SARS is tightening its grip on tax evaders - use this method to ensure your company's compliant
'The taxman is losing billions of rands to illicit practices by large corporations, South African Revenue Services Commissioner Oupa Magashula told Parliament yesterday,' reports enca.com . Magashula said large multinational companies are increasingly using sophisticated and complex schemes to evade tax. But, be warned, SARS is tightening its grip on tax evaders. Here's what you can do to ensure your company isn't unknowingly evading tax when entering into transactions.
If there's one thing SARS doesn't tolerate, its tax evasion.
Not registering to pay income tax or hiding your company's income from SARS are just two examples of tax evasion.
SARS doesn't take this lightly. In fact, avoiding your company's tax obligations could land you a 200% penalty or a jail term.
But your company can play it safe, especially if you use SARS' prevention measures to ensure you pay tax when entering into a transaction.
Ask yourself these questions before you enter into a transaction to ensure your company's not evading tax
Is the transaction prohibited? A prohibited transaction could have one, or all, of the below tainted elements:
Is the transaction abnormal? A transaction is abnormal if it's unusual and differs from what would normally apply in a commercial setting. For example, you set up a transaction with a series of companies where profits are removed from these taxpaying companies and put into an entity that's exempt from tax, such as a provident fund. 'This is abnormal as the taxable companies are shifting profits to a tax exempt entity for no other reason than to evade tax,' explains The Practical Tax Loose Leaf Service.
Does your transaction lack commercial substance? If you get a big tax benefit but it doesn't have an effect on your business risks or nett cash flow, the transaction might lack commercial substance. For example, you borrow money from a friend to pay for your company's business development. Instead of offering your friend a market-related interest rate, you give him a 50% interest rate per annum, and ask him to give you 30% of that interest back in cash to help you out. The interest doesn't exceed your friend's annual exempt interest income limit (so no tax is payable), and your business gets to deduct the exorbitant interest from its profit. 'SARS will cry tax-avoidance because this transaction offers large benefits, such as reduced tax liability or the deferment of a tax liability, but doesn't have the added elements of risk associated with this type of transaction,' warns the Loose Leaf.
By asking yourself these questions before entering a business transaction you can ensure your company doesn't shrug off its tax obligations.