Some company executives in South Africa are playing with fire by taking tax positions that are perilously close to tax evasion. This is a dangerous situation for company directors, who could burn their fingers severely by association.
“How many taxpayers are blissfully living the lie that their tax shenanigans will never see the light of day? Not everyone has woken up to the fact that SARS, SARB and other enforcement agencies have joined forces to bring tax evaders to book,” says Willem Oberholzer, tax partner at accounting, tax and business advisory firm BDO South Africa.
Commenting on the recent announcement that SARS has launched a compliance programme to grow tax payment levels, he says information sharing among enforcement agencies has greatly strengthened the hand of SARS.
“SARS is able to gain much more information on potential evaders and this, combined with the grossly negligent ways in which some taxpayers file their returns, will come back to haunt non-compliant companies and individuals in the future,” Oberholzer says.
“Tax has become a significantly complex matter that, if not handled correctly from inception to completion, could translate into penalties and interest that far exceed a company’s top line, not to mention its bottom line.”
Oberholzer says it will be an “exceptionally sad day” when directors are held accountable for the tax shenanigans of others.
He cites two forms of irregular practices that are not uncommon in South Africa, one among individual taxpayers and the second among executives in large multinationals.
“There are individuals who have run 10 to 15 companies and accumulated significant assets without ever paying more than R50 000 a year in personal or company tax,” Oberholzer says.
“This is being done through nefarious practices such as double accounting, fictitiously changing the nature of income to liabilities, and rolling income and expenditure through entities that have built up enough credit with commercial banks.
In the case of multinational organisations, executives have been known to take risks on cash flow management and adopt aggressive filing approaches without the knowledge of the board and shareholders.
“Board members should be asking themselves what filing positions the company has adopted and what tax risk they are facing as a result,” says Oberholzer. “If your answer is, ‘I don’t know’, should you not be concerned that you could be held personally liable for the conduct of managers trying to save face through the juggling of tax accruals and tax cash management?”
While the blame for tax evasion is often levelled at small and medium enterprises, oversight is large multinational companies is often far from flawless. “Some are deliberately adopting tax positions that are so close to the wind that the masts of tax evasion are at breaking point,” he says.
What individuals and companies should not overlook is the growing information capabilities of SARS. “SARS has one light that shines brightest in these dark times, and that is the fact that information sharing and integration are a reality,” Oberholzer says.
“The second reality that taxpayers should be aware of is that information is available on you. There is no longer anywhere to hide. Non-compliance and non-declaration of PAYE, VAT, income tax and customs duties will inevitably be detected.”
Willem Oberholzer, BDO SA tax partner