your exclusive invitation to the high wealth individual taxpayers unit
Wealth accumulation is generally perceived to signify the achievement of a particular status, financial or otherwise, in society. Of late, such status may also have resulted in attaining membership to SARS’ new exclusive club for high-net worth individuals which, unfortunately, does not have an ‘opt out’ button.
WELCOME TO THE CLUB
SARS recently sent letters to selected taxpayers notifying them that their tax portfolio has been allocated to a dedicated High Wealth Individual Taxpayers Unit (“HWI Unit”). These notifications are in alignment with SARS’ intent to increase reviews and audits of the tax affairs of high-net worth individuals, based on SARS’ perception of a higher propensity to implement tax avoidance strategies by this particular category of taxpayers.
Internationally, similar units have already been established in Australia, the United Kingdom and the United States, with varying levels of success. While there is no doubt that the establishment of the HWI Unit has merit, the ultimate success of the endeavour will depend on certain fundamental factors.
These factors include the skills or experience residing in the HWI Unit relating to the taxation of complex international and domestic corporate-, trust- and hybrid structures, as well as estate planning.
A lack of proper execution of targeted risk-based audits with clear processes and consistency in the application of the relevant tax Acts could have a detrimental impact on SARS’ strategy to encourage voluntary compliance by taxpayers, especially taxpayers falling within the HWI Unit that contribute a significant amount to the already shrinking tax base.
The optimal functioning of an HWI Unit may take a number of years, as the requisite knowledge and experience may not necessarily be readily available. It is likely that SARS will need to call upon the expertise of industry experts to provide input and assist with the development of increased knowledge levels.
Furthermore, targeted risk-based audits will only be possible where SARS is fully aware of all of the relevant taxpayer’s domestic- and offshore structures and investments. Global connectivity and formal information-sharing agreements (i.e. Common Reporting Standards) have made it possible to gain access to data that was previously inaccessible to SARS. Even social media posts flaunting accumulated wealth could increase the likelihood of a taxpayer being earmarked for an audit.
High-net worth individuals that have been designated to the HWI Unit and those on the cusp of being admitted, would be well placed to re-evaluate their domestic and international tax affairs. The establishment of proper tax risk management is also of utmost importance, as this will assist in discharging the burden of proof imposed on a taxpayer in the event where a review or audit is conducted by SARS.
if you are a high-net worth individual that requires an evaluation of your current tax strategies and please follow us on social media to keep track of tax-related developments.