A word of warning to all finance professionals, including tax practitioners, accountants and specialist attorneys: professional indemnity insurance can cover you only to a certain extent, and it does not include evading jail-time.
In the past 6 to 12 months, we have seen, as part of the South African Revenue Services’s collection and compliance drive, a number of non-compliant tax practitioners receiving correspondence to the effect of Sars threatening to de-register these individuals. This is no idle threat, and no protection from your registered controlling body will get you out of this jam.
What this means is two-fold:
- It raises the question of how a finance professional can advise clients while their own house is not in order; and
- Granted there is validity in Sars’s actions, how would the non-compliant practitioner generate income to settle any historic debt to the revenue collector?
Before the Wiese judgment in September last year, a number of tax practitioners, accountants and attorneys would have assumed Sars would go after only “the lowest-hanging fruit”, thinking this meant the small fry who could not put up much of a fight anyway.
The question of “selective prosecution” has been asked for years, but more pertaining to taxpayers rather than their advisers. With the objective of eradicating fraud and non-compliance, Sars has been very clear: “Our mandate requires us to collect revenue”.
In October 2021 came the introduction of the High Wealth Individual Unit. A month prior, Sars Commissioner Edward Kieswetter, at the National Tax Indaba, noted that Sars’s position as an organisation is to focus on collecting the “lowest-hanging fruit”.
The interpretation of this statement was clarified by Sars’s actions, with one of the most recent examples being the favourable ruling by the Western Cape High Court on the admissibility of a transcript, from an enquiry, in a matter that has been on-going for years – the Wiese case.
No escape, even for legal execs
Kieswetter, like all strategic movers, has bided his time well, taking out a number of pawns before moving in on a king. This judgment, if it is not appealed, will set a formidable precedent, bolstering Sars’s audit and prosecution capabilities even further.
A point of interest in this matter is the alleged involvement of a former executive of Africa’s largest law firm, Edward Nathan Sonnenberg. We have historically seen a number of law firms finding themselves in similar, but far less, damning situations, due to not fully considering the possible tax ramifications when issuing advice to wealthy or affluent clients, particularly when it comes to offshore structuring.
Viewed in conjunction with the recently released Interpretation Note 127, bringing section 31 of the Income Tax Act under further scrutiny, it appears Sars has its sights set on the adviser, together with their non-compliant clients, in domestic and international matters.
Focus on high-net-worth individuals
The 2022 Budget Speech included proposals for the eradication of non-compliance and fraud, including this statement that:
“To assist with the detection of non-compliance or fraud through the existence of unexplained wealth, it is proposed that all provisional taxpayers with assets above R50 million be required to declare specified assets and liabilities at market values in their 2023 tax returns. The additional information will also help in determining the levels and structure of wealth holdings as recommended by the Davis Tax Committee.”
This statement aligns well with Kieswetter’s statement pre-dating the speech, in April 2021, noting that Sars has profiled a number of high-net-worth individuals who the revenue authority deems to be living beyond their means, with a focus on specified assets and liabilities with a market value exceeding R50m, or R75m in practice.
Solution-based thinking
For tax professionals looking to save face, and ensure their compliance and reputation remains unblemished, there are various solutions available from a legal standpoint.
When a tax bill has amassed over a number of years – and it comes to hundreds of thousand, or even millions, of rands – the Compromise of Tax Debt, if negotiated properly, is one such solution. It permits a financial professional, or their clients, to negotiate their tax bill, to what is objectively deemed an affordable settlement. This is done by means of a compromise agreement that is entered into with Sars.
Best strategy for remedying non-compliance
Where you unintentionally find yourself on the wrong side of Sars, there is a first-mover advantage in seeking the appropriate tax advice, ensuring that the necessary steps are taken to protect your business and your clients from suffering because of what could have been a simple human error.
However, where things do go wrong, Sars must be engaged legally, and we generally find Sars to be agreeable where a legally correct tax strategy is followed.
As a rule of thumb, any correspondence received from Sars should be immediately addressed by a qualified tax specialist or tax attorney. This will not only safeguard the taxpayer against Sars implementing collection measures, but it also ensures that the financial professional, and their clients, will be correctly advised on the most appropriate solution – to ensure prison food never becomes a reality.
Jashwin Baijoo is the head of strategic engagement and compliance at Tax Consulting SA.
Disclaimer: The views expressed in this article are those of the writer and are not necessarily shared by Moonstone Information Refinery or its sister companies. The information in this article does not constitute legal or tax advice.
SARS should stop threatening and scaring the tax payers and especially the tax practitioners! The taxpayers are the employer and SARS the employee! In stead of threatening, rather ask mr Kieswetter to get his chaotic and incompetent administration in order before threatening his employer.