By Thereshnee Lamalettie, Consultant and Johann Benade, Associate Director
The correct completion of the annual income tax return remains an important obligation for all taxpayers, including companies.
All South African resident companies and, in prescribed circumstances, non-resident companies, are legally obligated to file accurate income tax returns with the South African Revenue Service (SARS).
As such, SARS relies on companies to accurately report their taxable income and pay their taxes on time. SARS depends on companies to fulfil their legal obligations, and it uses various mechanisms, such as verifications and audits, to enforce compliance.
Incorrect or late submissions can result in penalties and interest charges. By completing tax returns accurately and on time, companies can avoid these additional costs. Incorrect tax returns can also lead to legal disputes with SARS, which can be time-consuming and costly. Accurate returns help companies avoid such legal issues. Companies that submit accurate tax returns that agree with their underlying records are also better prepared for tax audits. If SARS decides to audit a company, having accurate records and returns makes the process smoother and less stressful.
The timeous and correct submission of its income tax returns will also help to ensure that a company will be able to obtain a Tax Clearance Certificate. Many government and private sector contracts in South Africa require companies to submit a Tax Clearance Certificate as part of the tender process. This is to ensure that only tax-compliant businesses are considered for contracts. Investors, business partners, or financial institutions may also request a Tax Clearance Certificate when considering investment, partnerships, or providing financial support. It is a way for them to assess the financial and legal standing of the company they are dealing with.
The information required by SARS to issue an income tax assessment is quite onerous and places a heavy duty of compliance on all companies. Recently, the volume of required information has increased even further and the reliance of SARS on corporate taxpayers to submit information that is already available to it through the Companies and Intellectual Property Commission (CIPC) and the various offices of the Master of the Supreme Court should be questioned.
In this regard it may be noted that SARS recently released the latest version of the ITR14 income tax return for companies. For the first time, the return now requires detailed information relating to the company’s share register. The following information is required for each class of shares issued by the company:
- A description of the class of shares
- The total number of shares issued
- The number of shareholders
The above information must be provided for a maximum of 3 classes of shares. Where a particular class of shares is held by more than 20 shareholders (for example in the case of a listed company), details of each shareholder holding 5% or more of the shares must be provided.
Where a company has many shareholders some of whom may be non-resident or where shares are held by nominees, or where there are frequent changes in a company’s shareholding, the resultant additional reporting requirements can be overwhelming and in practice impossible to comply with.
SARS is of the view that share register information will help to ensure transparency and accuracy in the reporting of ownership structures within companies. This could prevent potential tax evasion, money laundering, and other illicit activities by ensuring that the ownership details are consistent and verified. Detailed share register information could aid in detecting and preventing abusive tax practices or schemes designed to manipulate ownership structures to exploit tax loopholes.
Share register information could be used for data matching and verification purposes, allowing SARS to cross-reference the information provided in corporate tax returns with other sources of information to identify discrepancies or potential inaccuracies.
While all of the above reasons are valid, it is in our view unacceptable that SARS now places a further burden of disclosure on companies for information to which it should be able to access through its on-line interfaces with the CIPC and the various Masters’ offices. Some of the information requested below will, however, not be held by CIPC or the Masters’ offices but in many of these cases, it will also not be held by the company.
If the shareholder is an individual, the following details must be provided:
- First Name
- Other Name
- Date of Birth
- ID Number
- Passport No, Country and Issue Date – this is only required if the individual does not have a South African ID number
- Are you registered for tax in South Africa (Select Yes or No)
- Tax Reference No
- Email Address
- Number of Shares Owned
Should the shareholder be another company, SARS requires the following details to be provided:
- Nature of Business
- Registered Name
- Trading Name
- Country of Registration
- Company /CC Registration No
- Financial Year End
- Tax Reference No.
- Number of Shares
- Contact details (Initials, surname, cell number, email address)
Similar details as required where the shareholder is a company, need to be reported where the shareholder is a trust.
It should be noted that the share register section of the income tax return does not replace the Contributed Tax Capital (CTC) section in the tax return and should reconcile with the CTC section of the tax return.
The ITR14 tax return cannot be submitted without disclosing the share register information.
The information is mandatory for all ITR14 returns for the 2022 and subsequent tax years, that are submitted to SARS on or after 23 June 2023.
For example, if a company submits its 2021 return during the course of July 2023, the above share register information is not required. However, if the 2022 or 2023 return is submitted after 23 June 2023, the above disclosure is required.
In conclusion, the new requirements regarding companies’ share registers are important and care should be taken that the correct information is submitted. However, SARS’ approach in shifting the burden of disclosure of information, much of which should already be accessible to it through the CIPC and the various offices of the Master of the High Court to corporate taxpayers, is in our view unacceptable. The gathering and recording of information to which SARS should be able to access will result in additional unproductive costs for companies that they can ill-afford, given our constrained economic environment.