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SARS Declares War On Corporate Tax Avoidance Schemes

by Robert Lee, Tax-News.com, London

12 January 2007


The South African Revenue Service (SARS) has warned businesses that it will "vigorously challenge" aggressive tax structures designed to mitigate tax, after noting a rise in corporate tax avoidance.

In a statement released Wednesday, SARS said that it has become aware of certain transactions which are structured in such a way that "they show complete and reckless disregard for tax morality and South African tax law".

"Through elaborate structuring, these deals seek to deliberately avoid the tax consequences that should flow from the associated transactions thereby robbing not only the fiscus of tax revenue, but all South Africans," the tax authority stated.

"The South African Revenue Service gives notice that it intends to carefully examine these transactions in order to ensure that no impermissible tax loss occurs. The architects of certain tax aggressive structures will not be permitted to abuse South Africa’s tax provisions in ways clearly unintended by the legislature. They will be vigorously challenged," the statement warned.

SARS's statement struck a moral tone by suggesting that the use of such schemes hampers efforts to alleviate poverty, and hinders the overall development of South Africa. SARS said that it will talk to shareholders, investors and advisors involved in certain schemes to gain a deeper understanding of their intentions and how they square with government policy in this regard.

"The South African Revenue Service calls upon corporate leaders to take greater responsibility to ensure that the advice that they pursue does not undermine South Africa’s tax base and the compliance morality that we are successfully building in the country," the service continued.

"We once again urge institutions involved in designing aggressive tax schemes intended to abuse the law and deprive the fiscus of its fair share of revenue to desist from such schemes. These are the activities that lead to complexity in our tax law," it concluded.

The issue of corporate tax evasion has taken a prominent position on the South African political agenda in recent months. Last year, South African Finance Minister Trevor Manuel announced that tough new measures will be introduced as part of the Revenue Laws Amendment Bill to crack down on corporate tax avoidance.

Manuel stated that a revised general anti-avoidance rule (GAAR) would target the "most serious elements" of schemes devised purely for the avoidance of taxation, and would be supported by an enhanced system of required reporting known as 'reportable arrangements' to give the government an early detection system.

"At the end of the day, these schemes cost the fiscus billions in tax revenue – money which can be much better spent for society’s benefit elsewhere," Manuel told parliament last year.

"The goal is to reach a state where these schemes can become 'dead on arrival' when presented to any responsible board of directors," he concluded.


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