draft tax administration laws amendment bill 2015

1. draft tax administration laws amendment bill 2015 Presentation to the Standing Committee on Finance Johannesburg 6087502_1 v07 Septemberr 2015

2. Legal privilege: The issue • Taxpayers are not obliged to disclose documents which are subject to legal privilege to SARS • Once privilege has been waived (if the document is disclosed to SARS) it has been waived for all purposes.

3. legal privilege: SARS proposal section 42A • If a taxpayer claims a document is privileged, the taxpayer will be obliged to answer detailed questions about the document • The purpose appears to be that SARS can test if the document is actually legally privileged • The problem with the proposal is that the questions to be asked to determine if legal privilege exists are so intrusive that the taxpayer will effectively waive privilege by responding to the questions. • "the specific purpose of the legal advice or in connection to what it was given"

4. alternative proposals to test privilege • Ask the practitioner who gave the advice to confirm whether the advice or document is subject to legal privilege. • If SARS has concerns, provide that the document must be given directly to an attorney on the panel - without having to answer intrusive questions. • Insert a proviso that in responding to these questions the taxpayer does not have to give any information which could lead to the waiver of privilege or the disclosure of privileged information. • Delete the most offensive specific purpose requirement – it should be enough to know it was for legal advice or in anticipation of litigation.

5. interviews: the issue • Since the inception of the Income Tax Act, SARS has been able to obtain reliable information without the interview procedure – letters. • Current section 47 of the Tax Administration Act: • SARS can interview a taxpayer about his own affairs. • The sole purpose of an interview must be to clarify issues of concern to render further audit unnecessary. • The proposal: • SARS can also interview an employee or a person who holds office. • The purpose now is to obtain relevant material regarding an audit. • SARS can ask the person to bring relevant material and answer questions about it.

6. interviews • The effect is an inquiry (section 50 of the Tax Administration Act) without the constitutional safeguards of: • The permission of a judge (to avoid abuse) • Reasonable grounds that the taxpayer has not complied with a tax Act and description thereof in a court order (i.e. avoid a fishing expedition) • A presiding officer (who can prevent inadmissible evidence) • Limiting of the scope of the inquiry • Protection against self-incrimination

7. interviews: inherent problems • SARS is already abusing the interview process • Requests for 30 interviews at a time • Rarely the purpose is to render further audit unnecessary • Intimidating: Cross examined by teams of 8 or more SARS officials • SARS elicits inadmissible evidence • Hearsay – asking the wrong people • Irrelevant evidence – outside the scope – becomes a fishing expedition • Leading questions – people agree • There is no formal record of the interview – how do you prove what was said and in what context • There is no opportunity for examination by taxpayer • Places evidentiary burden on the taxpayer to prove the information SARS obtained was incorrect / SARS drew incorrect conclusions from information

8. alternative proposals to scof • Scrap section 47 it is open to abuse and problematic • Information can efficiently be requested in writing then there can also be no dispute as to what taxpayer said and its cheap and effective and more likely to be accurate. • Create a formal deposition procedure (as in other jurisdictions) or use the inquiry procedure in section 50

9. answering questions under oath • Section 49(1)(c) any person on a premises where an audit is being conducted must give reasonable assistance to a SARS official – which includes answering questions about the audit – and, if so required by any SARS official, under oath or solemn declaration. • For example: Are these all of the documents on the premises? • If it must be in writing, the taxpayer can at least ensure that the person only gives information that is correct and in the personal knowledge of the deponent.

10. reduced assessments: the issue • Section 93 allows SARS to issue reduced assessments if: • a dispute was resolved in the taxpayer's favour • there is an undisputed error in the assessment (as a result of error by SARS or taxpayer in a return) • The proposal: • Taxpayer must request a correction; • within six months • or a longer period in exceptional circumstances • "from the date of assessment for the preceding year of assessment" • The date of assessment for e.g. 2015 could be 1 August 2015. The date for the submission of the 2016 return is 30 July 2016 to 30 November 2016. So you have to ask for a correction before the return is even due?

11. suggestions to scof • Where a dispute is resolved in the taxpayer's favour SARS should issue the reduced assessment without the taxpayer having to ask. • It is not the role of SARS to collect taxes which are not due. If there is an undisputed error in an assessment, the taxpayer should have 3 years to request a correction. • To make the provision workable, it has to be within [a period] from the date of the assessment containing the error – not the previous year's assessments.

12. SARS wishes to unilaterally extend prescription • At the moment income tax assessments prescribe in 3 years. • Now, the proposed amendment to section 99 is that the prescription period remains 3 years but SARS can unilaterally extend it if: • the taxpayer does not provide relevant material to SARS within a reasonable period; • if there is an "information entitlement dispute"; • if it is a complex matter (such as GAAR or TP) then SARS can extend by up to 3 years. • That means if SARS says so, the audit period will be 6 years, regardless of the fact that there was no non-disclosure or misrepresentation.

13. submission to scof • This creates absolutely no certainty for the taxpayer – impacts on transactions. • SARS sometimes audits the same tax years more than once – despite the fact that the previous audit yielded no result. The TAA must limit the number of times a taxpayer can be audited for a specific period. • SARS must start their audits timeously - if the provision stands, the information requests must be submitted at least 6 months before prescription, otherwise SARS can use the information request itself to extend prescription. • There are no checks and balances of SARS' determination of what is a complex matter. All international transactions with connected parties will be complex.

14. notifications by e-filing • Section 252 deems SARS to have delivered a document to a company if: • handed to the Public Officer • left with a person over the age of 16 years • posted to company or public officer's last known address • sent to the company or public officer's last known e-mail or fax • Now they want to add: • if the company or public officer is a registered user on e-filing, then SARS will be deemed to have delivered documents to the company if posted on company's e-filing page. • This will be retrospective to 1 October 2012 (3 years later??)

15. submission to scof • Potentially very serious implications – time periods may lapse which would effectively remove the taxpayer's remedies to object or take appropriate action. • Singh case – can't take judgement if taxpayer was not notified of assessment. • Unreasonable to expect a taxpayer to log on to e-filing daily to see if they have a notification from SARS. • Many taxpayers find out about assessments months after they were raised. Sometimes they only appear on the statement of account.