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Warning: Don't try avoid your tax obligations! SARS will catch you by asking these three questions

by , 05 January 2015
Everyone wishes they could pay less tax. But some people take that wish to the extreme and find ways to avoid their tax obligations.

This is anti-avoidance and it's a criminal offence. That means if SARS catches you and finds you guilty of anti-avoidance, it will take you to court.

And it will find out by asking these three questions...

 

SARS will ask these three questions to find out if you're guilty of anti-avoidance

 
If SARS audits your company it will go through all of your transaction history. When it does, it will ask these three questions about each transaction:
 
1. What was the effect of the transaction? 
 
SARS will look for evidence that you tried to avoid or reduce your tax liability when you couldn't. If there are two ways to do something and you choose the one that reduces your tax liability, SARS can claim it's tax-avoidance. 
 
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2. What was the manner of the transaction? 
 
This question comes with other questions SARS must ask to reach its final answer. These questions include: 
 
- Would a reasonable business mind find fault with the transaction? And
- Were the parties involved independent of each other, so there were no questions about a conflict of interests or benefits for friends!
 
3. What was the main purpose of the transaction? 
 
Did you try to hide your real intentions of escaping tax or get a tax benefit? 
 
SARS will find you guilty of general anti-avoidance if you can't give it suitable answers for the above three questions.
 
But what happens if you didn't mean to commit anti-avoidance? 
 
In this case, you should look for these four warning signs to check your transactions and make sure you're not accidently guilty of anti-avoidance.
 

Look for these four anti-avoidance warning signs in all your transactions 

 
1. Is the legal matter of the transaction different from the legal form? 
 
This means that actually facts about the transaction must match the contract and laws around it. For example, if you structure a travel allowance into you salary package, but your employment contract doesn't say anything about travelling for work.
 
2. Do you use roundtrip financing 
 
This is when you transfer money or assets between parties, resulting in a tax benefit. It will also help you reduce, offset or remove your business risk.
 
3. Did you introduce a tax-indifferent party as part of your arrangement? 
 
By including this party in your transactions, your transactions are tax-free. SARS could say it's an illegal avoidance of tax!
 
But you won't get in trouble for doing this if:
 
The transaction is a foreign transaction and the tax paid in the foreign country is more than two-thirds of the tax you would pay here. For example, you make a taxable profit in a foreign country and the tax rate there is at least 18.67%; or
 
The transaction relates to a department or division of a larger business establishment that's run like this for at least 18 months
 
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Dealing with SARS and acing your SARS Audit
 
SARS has been dealt a better hand in dealing with you if you try to avoid tax. SARS knows where it stands. The question is: do you?
 
Do you plan on obtaining an 'innocent' tax benefit? If your main or only reason for entering into any arrangement is to receive a tax benefit, SARS will brand you guilty of avoiding tax...and guess who has to prove their innocence… YOU!
 
 
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4. Are there any elements present that offset or cancel each other?
In a group company structure, you set up a transaction so you can get a tax deduction that matches your taxable income. 
 
If you spot any of these anti-avoidance warning signs in your company's transactions, you need to take steps immediately to prove they're legitimate transaction. After all, if SARS spots these warning signs first it will want answers. 
 
You can find out more of anti-avoidance in the Practical Tax Loose Leaf Service
 


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