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Tax Practitioner Connect Issue 10 (13 December 2017)

Welcome to the latest edition of Tax Practitioner Connect, the electronic newsletter for tax practitioners that keeps you up to date with the tax matters that affect you.

According to Section 240 A of the Tax Administration Act (TAA) 28 of 2011 tax preparers are not allowed to continue practicing without registering as tax practitioners. SARS will no longer allow tax preparers to act on behalf of taxpayers by either completing and/or submitting tax returns. The Act determines that every person who provides advice to another person with respect to the application of a tax Act or completes or assists in completing a document to be submitted to SARS by another person in terms of the tax Act must register with SARS as a tax practitioner. Tax preparers are therefore urged to register as tax practitioners to be able to continue practicing.

SARS has put in place a system to report registered tax practitioners to a controlling body should the tax practitioner be in breach of the tax Act as set out in Section 241 of the TAA 28 of 2011. The reporting system is coming into effect in January 2018 will apply to tax practitioners who did or omitted to do anything with respect to the affairs of a taxpayer, including that person’s tax affairs, that in the opinion of the official:

  • was intended to assist the taxpayer to avoid or unduly postpone the performance of an obligation imposed on the taxpayer under a tax Act;
  • by reason or negligence on the part of the person resulted in the avoidance or undue postponement of the performance of an obligation imposed on the taxpayer under a tax Act; or
  • constitutes a contravention of a rule or code of conduct for the profession which may result in disciplinary action being taken against the “registered tax practitioner” or person by the body.

SARS will be making a tax practitioner email address available with a form attached to the address which taxpayers may complete and submit to SARS should a tax practitioner have committed an act that may have disadvantaged the taxpayer mentioned above.

The automated payment of ETI refunds has been implemented at the beginning of December 2017. Employers who had an ETI refund due after the bi-annual August 2017 reconciliation period and whose bank details have been validated will receive a payment in their accounts with reference “LBS BININK”.

We are aware of the recently experienced issues pertaining to the Employment Tax Incentive (ETI) and submission of Pay-As-You-Earn (PAYE) reconciliations. The issues are addressed and solutions offered below:
 
 
Cannot claim ETI on EMP201 due to non-compliance
 
An employer wishing to utilise the ETI, has to be tax compliant. This applies to all tax types that the employer has registered for, or is required to register for under the applicable tax Act.


An employer will not be eligible to utilise the ETI in a month if the employer is deemed non-compliant. Factors such as, but not limited to, the following may result in a non-compliant status:

  • any outstanding tax returns
  • any outstanding tax debt
  • any outstanding mid-year reconciliations. 
To prevent non-compliant employers enjoying the benefit of reducing PAYE due to ETI, the employer’s tax compliance status as determined by the Tax Compliance System (TCS) is checked when the Monthly Employer Declaration (EMP201) is completed. If the employer is deemed non-compliant, the system will not allow the employer to capture ETI Utilised and thereby reduce the PAYE payable amount.
 
Since the start of the Tax Season 2017 it came to our attention that, for some employers, the TCS erroneously declares the employer non-compliant.
 
If the employer does not agree with the non-compliance status, the following procedure must be followed:
  • Save the EMP201 return
  • Check your compliance status on the “My Compliance Page” (MCP) on eFiling
  • The MCP will indicate the reason for non-compliance
  • Take the necessary steps to rectify the non-compliance
  • However, if you do  not agree, challenge the non-compliance status
  • When the non-compliance has been rectified or SARS has afforded you a limited tax compliance status override, refresh the saved EMP201, capture the ETI Utilised and submit the EMP201 return to SARS. 

Alternatively, the employer can submit the EMP201 without utilising the ETI and make payment of the full PAYE liability. The ETI amount will be carried over and be available to utilise in a subsequent month or will be paid as a refund at the end of the reconciliation period, provided that any non-compliance has been rectified. 

We strongly suggest that the employers make use of the TCS/MCP functionality to regularly review their tax status to avoid being caught unawares when they complete the monthly EMP201 return. For more information, see the MCP functionality.

ETI may only be claimed on the EMP201 for the current month. If the EMP201 is submitted after the due date, the employer will not be able to complete the ETI fields. The ETI must then be included in the EMP201 for the current month. 

Backdated ETI may only be claimed within the six months of the reconciliation period, e.g. if ETI was not claimed for the month of May, it must be claimed no later than August. If it is not claimed before the first day of the next reconciliation period, it will be forfeited as the ETI values submitted on the EMP201 returns will be pre-populated on the Employer Annual Reconciliation Declaration (EMP501) and the employer will not be allowed to increase any ETI values. 

Ability to claim backdated ETI for reconciliation periods prior to 1 March 2017

From 1 March 2017 the employer cannot claim backdated ETI for periods prior to 1 March in May 2017. The last month available to the employer to make that claim was in the February 2017 EMP201 return. 

If the employer did not claim or under-claimed ETI for a specific month, the shortfall must be included in the ETI for the month in which the employer became aware of the shortfall provided that the month is within the reconciliation period of the month the ETI had to be claimed. The ETI amounts which the employer did not claim prior to the last day of the reconciliation period will be forfeited. 

ETI refund not paid out due to non-compliance

As stipulated by the ETI Act, an ETI refund may not be paid out if the employer is deemed non-compliant. Factors such as, but not limited to, the following may affect the employer’s compliance status:

  • any outstanding tax returns
  • any outstanding tax debt
  • any outstanding mid-year reconciliations. 

To ensure that a refund is not paid to a non-compliant employer, the employer’s tax compliance status as determined by the Tax Compliance System (TCS) is checked when the EMP501 reconciliation is submitted. If the employer is deemed non-compliant, the employer will receive a letter stipulating the reason for non-compliance. The employer will be allowed time until the end of the next reconciliation period to rectify any non-compliance. Failure to do so by the last day of the next reconciliation period will result in the forfeiture of the refund. 

What to do if the EMP501 reconciliation was submitted for the incorrect period

As from the 201708 interim reconciliation period employers will receive a pop-up message stating “You have selected a reconciliation period in the future. Please confirm the selection” when an incorrect period (201802) is selected. The employer will then have the option to click “OK” or “Cancel.” 

However, if this message is bypassed and the employer has meant to submit the 201708 EMP501 reconciliation, but selected the 201802 period by mistake, the system will not allow the capturing and submission of the 201708 EMP501 reconciliation or any EMP201 returns for the months of September 2016 to February 2017. The employer will, therefore, not have a payment reference number (PRN) to make monthly payments and this may result in penalties and interest being charged on the PAYE account. 

To facilitate these payments, the employer is required to request the PRN numbers for each month from SARS by visiting the nearest SARS branch or calling the SARS Contact Centre.

The employer can then use the supplied PRN numbers to make payment for the relevant month via the following channels:

When the 201802 EMP501 reconciliation is due (from 1 March 2018), the employer will have to revise the incorrectly submitted EMP501 to reflect the correct liabilities for the months where an EMP201 return could not be submitted. 

If the employer is eligible for ETI, the employer will have to request SARS to submit revised EMP201 declarations for each month where the employer could not submit EMP201 returns prior to submitting a revised EMP501 reconciliation in order to claim ETI.

The Panama Papers and more recently the Paradise Papers have been the cause of concern among those who have used offshore jurisdictions to evade tax.

Furthermore the adoption of the Common Reporting Standard (CRS) for the automatic exchange of information by South Africa created a global framework for information sharing between governments on a reciprocal basis. Financial institutions started reporting specific information of clients that are not tax-resident in South Africa to SARS on 31 May 2017. The annual automatic exchange of information aimed at assisting with domestic tax compliance commenced in September 2017 with over 50 jurisdictions participating.

In addition to these advancements in global exchanging of information, data leaks of taxpayer information also assisted SARS in finding undisclosed income and assets, identifying common schemes and structures used in illegal offshore transactions and expand the tax register.

The Panama Papers allowed SARS to download data from this leaked information on 10 May 2016 – the same date that it was released by the International Consortium of Investigative Journalists (ICIJ), and matched the data with its own information systems, finding 1917 cases where South African residents were involved. 

Of these cases, 1290 have been matched against the SARS taxpayer register.   An overwhelming majority are individual taxpayers. SARS is in the process of verifying the relevant income tax declarations of these affected taxpayers against the Panama data.

SARS has found that a large proportion of taxpayers used a very similar offshore structure.  From our analysis, three typical offshore structures are used by taxpayers impacted by the Panama Papers:

  • an offshore company and bank account in the same jurisdiction
  • offshore company and bank account in different jurisdictions, and
  • use of a Panamanian Foundation or Trust.

We also found ‘duplicate’ cases where a taxpayer has more than one offshore investment or plays more than one role in one or more offshore structure. 

So far 814 cases have been risk-profiled, of which 701 cases meet the risk criteria of under-disclosure or no disclosure in some cases. It was also found that the offshore structures of 603 of these 701 cases were facilitated by a single South African intermediary. 

Of the remaining 111 taxpayers, a total of 58 have responded to date.  Their responses with regards to their tax liabilities confirm the accuracy of our data and findings.  We have already recovered tax revenue from the work done on the Panama Papers and are in the process of quantifying this.

From the “Paradise Paper” data downloaded in November 2017,  302 South African residents have been identified to date.  The process of matching and profiling has commenced and these taxpayers will be engaged shortly.

While the financial world is getting smaller, taxpayers need to ensure that their offshore holdings are above board. All assets and investment income should be declared and investors should clarify their tax situation with the relevant tax authorities to ensure that they are tax-compliant. If a taxpayer is found to be non-compliant, SARS can impose penalties of up to 200% of undisclosed tax.

The Special Voluntary Disclosure Programme which closed on 31 August 2017 offered taxpayers an opportunity to declare their offshore assets ahead of the first exchange of information. SARS encourages taxpayers who did not make use of this window-period to make use of the normal VDP that is ongoing to come forward with undisclosed assets and transactions.

The deadlines for submitting provisional tax returns during the 2017 Tax Season for individuals is fast approaching. Please ensure that your return is submitted by 31 January 2018 to avoid penalties.

Disclaimer 

The information contained in this leaflet is intended as guidance only and is not considered to be a legal reference, nor is it a binding ruling. The information does not take the place of legislation and readers who are in doubt regarding any aspect of the information displayed in the leaflet should refer to the relevant legislation, or seek a formal opinion from a suitably qualified individual.
For more information you may –

  • Visit the SARS website www.sars.gov.za;
  • Visit your nearest SARS branch;
  • Contact your registered tax practitioner;
  • Contact the SARS National Contact Centre –
    • If calling locally,  on 0800 00 7277; or
    • If calling from abroad, on +27 11 602 2093 (only between 8am and 4pm South African time).

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