Many individuals and companies have been severely affected by the financial strain of lockdown amidst an already struggling economy. In recognizing the impact, Government has developed a basket of programs directed at easing the financial strain on individuals and companies over the coming months. While many of these programs have been newly established, we must also make use of traditional mechanisms designed to bring financial relief.
The Tax Administration Act 28 of 2011 (“the Act”) affords taxpayers who are indebted to SARS the opportunity to request a compromise on their tax debt. While the purpose of a tax compromise is to ensure that SARS secures the highest possible return from the recovery of a tax debt where it is clear that an indebted taxpayer will be unable to pay the full outstanding amount that is due to SARS, it has the effect of bringing some much-needed financial relief to taxpayers.
What does a “compromise” mean in terms of the Act?
The term “compromise” is defined in the Act as:
An agreement entered into between SARS and an indebted taxpayer in respect of a tax debt;
Where the indebted taxpayer undertakes to pay an amount which is less than the full amount of the tax debt owed to SARS in full settlement of such debt; and
SARS undertakes to permanently “write off” the remaining portion of the tax debt on the condition that the indebted taxpayer duly pays the settlement and complies with any further conditions that may be imposed by SARS.
Who can request a tax compromise?
Any person who is or may be taxed by SARS and who has a tax debt.
How does an indebted taxpayer request a tax compromise?
An indebted taxpayer must submit a signed request together with a detailed statement setting out specific information about the taxpayer’s indebtedness, assets and liabilities. The statement must be accompanied by evidence that supports the indebted taxpayer’s claims that it is unable to pay the full outstanding amount due to SARS. Once received, SARS may request that further information be provided before making a decision.
In considering the request, SARS will take into account the extent to which the compromise will result in cost savings, speedier returns, collecting a higher amount that it anticipates would otherwise be recovered, and the abandonment of any monetary claim or right that the indebted taxpayer may have in respect of the Act.
When may SARS authorise a tax compromise?
In terms of section 200 of the Act, SARS may authorise a compromise of a portion of a tax debt if the purpose thereof us to secure the highest return from the recovery of the tax debt and it is consistent with considerations of good management of the tax system and administrative efficiency.
When may SARS not authorise a tax compromise?
SARS may not authorise a tax compromise in terms of the Act under any one of the following circumstances:
The indebted taxpayer was a party to an agreement with SARS to compromise an amount of tax debt within the period of three years immediately prior to the request for the current compromise;
The indebted taxpayer’s tax affairs (other than the outstanding tax debt) are not up to date;
Another creditor has communicated its intention to initiate or has initiated liquidation or sequestration proceedings;
The tax compromise will prejudice other creditors;
The tax compromise may adversely affect broader taxpayer compliance; or
The indebted taxpayer is a company or a trust and SARS has not first explored action against or recovery from the personal assets of any persons who may be liable for the debt in terms of the Act.
When will SARS not be bound by the tax compromise?
Once SARS has made a decision to authorise a tax compromise, it is not bound by any agreement to compromise the tax debt if it is apparent that the indebted taxpayer has:
Failed to disclose a material fact relating to the tax compromise;
Supplied materially incorrect information relating to the tax compromise;
Failed to comply with a provision or condition stipulated in the compromise agreement; or
Been liquidated or sequestrated before the indebted taxpayer fully complied with the conditions contained in the compromise agreement.
Concluding observations
A tax compromise is a discretionary tool afforded to SARS in the recovery of tax debts. However, it is a process that is initiated by a taxpayer. Given the current financial strains experienced across the board, SARS may be more amenable to authorise tax compromises during this time, particularly where it is clear that little possibility exists of recovering the full outstanding amount due.
If you have any queries about a tax compromise or would like assistance with determining whether you may request such compromise, contact us at 010 109 1055.