Worldwide - Alarm over new company tax weapon

A NEW accounting standard will be added to the South African Revenue Service’s (SARS) armoury to collect taxes from companies . Companies will be required to account for all tax uncertainties in their financial statements, giving tax authorities the power to seize audit working papers. Tax analysts said at the weekend if the draft accounting standard were to be implemented in its current form, SARS “will use it without shame and unequivocally against taxpayers” to boost revenue collections.
Alarm over new company tax weapon
SANCHIA TEMKIN
Published: 2009/08/17 06:39:06 AM

A NEW accounting standard will be added to the South African Revenue Service’s (SARS) armoury to collect taxes from companies .

Companies will be required to account for all tax uncertainties in their financial statements, giving tax authorities the power to seize audit working papers.

Tax analysts said at the weekend if the draft accounting standard were to be implemented in its current form, SARS “will use it without shame and unequivocally against taxpayers” to boost revenue collections.

The International Accounting Standards Board recently released an exposure draft (ED 2009/2) on income taxes. The proposed accounting standard is intended to replace the existing standard on accounting for income tax (IAS12). Companies will be required to accurately reflect their liability for tax annually according to the exposure draft .

Marius van Blerck, group tax director at Standard bank , said the proposed accounting standard would apply to dozens of tax systems internationally. Van Blerck was speaking at a workshop on Friday hosted by the International Tax Institute in Johannesburg.

He pointed out a number of problematic provisions with the proposed accounting standard.

It requires tax assets and liabilities to be measured by using a probability-weighted average of all possible outcomes. This relates to all tax issues and not just disputes.

“It (the methodology) assumes disaggregation.” It assumed that it was possible to make accurate assumptions about the outcome of potential and actual disputes, on a case by case basis (instead of an aggregated basis), he said.

“I t requires extraordinary foresight (on the part of auditors).”

The most serious issue was that the exposure draft required companies to make disclosure of this information in their annual financial statements.

It was uncertain whether the authorities would accept the amounts presented to them, he said. Globally, tax authorities are under immense pressure to collect revenue and had initiated a number of steps against large companies to boost collections.

SARS was 12,2% (R20bn) behind on revenue collection, gross domestic product shrank 6,4% in the past quarter, and unemployment in the economy was growing.

Daniel Erasmus, chairman and CEO of TRM Services, said the disclosure element would confer more power on tax authorities.

The requirements could undermine a taxpayer’s due process rights by allowing tax authorities direct access to information that should be legally privileged.

“SARS would be able to ask for the working audit papers of a company — they would be able to seize a company’s documents.”

Erasmus said in the future companies would have to separate the responsibilities of audit partners and tax advisers by way of a tax risk-management programme.

Van Blerck expected the international accounting board to revise the exposure draft after a wide range of responses .

temkins@bdfm.co.za