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SARS And Banking Association Of South Africa Sign Agreement To Minimize Tax Avoidance

by Robert Lee,, London

02 February 2009

It emerged last week that the South African Revenue Service (SARS) and the Banking Association of South Africa have signed an agreement establishing a framework for co-operation, in order to improve levels of tax compliance, discourage "impermissible tax avoidance arrangements" and enhance service.

By signing the accord, the two parties effectively concluded an eight-year process of engagement on the matter, which has been underway since the Minister of Finance expressed serious concerns about the effective tax rates of the banking industry in South Africa.

According to SARS, the agreement follows the approach of the OECD’s Forum on Tax Administration, which South Africa chairs. It will seek to further enhance relationships between SARS and banks, and provide greater certainty on the interpretation and application of tax and customs laws and the identification of tax risks.

The tax authority explained that:

"A key feature of such an enhanced relationship will include the establishment of a Banking–SARS Forum which will seek to promote tax certainty for Banks. These matters have the potential to be translated into industry standards once accepted by SARS and the Banking Association Board."

It continued:

"Amongst other things, the Accord will:

  • Establish a guiding framework for future engagement. This framework will promote better service offerings to the Banking industry while pursuing a climate of higher tax morality.
  • Strive to protect the South African tax base and leveling the playing field in the industry by discouraging impermissible tax avoidance arrangements.

This will translate into ongoing monitoring of banks' effective tax rates while providing an enabling environment of greater tax certainty and resolution of common concerns."

Under the auspices of the accord, the Banking Association has committed to regularly determine, scrutinise and monitor the effective tax rate of individual banks and across the banking industry; raise awareness of tax governance processes to Board level within banks; enhance risk management and governance processes to ensure optimal tax compliance; improve the quality and timeliness of information flows to SARS; and co-operate on issues of mutual concern.

SARS, meanwhile, has agreed to offer dedicated services to the banking industry through the Large Business Centre, which will include the appointment of a taxpayer relationship manager to focus exclusively on the banking industry; deepen its understanding of the banking industry in terms of building technical and professional skills; and offer an advance ruling system that is responsive and facilitates tax certainty for banks and the industry as a whole.

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