The concept of reportable arrangements was introduced in 2005 to require early disclosure to the South African Revenue Service (SARS) of certain types of transaction that may give rise to tax avoidance concerns so as to enable SARS to investigate them timeously. Fewer than 150 transactions were reported by 2008, causing significant amendments to the reportable arrangement legislation to ensure a greater response.The draft Taxation Laws Amendment Bill of 2014, published in July for public comment, contains several proposed changes to the reportable arrangement legislation. Some of the main proposals are:
- Extending the reporting requirement to all taxpayers – Currently, only a company and a trust can be required to report a transaction under these provisions. It is proposed that the reporting obligation is extended to all kinds of taxpayers.
- Shifting the reporting responsibility to all participants – In terms of current legislation, the obligation to disclose is first and foremost on the so-called “promoter” (the person principally responsible for organising, designing, selling, financing or managing the transaction). Only if there is no promoter, or the promoter is a non-resident, does the obligation shift to the participants to the transaction. In terms of the draft legislation, the proposal is that the disclosure obligation will be on all the participants and the promoter simultaneously. They will not be absolved from reporting unless they have a written statement from one of the others that the arrangement has been reported to SARS.
- The reporting requirement is extended to apply to older transactions – There is a further proposal to amend the current requirement that a reportable arrangement must be reported within 45 days after the first cash flow or the first unconditional legal obligation or entitlement to pay. In terms of the legislative proposal, disclosure will be required within 45 days after an arrangement qualifies as a reportable arrangement. This means that a reporting requirement can not only arise in respect of new transactions, but also where an existing transaction, for whatever reason, becomes a reportable arrangement. Lastly, it is proposed that a taxpayer must disclose a reportable arrangement within 45 days of becoming a participant of the arrangement. Again, this can trigger a reporting requirement in respect of existing reportable arrangements where new participants join.
These proposed changes come hot on the heels of the release of a draft notice in June, listing various transactions that SARS considers “reportable arrangements”. The draft list comprises a wide variety of transactions, including certain arrangements which involve payment of service fees to non-residents, share buy-backs, rebates of foreign taxes, contributions to non-resident trusts, payments to foreign insurers and the purchase of companies in assessed loss positions. Taxpayers that participate in the arrangements which meet the criteria set down in the list will be required to report them to SARS once the list becomes final.
The proposed changes and lists may indicate a new initiative by SARS to render the reportable arrangement provisions more effective.
Rone La Grange
Associate Director
rone.lagrange@kpmg.co.za