Certain transactions are required to be reported to the South African Revenue Service (‘SARS’) as and when entered into (section 37 of the Tax Administration Act, 28 of 2011 (‘the Admin Act’)). These are referred to as ‘reportable arrangements’, and qualify as such when an ‘arrangement’ (defined as including any transaction, agreement, scheme or understanding) either meets one of the criteria set out in section 35(1)(a) to (e), or if specifically listed in a public notice issued by the Commissioner for SARS. This article is concerned only with the former.
Failure to report a ‘reportable arrangement’ will result in a monthly penalty being levied against non-compliant taxpayers ranging from between R50,000 to R300,000 per month (section 212), for up to 12 months. The purpose for requiring taxpayers to report certain transactions is obvious: to allow SARS to monitor transactions on an ongoing basis which it considers to exhibit potential traits of tax avoidance.
Section 35(1) determines that arrangements which exhibit any one of the below criteria qualify as a reportable arrangement. These are arrangements which:
(a) contain provisions in terms of which the calculation of interest, finance costs, fees or any other charges is wholly or partly dependent on the tax treatment of that arrangement;
(b) have any of the characteristics contemplated in section 80C(2)(b) of the Income Tax Act, 58 of 1962, or substantially similar characteristics (which include round trip financing, involving an accommodating or tax indifferent party in the arrangement or if the arrangement contains elements which offset or cancel each other);
(c) give rise to an amount that is or will be disclosed by any participant as:
- a deduction for purposes of the Income Tax Act but not as an expense for accounting purposes; or
- revenue for accounting purposes, but not as gross income for purposes of the Income Tax Act;
(d) do not result in a reasonable expectation of an accounting pre-tax profit for any participant; or
(e) result in a reasonable expectation of an accounting pre-tax profit for any participant, but which is less than the value of the tax benefit to that participant if both are discounted to present value at the end of the first year of assessment when the tax benefit is created.
Irrespective of the above, even if an arrangement would qualify as a reportable arrangement in terms of the above, section 36 of the Admin Act lists various criteria which, if met, would render an arrangement an ‘excluded arrangement’ whereby such transactions need not be reported to SARS. Moreover, in terms of the public notice issued by the Commissioner on 16 March 2015 in Government Gazette no. 38569 as Notice 212, a transaction would not be reportable in terms of the above criteria only if the tax benefit arising from the arrangement for all persons involved would not exceed R5 million.
This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)