SARS uses automatic exchange of information to identify non-compliance
The Tax Administration Act No. 28 (2011) (“TAA”) allows the South African Revenue Service to provide and procure administrative assistance to and from foreign tax authorities under international tax agreements. Such administrative assistance can be effected in the form of an automatic exchange of information request.
WHAT IS AUTOMATIC EXCHANGE OF INFORMATION?
Automatic exchange of information (“AEOI”) entails the systematic and periodic submission of taxpayer information by the source country to the country of residence. The aim of AEOI is to promote voluntary compliance by attempting to deter cross-border tax avoidance and evasion.
This is achieved by using information procured from a foreign tax authority to identify possible instances of non-compliance. For example, information pertaining to foreign assets held by a South African tax resident can be utilised to verify that all foreign income has been correctly declared for South African income tax purposes.
AEOI IN PRACTICE
At the beginning of 2021, the South African Revenue Service (“SARS”) warned property owners earning fees from the provision of accommodation, that such fees should be declared for income tax purposes. It was speculated that the call to regularise tax affairs was aimed at property owners that use the Airbnb platform. The Airbnb platform is owned and operated by a tax resident of Ireland, Airbnb Ireland UC.
In March 2022, SARS issued an exchange of information request to the Irish Tax Authority to procure information regarding South African tax resident hosts. The Irish Tax Authority immediately engaged Airbnb Ireland UC to obtain transactional lists pertaining to the 2019 and 2020 tax years. Given the legislative duty to comply with said request, Airbnb Ireland UC provided the requested information to the Irish Tax Authority. SARS will use the information procured to identify instances of non-compliance by South African taxpayers with relevant tax Acts.
THE FUTURE OF TAX COMPLIANCE
It is anticipated that the AEOI request submitted to the Irish Tax Authority will be the first of many. Joint audits with foreign tax authorities have long been on SARS’ agenda. Joint audits will allow a more comprehensive approach and empower SARS to target multi-national enterprises with headquarters in foreign tax jurisdictions.
It is, therefore, advisable that taxpayers that have engaged in cross-border transactions ensure that their tax risk management policy and procedures include their international tax affairs. Furthermore, taxpayers should follow a proactive approach and regularise their tax affairs by identifying and remedying any instances of non-compliance.
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