Tax offences are contained in the Tax Administration Act, 28 of 2011 ("TA Act"). Various actions may constitute tax offences, including failure to submit lawfully requested information, obstructing the conducting of a lawful search and seizure and behavior aimed at evading due taxes. The TA Act makes a distinction between minor tax offences and serious tax offences. Minor offences are punishable by a fine and imprisonment not exceeding two years. While, serious offences are subject to a fine and imprisonment not exceeding five years.
Fraudulent misrepresentations to the South African Revenue Service, in a tax return or any statement or documentation presented to SARS may constitute a tax offence. This is the case whether the misrepresentation was made negligently or intentionally. Fraud may also be treated as either a minor or serious offence. The key determinant of this will be whether the fraud was committed with the intention to evade tax.
A person charged with an offense under the Act, may be tried in respect of that offense by a criminal court having jurisdiction within any area in which that person resides or carries on business, in addition to jurisdiction conferred upon a court by any other law.
SARS is the complainant in criminal investigations for tax related offences. Meaning all investigations are triggered by information coming to the attention of SARS. SARS has sophisticated information gathering powers, including direct requests through audits, but it may also oblige third parties to provide information without having initiated any formal audit process.
South Africa is party to the Convention on Mutual Administrative Assistance in Tax Matters and has concluded more than 20 tax information exchange bi-lateral agreements and includes automatic exchange of information provisions in several double taxation agreements. These initiatives significantly extended SARS' information gathering reach, increasing the likelihood of information relating to tax non-compliance and offenses coming to the attention of SARS.
There is no threshold for triggering criminal proceedings. However, if a person willfully or negligently makes a tax adjustment in contravention of the tax legislation, this may lead to an investigation by an official of the South African Revenue Service ("SARS"). The investigation of a serious tax offense such as tax fraud, must be carried out by suitably qualified and experienced SARS officials. Only a senior SARS official has the discretion to institute criminal proceedings concerning an offense related to tax fraud or tax evasion.
Essentially all tax offenses, including minor offenses, are punishable, with some even having a prescribed period of imprisonment. The general statutory offenses are contained in the TA Act and tax-type specific offenses are contained in the various tax Acts.
Not directly. However, understatement penalties are imposed on taxpayers on an increasing scale depending on the culpability of the behavior of the taxpayer. Having taken a reasonable position on the tax treatment of an aspect of a return carries a penalty of , while intentional tax evasion carries a 200% penalty.
With respect to non-serious offenses which mainly involve non-compliance, an intention or mere negligence is sufficient for a person/company to be found guilty of a criminal offense. However, for serious offenses which relate to matters such as tax evasion and obtaining undue refunds (essentially defrauding SARS) intention is the a prerequisite for a criminal offense.
Yes. Generally, the best way to avoid criminal prosecution is to come clean with SARS before they issue summons. SARS provides a mechanism for this through its Voluntary Disclosure Program ("VDP"). Should a taxpayer qualify and successfully make a full disclosure under the VDP they will receive amnesty from criminal prosecution regarding their tax offences.
Generally, no only a senior SARS official may lay a complaint with the South African Police Service ("SAPS"), or the National Prosecuting Authority ("NPA") concerning a tax-related offence for criminal prosecution to commence.
However, the SAPS may investigate a matter without the involvement of SARS and this may lead to the discovery of a tax offence which will then lead to the laying of a criminal complaint by SARS.
After 20 years from the date the offense was committed, the right to prosecute lapses under the Criminal Procedure Act 51 of 1977 (as amended). However, the prescription period or statute of limitations for tax debts, which is 15 years, should also be kept in mind. As certain tax crimes may persist as long as the tax debts in fact owed are not declared or settled.
The statute of limitations starts to run from the time the tax offence is committed. Where the tax crime consist of a fraudulent misrepresentation in a tax return, then the time is counted from when the misrepresentation is made.
Section 234 of the TAA sets out the requirement that taxpayers must have acted “willfully” or “negligently” to be found guilty of having committed an offense. The different types of conduct listed in section 234 relate primarily to administrative non-compliance and enforcing revenue collection, with less severe penalty provisions. Taxpayers who contravene any of the subsections are guilty of an offense and are subject to imprisonment for a period not exceeding two years.
Section 235 of the TAA on the other hand holds that a person must have acted with “intent to evade” or “to obtain an undue refund” to be found guilty of having committed an offense. Each subsection hereunder assumes an element of misrepresentation of information and is more serious. Any person who acts with intent to evade or to assist another person to evade tax, or to obtain an undue refund under a tax Act, is guilty of an offence and, upon conviction, subject to imprisonment for a period not exceeding five years. A taxpayer can be found guilty of an offense under the TAA if he or she acted "wilfully" or "negligently." In addition, the TAA lists various types of conduct relating to administrative non-compliance and revenue collection enforcement, with less severe penalties. Contraventions of any of the provisions are punishable by imprisonment for not more than two years.
The TAA, however, states that a person must act with the intention to evade or obtain an undue refund to be convicted of more serious offenses. These include the offense of evading tax, assisting another individual to evade tax, or obtaining an undue refund under the tax Act. For more serious offenses conviction results in five years of imprisonment.
A systematic approach to ensuring tax compliance and risk assessment procedures to flag potential violations of the compliance system is the best method to prevent tax offenses being committed. A compliance or risk mitigation program has in our experience greatly assisted in preventing the occurrence of behaviors that constitute tax crimes.
Having a compliance or risk mitigation program will also mitigate certain aspects of tax offenses. For example, being able to demonstrate systems to prevent negligent misrepresentations or negligent failures to submit returns, will aid in arguing against the causative requirement of negligence.
South Africa has the VDP, which aims to increase tax collection, improve tax system management, and allow SARS to use its resources more efficiently. The VDP provides an avenue for non-compliant taxpayers to regularize their tax affairs by disclosing tax defaults in previous assessment years.
Section 227 TA Act sets out the criteria with which a taxpayer must comply for a voluntary disclosure to be considered valid for purposes of the VDP. These requirements have been the subject of many and at times conflicting court decisions and caution must be excercised in approaching SARS to access the VDP.
For a voluntary disclosure to be valid under the VDP, a taxpayer’s application must meet the following requirements:
- it must be voluntary;
- relate to a default that has not occurred within five years of the disclosure of a similar default;
- be full and complete in all material aspects;
- relate to a culpable behavior by the taxpayer such as making a substantial understatement in a tax return;
- not result in a refund due by SARS; and
- be made in the prescribed form and manner.
Where a successful VDP application, the taxpayer is absolved from understatement penalties and criminal prosecution. However, no relief is given for accrued interest and penalties applicable to specific taxes.
Only if the taxpayer successfully completes a VDP. SARS carries a level of discretion to pursue criminal sanction for minor offenses.
In practice, generally where a criminal process is pursued regarding a tax offense, then SARS would concurrently pursue the recovery of the tax owed. However, the initiation of criminal prosecution does not pause the running of the 15 year statute of limitations on the collection of tax debts due.
Yes, SARS may proceed to collect tax due regardless of whether criminal proceedings are underway. The TA Act makes it clear that audits and criminal investigations are conducted separately. However, any relevant material obtained during an audit and prior to referral to a criminal investigation may be used for purposes of that criminal investigation. Similarly, any relevant material obtained during a criminal investigation may be used for audit purposes as well as in subsequent civil proceedings to collect the tax debt.
Overall, this depends on the nature of the tax crime in question. It is possible to reach a settlement on tax debts and non-compliance with the revenue authority prior to the institution of criminal proceedings. Once the criminal process is started, the decision to settle the criminal matter will lie with the NPA and this will be done through a plea bargain process. Meaning conviction, but with no or limited sanction, is the only option for settlement with the prosecutor.
Both companies and individuals may be prosecuted for tax offenses committed by a corporate taxpayer. Certain persons of authority within a company may be held personally liable for the tax debts and their role in any tax offenses committed by a company.
There are two main reasons for the potential personal criminal and financial liability of individuals such as directors. First, certain persons are deemed to be representative taxpayers of a company and these persons may be held personally liable for the actions of the company in relation to its tax compliance. Secondly, the crime of tax evasion in South Africa includes assisting another person to evade tax, which would implicate directors who act on behalf of a company in evading the tax liabilities of the company.
Yes, should they be involved in the commission of a crime in South Africa or in breach of South African law they may be prosecuted. This would include tax crimes which are committed through negligence. Although, practically this is subject to the extradition treaty South Africa might have with the foreign employee's/director's country of residence.
A director/employee of the company that is appointed as the public officer of the company may be cited as a representative taxpayer of the company in any prosecution, and he/she will be charged as if he/she was the accused of the offense. However, the company is generally liable for whatever amounts are due but SARS does have the power to pursue third parties for the tax debts of a company — this would include any person responsible for the financial management of the company, the public officer of the company, connected persons in relation to the company, shareholders, and any person that assists a company is dissipating its assets to frustrate the collection of a tax debt.
Yes SARS has been on a particular drive to pursue tax defaulters as part of a broader effort to increase tax compliance. This has involved the reinstatement of certain specialized divisions of SARS tasked with pursuing complex technical tax avoidance schemes and large corporate tax compliance. SARS has also implemented the use of technology to assess taxpayer behavior in order to target audits of taxpayer affairs. SARS has also increased the sources of third party information available, through increasingly requiring third-party disclosures by South African entities such as banks, insurance companies and other financial service providers. SARS has also made formal arrangements with the NPA to ensure prosecutorial resources are dedicated to the pursuit of tax crimes.
We have experienced an increased prosecution of income tax default and non-compliance especially relating to large corporates and emigrant individuals. Other areas of focus for SARS are Value Added Tax refund fraud, and customs and excise duty non-declaration or other intentional non-compliance.