Industry updates | May 2023
Please take note of the following industry updates that may be relevant to you and your business.
COMPLIANCE AND ADMINISTRATION
Due dates for reporting and payments- May 2023:
TAX ADMINISTRATION
1. SARS officially changes the Tax Compliance Status system
With effect from 24 April 2023, SARS implemented a number of changes to the TCS system to align with legislative changes. These enhancements include the discontinuation of the ‘Tender’ TCS pin as well as the introduction of an ‘Approval International Transfer’ application, which replaces the ‘Emigration’ and ‘Foreign Investment Allowance’ TCS applications.
Following these enhancements, a taxpayer may now apply for two types of TCS pins:
1. Good Standing: This compliance status is issued when a taxpayer wants to confirm that their tax affairs are in order with SARS.
2. Approval International Transfer: This functionality allows a taxpayer to apply for the transfer of funds internationally.
With specific reference to the ‘Approval International Transfer’ application, where the transfer will be made by a non-resident for tax purposes, the requestor must indicate when they ceased to be a South African tax resident and where they are currently a tax resident. These are mandatory fields in order to submit the application.
No TCS is required for yearly transfers up to R1 million. SARS is of the view that taxpayers applying for more than the yearly R1 million single discretionary allowance, are sophisticated taxpayers who should reasonably have records of the cost price of major assets they own. This includes their local and foreign fixed properties, listed/unlisted investments, crypto assets, and cash in bank to name a few. If the taxpayer does not own a particular type of asset, that should be captured as zero on the asset and liability part of the application form.
The required supporting documents in respect of ‘Approval International Transfer’ TCS applications have also been updated to reflect the recent changes in the Foreign Exchange Control processes, as well as the promulgation of the Taxation Laws Amendment Act, 2020.
2. PRINCIPAL VS AGENT
There is often confusion on who is entitled to an input tax claim on transactions when there are three entities forming part of an agreement.
For example, Entity A enters into an agreement with Entity B, where Entity B is contracted to provide goods or services to Entity A. Entity B subsequently enters into an agreement with Entity C to either provide the goods or services on behalf of Entity B to Entity A. Due to Entity A having a contract with Entity B, payments are directed to Entity B, even though the service or goods were provided by Entity C. However, by means of a cession agreement, Entity A sometimes does make a direct payment to Entity C. This is because goods or services provided through an agent are deemed to have been provided directly to the principal by the third-party. For the purposes of this example, all parties are VAT Vendors.
The Value-Added Tax Act, No. 89 of 1991 (the VAT Act) does not provide a definition to the term ‘cession’, however for ease of clarity and understanding, the Oxford Dictionary defines a cession as, “the formal act of giving up of rights, property, or territory by a state”.
A principal is the consumer of the taxable supplies whereas an agent is the party that acts on behalf of the principal (consumer) to the agreement.
To ascertain which entity is entitled to an input tax claim, one will have to determine whether Entity B is acting as a principal or an agent on behalf of Entity A, and in order to determine that one will have to look at the actual agreement between all parties involved.
The parties in the agreement are:
Entity A – Principal (the consumer of the taxable supplies);
Entity B – Agent (in agreement with entity A to provide taxable supplies); and
Entity C - Third-Party (in agreement with entity B to provide taxable supplies to entity A).
Entity A will request taxable supplies to be consumed from Entity B. Entity B then engages Entity C to provide the taxable supplies directly to Entity A. Entity B is now acting as an agent to the principal – Entity A.
The question is, who is entitled to an input tax claim? Is it Entity A, the principal, or Entity B, the Agent? Even though the transaction was between Entity B and Entity C, Entity A would be entitled to an input tax claim in terms of Section 54(1) of the VAT Act. Taxable supplies provided through an agent are deemed to have been provided directly to the principal. The taxable supplies that were provided by Entity C were made on behalf of Entity B. However, there should be a valid tax invoice which should be issued by Entity C to either Entity A or Entity B. In instances where Entity C issues a valid tax invoice directly to the agent, rather than the principal, the agent “shall notify the principal in writing by means of a statement within 21 days of the end of the calendar month during which the supply was made or received.” The statement should comply with Section 20(4) paragraph (e), (f) and (g) as well as Section and 54(3)(i) of the Act. The requirements of Section 54(3) (a)(i) read with Section 20(4)(e), (f) and (g) – constitute a valid tax invoice.
Conclusion
The principal is always entitled to an input tax claim. Should an agent wrongfully claim input tax, SARS may raise an assessment on such claim as well as penalties and interests.
3. Dispute Resolution Enhancements
Over the past 2 years, the number of disputes received by SARS have increased drastically. As a consequence, SARS has needed to put in place some interventions to assist with the resolution of disputes timeously and as required by the Tax Administration Act, No. 28 of 2011 (the TAA).
On 24 April 2023, SARS released some enhancements to improve its efficiency and effectiveness in resolving tax disputes. These enhancements include:
3.1. Calculation of disputed amount for purposes of a suspension of payment: Upon submission of a dispute, the value of the amount disputed will be automatically calculated.
3.2. Updating of contacts for representatives chosen for dispute purposes: Taxpayers will now be able to amend their contact details for purposes of their tax dispute on eFiling. This will allow a taxpayer to include the contact details of their representative chosen for purposes of resolving the tax dispute.
3.3 Request for remission: The request for remission functionality has been extended to include remission requests for provisional underestimation penalties levied in terms of paragraph 20(1) of the Fourth Schedule to the Income Tax Act.
3.4 Request for reasons: New automated request for reasons outcome letters have been implemented. Previously, if SARS agreed that reasons for the assessment had to be supplied, manual letters were issued.
3.5. Notice of objections: Where SARS requires additional substantiating documents to enable it to consider an objection, it is now able to issue up to three (3) requests to the taxpayer for the supply of the requested documents.
3.6. Notice of appeals: Automated letters have been introduced for appeals administration for Alternative Dispute Resolution (ADR) process:
- Notice confirming that an appeal is suitable for ADR; - Notice extending the period of ADR proceedings;
- Notice terminating the ADR proceedings; and
- Notice confirming the outcome of an appeal. In addition to the system enhancement, SARS has indicated that various internal processes have also been streamlined to reduce resolution times of especially appeals in ADR proceedings.
- Domonique Ramos | 08 May 2023