SARS’ verifications, IT14SD, additional assessments and understatement penalties

SARS’ verifications, IT14SD, additional assessments and understatement penalties

Most companies would by now have filed their ITR14 for the 2019 tax year and many would have been selected for verification. This means they will have to file the dreaded IT14SD. The IT14SD is not particularly difficult to complete and should not be a problem per se (given that the required recons would ideally already have been prepared in anticipation of the verification).The headaches normally start after the IT14SD is submitted. Submission of the IT14SD is usually followed by either:

  • a completion notice; or
  • a request from SARS for an explanation of why certain expenses rank for deduction and why amounts should not be taxed. These requests typically include a threat of an understatement penalty (“USP”).

If you get a completion notice, congratulations, you are “off the hook”, for now! If you get a request for information, you may have a hard time lying ahead. Depending on the facts, responding to the requests may be either simple or complex but in our experience, you can take the threat of USP seriously. Hence, a proper response to the questions raised is warranted (careful consideration should be given though to how you respond to the USP query – SARS bears the onus of proof on USP’s).

In the event that your carefully considered response to SARS’ questions falls on deaf ears or if they simply disagree with your submissions, the inevitable result is a notice of adjustments and additional assessment/(s). The effect of such additional assessment is typically a reduction in refund/assessed loss or a higher than expected tax liability coupled with a USP. Assuming you are not happy with that result, you will have to follow the dispute resolution process, starting with an objection.

The prospects of a successful dispute will depend on the facts, how effective these facts are brought in line with the law and presented to SARS to prove the assessment incorrect/at least partially incorrect on the merits of the case. Whilst we at Unicus Tax have a 100% success rate in winning cases against SARS for our clients through dispute resolution procedures (at the time of publishing this article), we are seeing an increase in taxpayers struggling to win disputes with SARS. There are at least two reasons for this, in our view:

  • SARS’ basis for their adjustments are increasingly more accurately based on the provisions of the relevant tax act (i.e. their reasons for the adjustments/assessment are more legal and technical in nature than what it used to be); and
  • It seems to us that whoever is attending to the objection often does not fully appreciate the role that “onus of proof” plays in tax disputes and/or lacks the technical veracity required lately in many cases to displace SARS’ legal and factual contentions.

Also, getting a remission of the USP can be tremendously difficult if you don’t manage to convince SARS that the underlying adjustments made are incorrect. Stated differently, if you don’t win the objection on the underlying adjustments that caused the penalty in the first place, the penalty will likely stay. That is, off course, assuming SARS followed due process to impose the penalty – something that in our opinion and experience, they often do not do, especially if the assessment is raised following an IT14SD process. Identifying these areas of non-compliance and effectively basing a dispute on such issues is something that requires an in depth understanding of tax law and dispute processes and is something that we have had great success with for our clients.

If you received an adjustment letter/audit findings/finalisation letter/additional assessment (ITA34)/VAT217/EMP217 from SARS, or you anticipate receiving any of these, you are invited to contact us. Chances are we will be able to successfully resolve your case as we have for all our dispute resolution clients to date (at the date of publishing this article). Kindly note, however, that client acceptance is at our sole discretion.

Understatement Penalties

Understatement Penalties

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