Taxpayers’ details remain protected

Finance News , ,

In the case of the Commissioner for SARS vs Public Protector (23 March 2020) in the Gauteng High Court, the matter of the confidentiality of taxpayer information came up for consideration. This matter has a protracted history stemming from around November 2018. The Public Protector’s office had been actively seeking the (then) president’s tax records for an investigation, and for which the Public Protector issued a subpoena in October 2018.

The Public Protector argued that her office required the personal tax information of former President Zuma as she was investigating a complaint by a political party sourced from a column in a published book, relating to the former president’s alleged tax woes and that he had been receiving a salary from a private security company.

The substance of the Public Protector’s argument was based on the legal concept of jus causa (just cause), stating that this information was essential to her investigation. Interestingly, the former president came out in the Public Protector’s defence and attempted to file an affidavit confirming that she may access these records.

SARS’ argument to deny access to the records was based on section 67 of the Tax Administration Act, protecting the secrecy of taxpayer information. SARS’ refusal was echoed by counsel and based on the premise that the subpoena sought to coerce the production of sensitive information, and which production is a criminal offence according to the Tax Administration Act. SARS further pointed out that the Public Protector is not an “exempted authority” for purposes of providing information. SARS similarly pointed out that the Public Protector had various other avenues available to obtain this information, which was both lawful, and was never attempted (and that she had received advice to this effect).

The Court ruled in favour of SARS, confirming the sanctity of taxpayer secrecy. In his judgement, judge Mabuse confirmed that the Tax Administration Act provides that no current or former SARS employee may disclose taxpayer information to any person who is not a SARS official. The Court further looked at the phrase “just cause”, as contemplated in the Public Protector Act, and denied that this instance was a situation of just cause, warranting the issuing of a subpoena. The Court held that the Public Protector had no valid reasons for seeking the taxpayer information, that she failed to observe legislation and had the wrong impression that she had unlimited powers.

SARS’s application of withholding the information was upheld and the court order that was based on the provisions of the Tax Administration Act, as well as the “just cause” provision held in the Public Protector Act, provided that SARS was entitled to withhold this information. It was further ordered that the Public Protector’s subpoena powers do not extend to taxpayer information.

Taxpayers should take some heart from the judgement, knowing that SARS has the right, and will attempt, to keep their tax matters confidential from other parties, within the boundaries of the law.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

A single supply of services: which VAT rate applies?

Finance News , ,
On 3 April 2020, the Supreme Court of Appeal delivered a judgement against Diageo South Africa (Pty) Ltd (“Diageo SA”) in a value-added tax (“VAT”) matter relating to the supply of advertising and promotion (“A&P”) services to various non-South African brand owners in the group.Diageo SA entered into an agreement with the foreign brand owners for the A&P of their products in South Africa. The brand owners invested in A&P to build and maintain brand recognition and generate sales by way of enhanced brand equity. The brand owners relied on Diageo SA to build their brands locally through A&P services in return for a fee. The A&P activities consisted of a range of activities, such as advertising across various channels, brand building promotions, events, sponsorships, and market research. Services that were rendered by Diageo SA included advertising media, website design, website building, social networking, and sponsorship of, amongst others, sports events.

To render the A&P services, Diageo SA made use of promotional merchandise and packaging, sample products, and branded giveaway items. These were given away free of charge to third parties for use or consumption within South Africa for the purpose of promoting the products. Two categories of goods were used. Firstly, the products of the brand owners (stock that has been taken out of the trading stock and used for product sampling or tasting); secondly, point-of-sale items were given to third parties and employees, for no consideration.

The fee charged by Diageo SA to the brand owners represented the cost incurred by Diageo SA in rendering the A&P services, which comprised the supply of both goods and services, to the brand owners. However, the tax invoices rendered by Diageo SA to the brand owners reflected a single total feefor services rendered. It did not differentiate between goods and services.

Why is this an issue? While the services to the brand owners are an exported service that can be zero-rated, the goods were consumed locally in South Africa and should have been standard rated (the principle of VAT being a tax imposed where the product is consumed). Part of the single fee charged to the brand owners should, therefore, carry VAT at the standard rate of 15%, and only a part thereof can be zero-rated.

Diageo SA took the view that the fee was charged on the basis that it constituted a zero-rated supply of the A&P services, since “exported services” in South Africa constitute zero-rated supplies. According to Diageo SA, there was only a single supply of A&P, not a separate supply of services and a separate supply of goods.

The court found that the single supply provided by Diageo SA to the brand owners consisted of both goods and services that were distinct and clearly identifiable from each other. There is no artificial and insensible result or commercially unreal outcome if that view is followed. The fee should, therefore, have been split between a zero-rated service, and goods at the standard rate.

The purpose of Section 8(15) of the VAT Act (in terms of which the decision was made) is to ensure that, in a case like this, Diageo and “other similarly positioned VAT vendors fulfil their obligation to pay VAT at the standard rate on the goods that they have supplied.”

Diageo’s appeal was dismissed and the assessments issued were maintained.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

The effects of COVID-19 – Economically speaking

Finance News , ,
As we all know, the COVID-19 pandemic has taken the globe by storm. As of the 14th of April, the total cases of COVID-19 is 1,925,877 with a total of 119,719 deaths across the globe, according to www.worldometers.info. Countries across the world responded to this pandemic by enforcing full-scale lockdowns to manage the spread of the virus.It is of utmost importance to note that these lockdowns will have a long-lasting effect on the economy, worldwide. World leaders decided to shut down major cities, businesses etc. knowing very well that this will harm the economy. However, governments, all over the world, are putting plans in place to soften the financial blow as much as possible for their citizens who are unable to go to work due to the lockdown.

South Africa, on the other hand, does not have the means to put extensive financial measures in place. Also, on the 28th of March, Moody’s downgraded South Africa’s sovereign credit rating to “junk” status. This means that South Africa does not have the money, nor the creditors to put extensive financial measures in place. This is an economic problem; however, it can lead to even more problems in terms of the spread of COVID-19. South Africans in isolation, not being able to go to work or receive an income, will only be able to stay in isolation for as long as they have the money for essential items such as food and hygiene products. When the money runs out, South Africans will have to go back to work which could result in the virus spreading even more when people return to work and come in close contact with one another.

After President Cyril Ramaphosa announced the 21-day lockdown, which has now been extended until the end of April, the Department of Small Business Development launched a debt relief fund to help SMME’s mitigate the economic turmoil that this lockdown has in store. However, this fund is far too small. In the worst-case scenario, businesses will have to let staff members go to keep their businesses afloat.

However, it is not all doom and gloom. The current crisis is prompting the South African government to put measures in place that it should have put in place a long time ago. For example, Lindiwe Sisulu, Minister of Human Settlements, Water and Sanitation announced that communities will be gaining access to clean, running water.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Tax law for employer transport services

Finance News , ,
In terms of the Tax Administration Act, the South African Revenue Service (“SARS”) can issue Binding General Rulings (“BGR”) on matters of general interest or importance and clarifies the Commissioner’s application or interpretation of the tax law relating to these matters.BGR 50 provides clarity on the so-called “no-value” provision in respect of the rendering of transport services by an employer to its employees.

Background

Employers may often provide employees with transport services from their homes to the place of employment. Although it typically applies where places of work are remote, such as in the farming or mining sectors, the provision of such services has also become prevalent in urban areas where traffic congestion takes up significant employee hours. In terms of the Seventh Schedule to the Income Tax Act, which deals with fringe benefits, these transport services are taxable as a fringe benefit in the hands of employees. The benefit may, however, attract no value where certain conditions are met, which effectively results in no tax consequences for the employee. Confusion has often arisen on the application of the “no-value” provision, especially where the transport is outsourced to a third party.

Paragraph 2(e) of the Seventh Schedule provides that a taxable benefit is deemed to have been granted by an employer to an employee where the transport service, at the expense of the employer, has been rendered to the employee for private or domestic purposes.

Paragraph 10(2)(b), in turn, provides that such a taxable benefit will attract no value if transport services are rendered by the employer to its employees in general for their conveyance between work and home. The focus of this section is that the “no-value” provision applies where the employer renders the transport service and does not contract it to another party. This is the essence of the distinction for the BGR.

Ruling

Where the transport is not provided directly by the employer (and is outsourced to a specific transport service provider), the employer must make the conditions of the provision of the transport services clear. Transport services:

  • Should be exclusively offered to employees based on predetermined routes;
  • Cannot be requested on an ad-hoc basis by employees; and
  • The contract for the service is between the employer and the transport provider, and no employee is a party to the contract.

The provision and access to general public transport will not be regarded as a transport service provided by the employer and the “no-value” provision will not apply in these circumstances.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Lockdown Tips: Simple steps to take control of your finances

Finance News , ,

The COVID-19 pandemic has spread across the globe and left economic destruction in its path. Now, more than ever, it is of utmost importance to take control of and manage your finances so that you can enter this time of uncertainty with the peace of mind you deserve. Follow these simple steps to take back control of your finances:

1. Keep an eye on your credit score

Due to COVID-19 and the nationwide lockdown, many South Africans’ financial situations and financial security have changed. This change can influence your credit score, which is why you need to keep an eye on it.

Why? Because by protecting your credit score, your chances of being accepted for the best deals on credit products will increase. It comes as no surprise that many credit providers are tightening their belts and lending criteria during this time, so make sure to put yourself in the best possible situation when it comes to credit.

2. Apply for credit as soon as possible, if you need it

As mentioned above, many credit providers are tightening their belts and has withdrawn numerous products from the market. If you need to apply for credit, we advise you to do this as soon as possible to secure the right product and price for said product.

3. Cut back on expenditure

It’s important to take the time to look at your income and outcome, especially in preparation for the coming months. To reduce your expenditure, you can either reduce an outgoing payment or delay it. An example of reducing your outgoing expenditure is cancelling a subscription that you no longer use or don’t use as often.

If you want to delay your outgoing expenditure, you can choose to put your payments on hold by taking a payment holiday. Applying for a mortgage payment holiday can significantly soften your financial blow during this crisis and luckily, most lenders are now offering this option.

Whatever plans and measures you put in place to manage your finances during this crisis, make sure to stay calm, collected and safe.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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