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SARS Scores!

The South African Revenue Service (SARS) recently celebrated an achievement in its compliance revenue initiative, announcing an impressive collection of R293.7 billion.

The message they were sending is clear: Despite operating with a relatively lean team of just 12,500 employees, SARS is committed to being a driving force behind a more efficient and effective economy. This commitment is supported through their tax administration and compliance efforts, which are foundational to their goal of voluntary compliance among taxpayers.

Though, you may wonder, “How do they plan to maintain this force?” According to SARS, the strategy is simple. They’re following the money.

The War Against Non-Compliance

In the battle against non-compliance, SARS has been uncompromising, showing no restraint even when dealing with its most formidable opponents, and the effectiveness of their stringent measures is undeniable, particularly in prominent cases involving high-profile taxpayers. Inherently, high-net-worth individuals and multinational enterprises (MNEs) are outlined as significant contributors to those who fail to comply, and finding and proving this non-compliance can mean a difference of millions, or even billions, in revenue for SARS.

Innovative measures like the establishment of the High-Wealth Individual Unit and the legal implementation of advanced pricing agreements have significantly expanded SARS’s capabilities. These initiatives have become a major deterrent for wealthy individuals and multinational enterprises (MNEs) evading their tax responsibilities.

MNEs Be Warned

MNEs are no strangers to international transactions, yet many overlook compliance with international tax laws. Despite the ‘arm’s length principle’ and specific transfer pricing articles being well-established standards by the Organisation for Economic Co-operation and Development (OECD), a significant number of MNEs regularly find themselves subject to transfer pricing audits.

This issue is primarily due to a failure to properly establish a tax and legal framework that validates the commerciality and profitability of ‘affected transactions’ that occur between entities under the same corporate umbrella.

SARS’s Strategic Advantage

The myth that SARS lacks the expertise necessary for conducting audits has been thoroughly debunked with the R36.6 billion accumulated from a combination of 31 transfer pricing, five international, and eight integrated audits.

The secret lies in SARS’s sophisticated approach. By leveraging artificial intelligence, data-driven processes, and outsourcing certain operations, SARS has evolved into an exceptionally competent revenue authority, the likes of which South Africa has never witnessed before.

For MNEs, SARS’s approach emphasises the importance of securing expert tax advisory and legal support. Ensuring the integrity and compliance of transfer pricing documentation, including local and master files, is crucial to withstand the scrutiny of SARS.

More About Wealth Scrutiny

The establishment of the High Wealth Individual Unit and the rigorous Approval for International Transfer (AIT) process are clear indicators of SARS’s intensified efforts to ensure equitable tax contributions. Despite noting a decrease in high-wealth emigration applications, South Africans have not reduced their interest in finding alternative methods for tax optimisation, including through offshore investments. SARS advises prospective applicants to thoroughly organise their financial affairs before applying, as an application will likely initiate a comprehensive risk review.

Maintaining Compliance to Protect Your Wealth
Being under the scrutiny of SARS can be daunting, whether it’s your personal or business finances in question. It’s critical to have sound tax planning to ensure you are compliant. If you have received communication from SARS or require assistance ensuring compliance with your tax affairs, the experts at MMS Group can assist you. Our tax advisers are well-versed in compliance strategies and can help you take informed action if necessary. Reach out for more information.