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n Business Tax and Company Law Quarterly - The Tax Administration Act : What every corporate tax administrator should know (part 3) - the understatement penalty regime revisited

Volume 4, Issue 4
  • ISSN : 2219-1585

Abstract

The new understatement penalty regime has given rise to significant controversy between taxpayers and SARS. In essence, SARS argues that the new regime applies in respect of any 'understatement' in relation to which the verification, audit or investigation necessary to determine the additional tax, penalty or interest had not been completed before the commencement date of the Tax Administration Act, 2011 ('the TAA'). Taxpayers in turn argue that to impose an understatement penalty in respect of any understatement that occurred before the commencement date of the TAA amounts to retrospective application of the regime and is not permitted in terms of the general provisions of our common law and Constitution. This article explores this conundrum and concludes that, as presently enacted, section 270(6) of the TAA requires understatements that occurred prior to the commencement date of the TAA to be dealt with under the relevant provisions of the various tax Acts. That is, that it is not open to SARS to impose an understatement penalty in these circumstances. However, the Tax Administration Laws Amendment Bill, 2013 proposes a number of amendments to section 270 of the TAA with the aim of legislating SARS's preferred approach - namely that the new understatement penalty regime applies in respect of any understatement where the verification, audit or investigation necessary to determine the relevant additional tax or penalty that could be imposed under the now repealed provision of a tax Act had not been completed before the commencement date of the TAA. However, in terms of another proposed amendment to section 270(6), the relevant understatement penalty is required to be remitted (in whole in the case of VAT and wholly or partly in the case of income tax) by SARS if an understatement penalty is imposed as a result of an understatement made in a return submitted before the commencement date.

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/content/btclq/4/4/EJC174099
2013-12-01
2019-08-23

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