VDP applications August 2015
Overview for this webinar VDP Relief offered under the VDP; Overview of the VDP process; When VDP is not available: Pending or current audit/investigation Requirements for a valid VDP; The VDP01 application form.
VDP the sudden urgency? South Africa has recently entered into agreements with various foreign countries (notably including Switzerland) to share certain financial information through an automatic system. SARS will therefore know if taxpayers have offshore bank accounts and will be able to identify whether taxpayers have evaded their South African tax obligations by using these off shore bank accounts.
Relief offered under the VDP The following relief is offered under the VDP program: Relief from understatement penalties; Relief from criminal prosecution; and Relief from administrative non-compliance penalties ( fixed amount penalties ). Relief not offered under VDP: Late payment penalties and other percentage based penalties such as underestimation penalties; Interest; and NB - The tax liability.
Relief offered under the VDP Draft TALAB: Late payment penalty also covered (timing is interesting).
Understatement Penalty s223 1 2 3 4 5 6 Item Behaviour Standard case If obstructive or if it is a 'repeat case' Voluntary disclosure after notification of an audit or investigation Voluntary disclosure after notification of an audit or investigation (i) Substantial understatement' 10% 20% 5% 0% (ii) (iii) Reasonable care not taken in completing return No reasonable grounds for 'tax position' taken 25% 50% 15% 0% 50% 75% 25% 0% (iv) Gross negligence 100% 125% 50% 5% (v) Intentional Tax evasion 150% 200% 75% 10%
Understatement Penalty s223 Repeat case section 221 repeat case means a second or further case of any of the behaviours listed under items (i) to (v) of the understatement penalty percentage table reflected in section 223 within five years of the previous case;
Understatement Penalty s223 Tax position section 221 tax position means an assumption underlying one or more aspects of a tax return, including whether or not (a) an amount, transaction, event or item is taxable; (b) an amount or item is deductible or may be set-off; (c) a lower rate of tax than the maximum applicable to that class of taxpayer, transaction, event or item applies; or (d) an amount qualifies as a reduction of tax payable; and
Understatement Penalty s223 Substantial understatement: substantial understatement means a case where the prejudice to SARS or the fiscus exceeds the greater of five per cent of the amount of tax properly chargeable or refundable under a tax Act for the relevant tax period, or R1 000 000; (opinions only protect against substantial understatements)
Administrative non-compliance penalty S 211 Item Assessed loss or taxable income for 'preceding year' 'Penalty' (i) Assessed loss R 250 (ii) R0 R250 000 R 250 (iii) R250 001 R500 000 R 500 (iv) R500 001 R1 000 000 R 1 000 (v) R1 000 001 R5 000 000 R 2 000 (vi) R5 000 001 R10 000 000 R 4 000 (vii) R10 000 001 R50 000 000 R 8 000 (viii) Above R50 000 000 R 16 000
An overview of the VDP process Overview Can be accessed on our website @ www.taxconsulting.co.za Other flow charts: Tax dispute resolution process; Advance Tax Ruling process; and ETIA decision tree.
There must be a default Default defined in section 225 of TAA: default means the submission of inaccurate or incomplete information to SARS, or the failure to submit information or the adoption of a tax position, where such submission, non-submission, or adoption resulted in (a) the taxpayer not being assessed for the correct amount of tax; (b) the correct amount of tax not being paid by the taxpayer; or (c) an incorrect refund being made by SARS.
When VDP is not available - Audit or investigation S226(2) VDP relief is not available. If the taxpayer is aware of a pending audit or investigation or if an audit or investigation has commenced but has not yet been concluded
When VDP is not available - Audit or investigation S226(2) A person is deemed to be aware of pending or current audit or investigation if A representative of the person; An officer, shareholder or member iro a company; A partner in the case of a partnership; A trustee or beneficiary in the case of a trust; A person acting for or on behalf of or as an agent Has become aware of a pending or current audit.
When VDP is not available - Audit or investigation S226(2) Draft TALAB: Seeks to clarify that if an audit does not relate to the tax type on which the default is sought to be disclosed, then VDP remains available.
When VDP is not available - Audit or investigation S226(2) A Senior SARS official ( SSO ) can allow a taxpayer into VDP if an audit or investigation has commenced if: The default would not have been detected during the audit; A VDP application would be in the good management of the tax system and best use of SARS resources.
When VDP is not available - Requirements for a valid VDP Section 227 of the TAA: Voluntary; Involve a default not previously disclosed to SARS; Be full and complete in all material respects; Involve the potential imposition of an understatement penalty; Not result in a refund due by SARS; and Be made in the prescribed form and manner.
Must be Voluntary SARS press release: Pretoria, 09 July 2015 The purpose of this media statement is to provide an update on the progress made by SARS on work done on foreign bank accounts held by South African residents and to provide such residents an opportunity until 12 August 2015, to approach SARS via its Voluntary Disclosure Programme (VDP) to regularise their tax affairs
Must be Voluntary If SARS threatens to access foreign bank account information to establish possible tax evasion and VDP application is then made is the application voluntary? Some suggest that the media release may also serve as notification of an audit or investigation?
Involve a default not previously disclosed to SARS; If you submit the revised return before VDP application has been done and VDP number has been issued, SARS could reject the application on the basis that the default has been previously disclosed to SARS; If you call SARS (other than the VDP unit) and discuss the default with SARS, SARS can reject the application; If you have previously applied for VDP on a similar default, SARS could reject the VDP: UIF example; and VAT example
Involve a default not previously disclosed to SARS; Draft TALAB: VDP will still be available if a default that is being disclosed now is similar to a default disclosed more than 5 years ago (timing is interesting).
Be full and complete in all material aspects VDP01 application form allows limited space; Upload as much supporting documents as is required to make full disclosure. Not an issue on submission. The issue comes in when SARS selects taxpayer for audit and identifies that VDP application was not full and complete. Remember VDP submissions are still subject to audit from SARS. Cherry picking No!
Involve a potential understatement penalty For an understatement penalty to be levied, there must be an understatement: understatement is defined in section 221 of the TAA as: understatement means any prejudice to SARS or the fiscus as a result of (a) a default in rendering a return; (b) an omission from a return; (c) an incorrect statement in a return; or (d) if no return is required, the failure to pay the correct amount of tax.
Involve a potential understatement penalty Understatement penalties calculated by applying the relevant penalty rate per the penalty percentage table to the shortfall. What about assessed losses? Is there a shortfall? Section 222(3)(c): the difference between the amount of an assessed loss or any other benefit to the taxpayer properly carried forward from the tax period to a succeeding tax period and the amount that would have been carried forward if the understatement were accepted, multiplied by the tax rate determined under subsection (5).
Involve a potential understatement penalty What if the default was the result of an bona fide inadvertent error? Then no understatement penalty and then no VDP relief? Draft TALAB addresses this by referring to a behaviour rather than the imposition of a potential understatement penalty as a requirement for a valid VDP.
Involve a potential understatement penalty additional tax SARS can only impose an understatement penalty when the default relates to a period before promulgation of the TAA if: Additional tax was capable of being imposed at the time of promulgation of the TAA but was not imposed Capable of being imposed means: The verification, audit or investigation necessary to determine the additional tax had been completed before commencement date of the TAA
Not involve a refund payable by SARS Sounds simple enough? Example: Assume a default exists in 5 VAT periods; 4 VAT periods have a liability to SARS; 1 has a refund but contains the same error; The refund on the on one period is lager than the liability of the other 4 periods; 4 periods carry a understatement penalty risk; Is VDP available?
Prescribed form and manner VDP01 accessed on E-filing: Log on to e-filing Under the returns tab select Voluntary Disclosure Click on new Complete VDP01 Example VDP01 Submit
Final stages Resubmit relevant returns; Make payment following submission NB in the case of PAYE, remember to reissue IRP5/ s and EMP501 where relevant; Identify behaviour; Sign VDP agreement. END of VDP
VDP Ruling - Section 228 If you are unsure whether or not VDP is available for a specific taxpayer Apply for a non-binding private opinion as envisaged in section 75 of the TAA Anonymous How Select that it is a no-name application on the VDP01 form (note this is not an application for VDP relief, it is an application for a NBPO)