Provisional tax penalties – an attorney’s nightmare

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Roxanna Naidoo | Admitted Attorney | Tax Consulting SA | mail me |


Provisional tax season brings with it the heightened panic of many taxpayers upon the discovery of penalties and interest suddenly imposed by SARS.

The disgruntled taxpayer seeks immediate recourse through his attorney, hoping for some sort of justice to be served, but alas the attorney is worn down by complex tax calculations, the onerous and incessant engagement with the South African Revenue Service (SARS) and the ambitious endeavours to deliver a favourable outcome to their client.

Attorneys restricted from tax practice

The average attorney, albeit experts in their field, are aware that increasingly complicated and ever-changing tax legislation requires specialist tax practitioners capable of providing innovation tax consulting solutions.

Moreover, a notice released by the Legal Professional Council (LPC) makes it explicitly clear that, in most cases, attorneys are quite frankly barred from providing tax services.

The notice states as follows:

  1. Section 240(1) of the Tax Administration Act of 2011 (the Act) provides that every natural person who (i) provides advice to another person with respect to the application of a tax Act (i.e. any tax Act), or (ii) completes or assists in completing a return by another person must both –

1.1 register with or fall under the jurisdiction of a recognised controlling body within 21 business days after the date on which that person for the first time provides the advice or completes or assists in completing the return; and

1.2 register with SARS as a tax practitioner within 21 business days after the date on which that person for the first time provides the advice or completes or assists in completing the return.

  1. The provisions of paragraph 2 above do not apply in respect of a person who only –

2.1 provides the advice or completes or assists in completing a return for no consideration to that person or his or her employer or a connected person in relation to that employer or that person;

2.2 provides the advice in anticipation of or in the course of any litigation to which the Commissioner is a party or where the Commissioner is a complainant;

2.3 provides the advice as an incidental or subordinate part of providing goods or other services to another person; or

2.4 provides the advice or completes or assists in completing a return –

2.4.1 to or in respect of the employer by whom that person is employed on a full-time basis or to or in respect of the employer and connected persons in relation to the employer; or

2.4.2 under the supervision of a registered tax practitioner who has assigned or approved the assignment of those functions to the person.

What can attorneys do now?

Among the many reasons why the LPC and SARS had felt it necessary to implement such restrictions, it seems clear that they intended to protect the taxpayer as well as the practitioner.

Provisional tax season alone has brought to light many cases of concern when bringing these two worlds together, being tax practice and legal practice, as a consequence of taxpayers wanting to remedy their non-compliance, while seeking a recourse on penalties and interest.

One method that taxpayers are utilising is to simply file their return and hope they can argue against penalties being imposed.

Others attempt a Voluntary Disclosure Program (VDP) application. While a VDP has its merits and does prevent criminal sanction, in most cases, the VDP application is inappropriate for solving a provisional tax underestimation.

Should a VDP application be inappropriate, a comprehensive application for remission of penalties and interest, with legal grounds, may remedy the non-compliance.

The most effective option may be an application for a compromise of tax debt (the compromise), which brings to light the taxpayer’s financial circumstances and ability to pay back the tax debt. To successfully compromise on the tax debt, the taxpayer needs to show current financial hardship, together with an estimation of their net worth. Successful engagements will result in a significant portion of the tax debt being written off.

The correct engagement with SARS ensures tax compliance without the payment of interest and penalties. However, when tax and legal professionals work hand in hand, a more favourable and rewarding outcome is certain.


 



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