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With G20 nations clamping down on tax avoidance, it's more important than ever to be prepared for a tax audit

by , 21 February 2013
At its meeting in Moscow last week, the global finance ministers of the G20 promised to get behind 'collective action' to prevent tax avoidance by multinational businesses. With SA a key member of the G20, SARS is expected to follow suit. This means, it'll implement even more business tax audits this year to curb tax avoidance in SA. Your company could be on SARS' tax audit list...

'Last week the Organisation for Economic Co-operation and Development (OECD), an international body responsible for promoting economic coordination, warned that the practices being used by multinational businesses to reduce their tax bills were becoming 'more aggressive',' reports outlaw.com.
 
In its report on 'base erosion and profit shifting', the OECD added that the 'existing rules gave large businesses an unfair competitive advantage over smaller businesses as they did not properly take account of cross-border integration,' the article explains.
 
It's this finding that's prompted G20 countries, South Africa included, to clamp down even further on tax avoidance this year. That means companies should expect SARS to do even more tax audits this year – here's how to know if your business practices are putting you at risk.
 
Is your business at risk of a tax audit?
 
'There are a number of factors that create/increase your risk of [a tax] audit,' explains former SARS official, Antonie Goosen in The Practical Tax Loose Leaf Service.
 
To spot these factors, SARS compares the information your company submitted to it from all sources. It then compares this to your company's annual financial statements, Vat returns and tax returns as well as any tax certificates and disclosures made on those returns.
 
One of SARS's main objectives is to stop tax evasion and tax avoidance schemes.
Here are three common situations that SARS looks for when looking for tax avoidance risks and deciding which companies to  tax audit:
 
  1. If there's been a sudden drop in your gross profit. This could send SARS to your doorstep to conduct a tax audit because it 'believes there's a chance you're skimming cash off your top-line to reduce gross profit and pay less tax,' explains Goosen.
  2. If your financial records include uncommon high-risk factor (e.g. a travel allowance for your desk-bound secretary).
  3. If you Vat claims don't add up.
 
Luckily, legitimate business transactions are easy to prove if you follow The Practical Tax Loose Leaf Service's advice below:
 
Six ways to avoid a tax audit/query from SARS
 
  1. Keep a good financial/credit record;
  2. Don't miss any due dates;
  3. Meet all your obligations in terms of income tax, PAYE, Vat, etc;
  4. Disclose your income correctly on your annual tax return;
  5. Stay up to date with tax legislation; and
  6. Ensure all invoices issued by you are valid Vat invoices.
 
It's that easy to stay on the right side of SARS and convince them any unusual business transactions don't amount to tax avoidance. Follow these steps to the letter to ensure SARS's tax evasion clamp down doesn't put your business in the firing line for a tax audit.

To find out more what the tax avoidance penalties are get your hands on the Practical Tax Loose Leaf. In the Practical Tax Loose Leaf we've got a dedicated chapter on general anti-avoidance penalties SARS can slap with with. In this chapter you'll discover:
  • Don't avoid your tax obligations – you could pay a 200% penalty or go to jail
  • How to play it safe – Ask yourself these two questions, before you enter into a transaction
  • 3 things SARS must prove before it can find you guilty of breaking the anti-avoidance rules
  • 3 questions SARS asks when it screens your transactions/arrangements
  • What happens if you're found guilty?
Get your Practical Tax Loose Leaf  here...


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