for monthly medical contributions for the 2016 tax year is R270 per person, which includes the main member and the first dependent. All other dependants set at R181 per dependant.