Abstract
The reportable arrangements (RA) provisions are contained in sections 80M to 80T of the Income Tax Act. SARS issued a revised Draft Guide on 31 March 2010, which contains a model for the application of these provisions. However, due to numerous discrepancies and ambiguities contained in the Act and the guide, the interpretation of these provisions could be subjective and difficult to apply in practice. Failure to disclose a RA may result in a R1 million penalty. It is the purpose of this paper to develop an alternative, workable model to serve as a usable guide for taxpayers. This paper comprises a literature review and a study of empirical evidence obtained through a survey conducted among tax partners at a sample of 40 leading audit and legal firms. The majority of respondents considered the alternative model to be more accurate, user-friendly and helpful than SARS’ model.
Highlights
In the original Reportable Arrangements Guide (SARS, 2005), a decision tree is provided to assist the taxpayer in determining whether or not an arrangement is reportable
In an attempt to provide greater clarity on the majority of the issues that are likely to arise in practice due to the ‘new’ reportable arrangements provisions, South African Revenue Service (SARS) (2010:31) included an updated flowchart in its Draft Guide to enable taxpayers to determine when an arrangement should be disclosed to the Commissioner
SARS will in all likelihood come under increasing pressure from South Africa’s trade and investment partners to cultivate a cooperative tax environment
Summary
The Explanatory Memorandum on the Revenue Laws Amendment Bill of 2003 explains that a reporting system was necessary to uncover innovative corporate tax products that effectively cost the tax system hundreds of millions of rand annually (SARS, 2003) This reporting system (in the form of the first RA provisions) was designed to counter tax evasion and was introduced to the Act by section 76A which came into effect on 1 March 2005. Due to numerous discrepancies and ambiguities contained in the Act and the guide itself, the interpretation of these provisions could be subjective and difficult to apply in practice This is evidenced by the number of sets of comments and recommendations that the South African Institute of Chartered Accountants (SAICA) has made to SARS (SAICA, 2004; 2007a; 2007b; 2008 & 2010a). Despite SARS’ well-meaning intention for the flowchart to simplify decision-making (SARS, 2010:32), it is submitted that, due to the ambiguities contained in the wording of the Act as well as numerous anomalies in the Draft Guide model, this model is flawed and not useful for taxpayers
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