Safe VAT?

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Safe VAT?

• 08 May 2023
• VAT
• Christo Theron

An opinion from a registered tax practitioner may not provide the protection that a taxpayer may think it affords. And the consequences of the protection leaving a taxpayer in the lurch may give birth to tax disaster. 

Introduction

Taxpayers are sometimes under the impression that, if they are in possession of a tax opinion issued by a registered tax practitioner, they are protected against the imposition of understatement penalties. 

Nothing can be further from the truth.

This article explores the circumstances under which a taxpayer can rely on an opinion issued by a tax practitioner as a hedge against the imposition of understatement penalties.

The understatement regime

Understatement penalties are imposed on understatements; nothing new there!

The question is how do you get out of the misery once an understatement penalty has been imposed by SARS?

Understatement penalties are imposed based on the level of mischief that a taxpayer has been guilty of. 

What are the levels of mischief?

The first level is not really a measure of mischief. It is simply a computation of the actual quantum of the understatement. If it exceeds the higher of 5% of the tax properly payable or R1 million, the mischief is classified as a substantial understatement.

The other levels of mischief are reasonable care not taken in completing a return, no reasonable grounds for tax position taken, impermissible avoidance arrangements, gross negligence, and intentional tax evasion.

So where does the tax practitioner opinion come in?

A tax practitioner's opinion only provides relief in instances of a substantial understatement. 

If the understatement penalty was imposed in respect of any of the other categories of mischief, the relief does not apply to the taxpayer.

But it does not end there …

The relief only applies in instances where the taxpayer has entered into a tax arrangement in respect of which all the details have been supplied to SARS before the VAT return was submitted. The taxpayer must also be in possession of an opinion issued by a tax practitioner indicating that he/she is of the opinion that in the case of the issue being challenged in court, the taxpayer will win the case.

The relief provided to a taxpayer in terms of an opinion held by a tax practitioner is therefore limited to very specific circumstances.

But it is not all doom and gloom …

The upside

Where SARS imposes an understatement penalty, the onus is on SARS to prove that the mischief in respect of which the penalty has been imposed, exists.

Where the taxpayer is in possession of a tax opinion issued by a registered tax practitioner, it may go a long way towards proving that the taxpayer has acted bona fide and has not acted irresponsible or negligent. 

Conclusion

While obtaining a tax opinion issued by a tax practitioner is always the prudent thing to do when dealing with complex transactions, the protection that the opinion provides the taxpayer with is sometimes misunderstood resulting in potential tax trauma for the taxpayer. 

The golden rule: don’t let the devil in the details cast a spell on you!

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