Interpretation Note 132

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Interpretation Note 132

• 05 August 2024
• Tax Administration
• SARS

Preamble

In this Note, unless the context indicates otherwise:

• “compliant” and “non-compliant”, whether used in conjunction with “tax” or otherwise, means tax compliant or tax non-compliant to the extent referred to in section 256(3), and “compliance” and “non-compliance” must be construed accordingly;
• “section” means a section of the TA Act;
• “tax practitioner” means a person who is required to register as a tax practitioner under section 240;
• “the TA Act” means the Tax Administration Act 28 of 2011; and
• any other word or expression bears the meaning ascribed to it in the TA Act.

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1. Purpose

This Note provides guidance on when, due to tax non-compliance, a person may not register as a tax practitioner, and when SARS must deregister a registered tax practitioner, as well as the period of non-qualification for registration.

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2. Background

Subject to specified exceptions,¹ a natural person who provides advice on the application of a tax Act, or who completes or assists in completing a return on behalf of another person, must register with or fall under the jurisdiction of a recognised controlling body,² and must register with SARS within prescribed periods.³ Persons who are not registered with both a recognised controlling body and SARS, may not practice as a tax practitioner and those who do are guilty of a criminal offence, which carries a fine or imprisonment of up to two years upon conviction.⁴

Section 240(3) prohibits SARS from registering a person as a tax practitioner and requires that SARS deregisters a registered tax practitioner under certain circumstances, section 240(3)(d) specifically dealing with tax non-compliance^.5 In accordance with section 256(3), tax compliance is measured against the obligation to register for tax and submit returns, as well as the obligation to pay outstanding tax debts or make arrangements in relation to such returns or debts.

Deregistration of tax practitioners affects livelihoods, business continuity, as well as the taxpayers whom practitioners serve. It is in the interest of persons who want to practice as tax practitioners to remain tax compliant or remedy their non-compliance as soon as possible. Prospective or registered tax practitioners are therefore encouraged to act upon a notice by SARS in order to be registered expeditiously, avoid deregistration, or reduce the period of deregistration.

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3. The Law

The relevant sections are quoted in Annexure A.

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4. Application of Law

4.1. Conditions for Non-or Deregistration as a Tax Practitioner

Section 240(3)(d) stipulates two conditions which both have to be satisfied before SARS is prohibited from registering a prospective tax practitioner or is obliged to deregister a registered practitioner. The prospective or registered tax practitioner must be –

• tax non-compliant for an aggregate period of at least six months during the preceding 12-month period; and
• must have failed to demonstrate compliance or remedy non-compliance within the period specified by SARS in a notice.

4.2. Condition One: Non-compliance

Condition one requires that a prospective or registered tax practitioner be noncompliant for an aggregate of at least six months during the preceding 12-month period. The Dictionary.cambridge.org defines “aggregate” as –⁶ 

“something formed by adding together several amounts or things”.

Therefore, the months during which non-compliance is present must be added together and if the total number of months forms at least six months during the preceding 12-month period, condition one is satisfied. Stated differently, condition one requires non-compliance for at least six out of 12 months. To avoid not being eligible to register, avoid deregistration, or to be registered pursuant to the application of section 240(3)(d), a person cannot merely be tax compliant for six out of 12 months. In such a case, the person will simultaneously be non-compliant for the same amount of time, and condition one will still be satisfied. Compliance must therefore be maintained for at least seven out of the preceding 12 months for the aggregate of six
months non-compliance to no longer be satisfied.

Since the use of the word “preceding” in section 240(3)(d) requires SARS to look back at the 12 months that go before, the satisfaction of condition one must be determined from a specific point in time. At this point in time, the prior calendar year is examined to determine the calendar months in which the tax practitioner did not qualify as compliant in accordance with section 256(3). Non compliant months include those in which the practitioner was not registered for a tax as required, had outstanding returns or tax debts, submitted a return or payment late, or failed to make arrangements with SARS in relation to returns or payments.

Furthermore, because compliance is measured in relation to the “preceding” 12 months, the period over which compliance is measured is not static – the preceding 12 months move or roll forward as time goes by, which necessitates measurement from different points in time when compliance is verified. SARS therefore continuously verifies tax compliance across tax types. For each month that the person ignores the notice issued under section 240(3)(d) from SARS to remedy non-compliance (see 4.3), a month of non-compliance is added to the aggregate, and as each month moves the rolling period forward, earlier compliant months will fall outside the period under consideration. Conversely, for each month that a person is compliant, the noncompliant aggregate will diminish in relation to the rolling period under consideration. It is therefore in the interest of persons who wants to practice as tax practitioners to remain tax compliant or remedy their non-compliance as soon as possible.

4.3. Condition Two: The Failure to Demonstrate Compliance or Remedy Noncompliance

Condition two prohibits SARS from registering a prospective and obligates it to deregister a registered tax practitioner if the relevant person fails to demonstrate compliance or remedy non-compliance within the period specified in a notice. The notice from SARS will provide the prospective or registered tax practitioners a reasonable period within which to demonstrate or remedy the non-compliance.

Should the recipient not respond or responds but fails to demonstrate compliance or remedy non-compliance in the period provided by SARS, condition two will be satisfied. Prospective and registered tax practitioners are therefore encouraged to liaise with SARS, using the contact information provided in the notice, particularly if compliance can be demonstrated or assistance is needed to remedy non-compliance.

4.4. Interrelationship Between Condition One and Two

As indicated by the word “and” in section 240(3)(d),⁷ both condition one and two have to be satisfied for non-registration or deregistration to follow. Additionally, condition two is contingent on condition one, since the failure to demonstrate compliance or remedy non-compliance can only arise if the records at SARS’ disposal show that a person is tax non-compliant on an aggregate basis. Stated differently, for as long as condition one is satisfied, condition two remains in play. However, condition two becomes superfluous when condition one is no longer satisfied.

The following two questions may be asked, to determine whether section 240(3)(d) applies in any given case. Firstly, is the person non-compliant for the aggregate months? If the answer is no, condition one is not satisfied and condition two, superfluous and the section does not find application. If the answer is yes, condition one is satisfied, and it becomes necessary to ask the second question – has the person failed to become compliant in the period given in the notice from SARS? If the answer is no, condition two is not satisfied and the section does not apply. If the answer is yes, condition two is satisfied but because time has passed, the first question must be posed again to establish whether it still finds application in the current rolling period under determination. If the answer is no, condition one and the section does not find application. If the answer is yes, both conditions are satisfied, and section 240(3)(d) finds application. As demonstrated below, this cycle continues until the answer to the first question is no, in which event the answer to the second question is irrelevant.

As both conditions must be satisfied, SARS can register a prospective and cannot deregister a registered tax practitioner who demonstrates compliance or remedies non-compliance before expiration of the period given in the notice from SARS. Those who remedy non-compliance after expiration of the notice period will remain in this cycle until such time as their non-compliance no longer satisfies condition one. The duration of this cycle will depend on the person’s past and future record of compliance as both can either assist or impair the road to becoming compliant for seven out of 12 months. A tax practitioner who is compliant but neglects to demonstrate such within the notice period, can upon demonstration, once again be registered, as that person was compliant all along. Prospective or registered tax practitioners are therefore encouraged to act upon a notice from SARS in order to be registered, avoid deregistration, or reduce the period of deregistration.

Examples of the application of section 240(3)(d) are contained in Annexure B.

5. Conclusion

Subject to specified exceptions, a natural person who provides advice on the application of a tax Act, or who completes or assists in completing a return on behalf of another person, must register with or fall under the jurisdiction of a recognised controlling body and must register with SARS, within the prescribed periods. Section 240(3)(d) prohibits registration as a tax practitioner and requires deregistration of a registered tax practitioner by SARS, if a prospective or registered tax practitioner has not been compliant for an aggregate of at least six months during the preceding 12-month period and has failed to demonstrate compliance or remedy the noncompliance within the period provided by SARS in a notice.

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In-text Referencing 

1. Those contained in section 240(2).
2. See definition of “controlling body” and “recognised controlling body” in section 239.
3. Section 240(1).
4. Section 234(2)(c).
5. Section 240(3)(d) applies with effect from the date of promulgation of the Tax Administration Laws Amendment Act 22 of 2018, namely, 17 January 2019.
6. https://dictionary.cambridge.org/dictionary/english/aggregate [Accessed 29 July 2024].
7. The section states that “[a] person may not register as a tax practitioner under subsection (1) or SARS may deregister a registered tax practitioner if the person or the registered tax practitioner, as the case may be … has “not been tax compliant to the extent referred to in section 256(3) and has failed to……”.

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