And now for something completely different. No more lip service and the time for action is now, as SARS discusses GAAR. Welcome to the wonderful world of the new General Anti Avoidance Regulations (GAAR).
"We need a tax system where transactions are evaluated on substance and change the fact that individuals are still managed by 19th century formulations, says SARS' Ed Liptak, law interpretation and head of advance tax rulings.
November 2 is the effective date of the new regulations, although the President of the country has yet to sign the bill into law. He also has to sign the so-called gay marriages Act, and the deadline there is 1 December. We wait and see which one will be signed first.
New GAAR is to take away the artificial steps. "We won't touch the underlying loan but will take out some of the steps in the transaction, which aren't appropriate, from a tax point of view," says Liptak
On the subject of advance tax rulings and GAAR, Liptak says that the rulings are binding - either way, when it comes to advance tax rulings, and any SARS auditor that approaches the parties following the ruling can't interfere, unless there is blatant illegality.
"We want people to be taxed on the actual transaction and nothing more. Historically the antagonistic audits are thing of the past," he says.
Ernest Mazansky from Werksmans Tax says that the voice of reason seems to have prevailed, within SARS, when it comes to the new GAAR, although he did wonder how long the business community would have to wait for relief - perhaps the next budget?
Mazansky did caution that it would take years before there was any legal certainty, when one considers the legal process involved in appealing high court decisions, via the Supreme court of appeal.
Mazansky also warned that there may even be a Constitutional Court appeal as the commissioner could possibly circumvent the country's parliament, by determining how and what taxes are paid.
There are essentially five elements that SARS need to identify in any transaction for it to be in contradiction of the new GAAR.
These are no commercial substance; abnormality, non-arms length and misuse or abuse and the SARS only need to identify any one of these five elements.
In one particular film scheme recently, there were all five elements present.
There is now a commercial substance test. SARS were at a disadvantage in the past, as they had to bring in expensive experts to understand the issues. The new test will minimize the need to spend this revenue. SARS can't continue to do this on a case by case basis. We will now follow the cash in any transactions.
Offsetting or self-canceling arrangements were highlighted as two areas that the commercialization test will identify and eliminate. Round-trip financing will also be identified and dealt with.
The means and manner in the round-tripping activity is irrelevant. The timing of the steps is also of no consequence, says Liptak.
Another area that will focused on is the issue of the accommodating or tax indifferent party. He says that SARS doesn't have that much of a problem. Essentially the parties need to be doing something 'bad'.
It appears that many practitioners have been looking at gaining some commercial value from the tax legislation, and this is a function of an outdated tax structure, which SA is now addressing.
He mentions also that transitory SPVs will be very closely looked at, and are essentially a thing of the past.
Added to which SARS are in the process of establishing a centralized committee, based on international best practice so that notices and application of GAAR activities pass through this catchment area.
He maintains that this should eliminate the changes of a rogue auditor that may be hiding in one of the regional offices, and it also reduces the possibility of any more frivolous audits.
The defence that everyone is doing it and the perception of abnormality is a complicated one, although existing case law will be used as a means test.
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