The Tax Administration Act : What every corporate tax administrator should know (part 3) - the understatement penalty regime revisited

• DOI: 10.10520/EJC174099
• Pages: 23-32
• Author: Des Kruger
• Published date: 01 December 2013
• Date: 01 December 2013

23

© SIBER INK

.The Tax Administration Act:

WHAT EVERY CORPORATE TAX ADMINISTRATOR

SHOULD KNOW (PART 3) — THE UNDER-

STATEMENT PENALTY REGIME REVISITED

DES KRUGER1

ABSTRACT

The new understatement penalty regime has given rise to signif‌icant contro-

versy between taxpayers and SARS. In essence, SARS argues that the new

regime applies in respect of any ‘understatement’ in relation to which the

verif‌ication, audit or investigation necessary to determine the additional tax,

penalty or interest had not been completed before the commencement date

of the Tax Administration Act, 2011 (‘the TAA’). Taxpayers in turn argue that

to impose an understatement penalty in respect of any understatement that

occurred before the commencement date of the TAA amounts to retrospective

application of the regime and is not permitted in terms of the general provi-

sions of our common law and Constitution. This article explores this conun-

drum and concludes that, as presently enacted, section 270(6) of the TAA

requires understatements that occurred prior to the commencement date of

the TAA to be dealt with under the relevant provisions of the various tax Acts.

That is, that it is not open to SARS to impose an understatement penalty in

these circumstances. However, the Tax Administration Laws Amendment Bill,

2013 proposes a number of amendments to section 270 of the TAA with the

aim of legislating SARS’s preferred approach — namely that the new under-

statement penalty regime applies in respect of any understatement where the

verif‌ication, audit or investigation necessary to determine the relevant addi-

tional tax or penalty that could be imposed under the now repealed provision

of a tax Act had not been completed before the commencement date of the

TAA. However, in terms of another proposed amendment to section 270(6),

the relevant understatement penalty is required to be remitted (in whole in

the case of VAT and wholly or partly in the case of income tax) by SARS if an

understatement penalty is imposed as a result of an understatement made in

a return submitted before the commencement date.

In the previous article in this series2 I touched upon the question of whether

the new understatement penalty regime was retrospective in effect, that is,

whether the regime applies in respect of an understatement3 that occurred

1

Contract Specialist, South African Revenue Service. The views expressed in this

article are those of the author alone and in no way ref‌lect the views of the South

African Revenue Service or any other organisation with which he may be associated.

2

BTCLQ 4(3), September 2013.

3

‘Understatement’ is def‌ined in s221 of the Tax Administration Act, 2011 (‘TAA’)

as ‘any prejudice to SARS or the f‌iscus in respect of a tax period 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.’