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SAIPA's submission on the Tax Administration Bill focused on Tax Ombud's role, search powers, and legal professional privilege. Recommendations were made to strengthen accountability and fair procedures in tax matters.
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Tax Administration Bill (B11 - 2011) Ettiene Retief, Chairperson for National Tax Committee 16 August 2011
Tax Administration Bill (TAB) • SAIPA (South African Institute of Professional Accountants) lodged written submission and comments on 12th August 2011. • The following are some of the key comments:
Tax Ombud 16. (1) The mandate of the Tax Ombud is to, subject to section 18(4), review and address any complaint by a taxpayer regarding a service matter or a procedural or administrative matter arising from the application of the provisions of a tax Act by SARS. 20. (2) The Tax Ombud’s recommendations are not binding on taxpayers or SARS.
Tax Ombud • SAIPA agrees that the Tax Ombud should not be engaged in interpretation of tax law, and such should remain the domain of the courts. • SAIPA recommends that section 20(2) be amended so that the decision/ruling of the Tax Ombud be binding to allow for fair and reasonable administrative action. • SAIPA recommends that section 20(2) be extended to allow that a binding decision/ruling of the Tax Ombud can be referred to court if either party is dissatisfied with such.
Tax Ombud • SAIPA recommends that a binding decision/ruling of the Tax Ombud should carry some consequence for failure to comply (other than such decisions/rulings that have been referred to court). If a well-resourced Tax Ombud Office with the necessary binding authority is forthcoming, SAIPA would support the re-location of resources from the SSMO division to the Tax Ombud’s office. It may not be necessary to have a separate SSMO division since its function would fall within the office of the Tax Ombud.
Search without warrants • We recognise the need and justification for SARS to have the legislative power to search and seize documentation and information without first obtaining a search warrant. • We have some concerns as to abuse of these powers and possible fraudulent use of section 63 by unauthorised or non-SARS officials.
Search without warrants • SAIPA recommends that section 63 be amended to require the SARS officials that will be carrying out the search must present documentation, issued by the Commissioner of SARS, which: • clearly identifies the SARS officials that will be carrying out the search; • provide a reference to allow the person to contact and confirm validity and authorisation of the search; • provides the same information, scope of search, and reasons for search as would have been contained in a search warrant; • provide justification why a search warrant could not first be obtained; and • provide information with regards to the person’s rights
Legal professional privilege Legal professional privilege is currently recognised in common law, but is restricted to attorneys. However, the reality is that many taxpayers seek legal council, with regards to tax law, not only from attorneys, but most often from professional accountants and auditors. Other countries, such as US, UK, New Zealand, Australia, and Germany, have recognised professional privilege as part of tax administration.
Legal professional privilege Professional privilege is of great importance to allow a taxpayer the access to proper legal counsel, which should not be limited to communication made for the purpose of litigation only, but to allow a taxpayer the freedom to seek advice and relevant counsel with regards to the interpretation and application of taxation law. The legal privilege will allow the taxpayer to obtain proper advice, which can only be obtained when the professional giving the advice has all the relevant facts and information on the table.
Legal professional privilege It should be noted that the legal privilege that we propose will not impede the collection or assessment of taxes, as SARS still has the powers and authority to request information or supporting documentation from the taxpayer, conduct audits, conduct search and seizure, appointment of agent to settle outstanding taxes, and many more. Also, the legal privilege will not override the person’s obligations with regards to reportable arrangements, reporting in terms of FICA and FAIS.
Legal professional privilege We recommend the following framework for legal privilege: The legal privilege will only apply to ‘tax advice documents’ to the extent that such is held by the tax practitioner that is appropriately qualified to give such advice, who has a significant function of giving advice on tax law, registered with a professional body or institute, which has an appropriate professional code of conduct and disciplinary processes enforcing compliance with such code of conduct.
Legal professional privilege Tax advice documents is a book, document, communication, minutes of meeting, notes taken during meeting, and record of advice or opinion that is: • Confidential; • Created by: • The person for the purpose of instructing a tax advisor to give advice about the operation and effect of tax laws (including the documentation and information disclosed to the tax advisor or employee of a tax advisor for the purpose of giving advice or opinion about the operation and effect of tax laws); • A tax advisor or employee of a tax advisor for the purpose of recording research and analysis to give advice about the operation and effect of tax laws;
Legal professional privilege • A tax advisor or employee of a tax advisor for the purpose of giving advice about the operation and effect of tax laws; and • Is not created for purposes of committing, promoting, or assisting the committing of an illegal or wrongful act.
Jeopardy assessment & Personal liability of responsible third party • SAIPA recognise the need and justification for the power bestowed in terms of section 94 (jeopardy assessment) and section 159 (personal liability of responsible third party). However, the taxpayer or effected person should be allowed the right to object and appeal any assessment issued or decision made by SARS, and as such recommend that the relevant sections be amended to recognise such right.
Refunds due to taxpayer • Section 190(3) allows SARS to authorise the payment of a refund before the finalisation of the verification, inspection or audit relating to such refund, if the taxpayer provides suitable security. • We support this this section. However, the cost and accessibility of security for small business should be considered. The refund of taxes has an impact on cash-flow and business sustainability. • Providing security without a clearly specified validity period could have adverse consequences for companies.
Refunds due to taxpayer • SAIPA recommend that section 190 be extended to provide that if within a stipulated period (such as a six-month period), refunds are not paid out to taxpayers and audits are still incomplete, the refund should be paid out to the taxpayers although security has not been delivered, provided that the taxpayer is not be guilty of stalling the audit or verification process. • This is not intended to interfere with SARS audits or other enforcement action, but rather to ensure fair and reasonable tax administration.
Relationship: Controlling Bodies (1) • acknowledges the need for section 240 (3) and 241, • not within the professional norm of a tax practitioner to participate in unlawful practices which transgresses any tax laws, and • professional bodies have an obligation in order to ensure proper governance within,
Relationship: Controling Bodies (2) The tax discipline. • We make the following recommendations: • Formal procedure to be followed by SARS to report the tax practitioner to his/her controlling body. Tax practitioner - rights of appeal
Relationship with Controling Bodies (3) • Commissioner only may lodge a complaint if a `registered tax practitioner acted unlawfully • There should be provisions for dealing with tax practitioners that do not belong to any controlling body
Conclusion The Bill provides for a significant evolution of our tax system and its administration, which we support. We hold the taxpayer’s right to fair and reasonable administrative justice at the highest of priority, while at the same time acknowledging the importance of taxation, and the powers and authority required by SARS to administer and collect such tax effectively. We believe that a fair and balances tax system is crucial for tax morality in South Africa.
