THE INTERPLAY BETWEEN PROCEDURAL FAIRNESS AND SARS’ NEW APPROVAL OF INTERNATIONAL TRANSFERS (‘AIT’) PROCESS

The South African Revenue Service (‘SARS’) recently announced a new ‘Approval of International Transfer’ (‘AIT’) process which is an enhanced tax compliance status (‘TCS’) system. The AIT process takes effect from 24 April 2023.

Tax Compliance Status

The Tax Administration Act 28 of 2011 (‘TAA’) governs a taxpayer’s TCS under Section 256 and gives effect to a taxpayer’s right to apply to SARS for third-party access to a taxpayer’s tax compliance status.

An Authorised Dealer must use a TCS Pin to verify the taxpayer’s TCS, prior to effecting any international transfers. An Authorised Dealer is defined in the South African Reserve Bank Circular as a person authorised by the Minister of Finance or an officer in the National Treasury to deal in foreign exchange.

Single Discretionary Allowance

Every natural person, that is a South African resident aged 18 years and over, may use their single discretionary allowance to transfer R1 million per calendar year. A TCS Pin is not a requirement for the yearly single discretionary allowance transfers of up to R1 million.

SARS’ new ‘Approval of International Transfer’ (‘AIT’) process must be followed where a resident wishes to transfer funds in excess of the single discretionary allowance.

A non-resident must apply to SARS for a TCS for approval of international transfers, after receiving their cessation of residency letter.

SARS’ information-gathering process

The AIT process replaced the prior Foreign Investment Allowance (‘FIA’) and Emigration Tax Compliance Statuses. The replacement gave rise to additional information required by SARS before approving international transfers. In SARS’ media statement of 03 May 2023, SARS mentioned that the additional information is required so that SARS can ensure that taxes have been paid and that any non-compliance detected through a verification or audit is further addressed.

Where SARS conducts an audit to detect any non-compliance, SARS is obliged to comply with the procedural requirements of an audit under Sections 40 and 42 of the TAA. As held by the Tax Court in

Mr. A v CSARS (IT13726), non-compliance with the pre-emptive procedural requirements of an audit could render future assessments to be invalid. Such assessments may consequently be set aside.

Supporting Documents

Applicants are required to submit certain documents in support of the AIT application. These documents include a statement of foreign assets and liabilities, details of locally listed securities (if subject to the transfer) and source documents. Residents and non-residents must both supply an international asset and liability list.

Where a non-resident (in tax terms) lodges an AIT application, a cessation of residency letter is required to support the application.

The relevant source documents are extensive and are largely dependent on the nature of the source of the funds to be transferred. Sources with specific documentary requirements include a loan, donation, inheritance, savings, fixed deposits, investment income, sale of shares, listed securities, sale of property, sale of crypto assets, royalty income, earnings, trust distributions, and beneficial interest income.

SARS’ Turnaround Time

SARS averred that the new AIT system aims to dramatically improve turnaround times for taxpayers and traders that are compliant. Quick turnaround times significantly impact the monetary interest to be earned on foreign investments.

Section 256(2) of the TAA states that SARS must provide third-party access to a taxpayer’s TCS within 21 business days or a longer period as may reasonably be required to confirm the correctness of the taxpayer’s TCS. If SARS requires an extension beyond 21 business days, the grounds of extension must be ‘reasonable’. This requirement ties in with just administrative action under Section 33 of the Constitution of the Republic of South Africa, 1996 which is justiciable through the Promotion of Administrative Justice Act 3 of 2000.

It remains to be seen whether the new AIT process will positively impact the effectiveness of the TCS system. The frequent interplay between the new AIT system and SARS’ procedural obligations in terms of section 42 of the TAA is further expected to come to the forefront.

Intellectual property disclaimer:
The contents of any article published by Pieterse Sellner Erasmus should not be construed as professional legal advice.