Non-Compliance of a Tax Client

Posted by Nico Viljoen on 29 November 2017.

Nico Viljoen

MBA, Hons BCompt, HDip Tax (Jefferson School of Law USA), HED, AGA(SA) DBA Graduate Student, Business School Netherlands

The Tax Shop Head Office

More about Nico Viljoen

Nico obtained qualifications from various academic institutions and currently studies towards the DBA at the Business School Netherlands. He is an associate member of the South African Institute of Chartered Accountants. After completion of his articles with PWC, he lectured in the fields of taxation, accounting and auditing at the Vaal University of Technology. Thereafter, he occupied financial executive positions in the heavy engineering, chemical, transport and automotive industry. Nico has owned and managed various successful businesses over the 20 years. Nico has been a business mentor for various organisation and serves as an external moderator for taxation and internal auditing.

Although a taxpayer may make use of a tax practitioner, the ultimate responsibility still rests with the taxpayer to ensure that its tax affairs are in order.  The only instance in which a firm can be held liable is when the engagement letter stipulates that the firm would submit the client’s VAT201’s, but did not do so without documenting any valid reason.

Circumstances under which a representative taxpayer, responsible party or withholding agent, becomes personally liable for the tax are in summary, the following:

  • The representative taxpayer or a public officer of a company, is only liable in a representative capacity.  The person or entity which s/he is representing must pay the tax.  However, section 155 of the TAA states that a representative taxpayer becomes personally liable for the tax payable if the representative taxpayer alienates, charges, or disposes of the amounts in respect of which the tax is chargeable, or disposes of funds under his/her control, after it is payable, if the tax could legally have been paid from those amounts.  Same for withholding agents.
  • The taxpayer is the person personally liable for the tax which s/he owes.  However, a responsible third party can also become liable for someone else’s tax, for example, if a senior SARS official instructs the responsible third party to pay money to SARS, but the responsible third party does not pay SARS after been instructed.
  • If a ‘person’ controls or is regularly involved in the management of the overall financial affairs of a taxpayer; and a senior SARS official is satisfied that the person was negligent or fraudulent in respect of the payment of the tax debts of the taxpayer, or with the result that the taxpayer’s tax debts were not paid, SARS can hold the ‘financial manager/accountant’ liable for the tax debts of the taxpayer.

Now, what steps need to be taken by a tax practitioner when non-compliance comes to the front?

  • When the tax practitioner is engaged to represent the taxpayer in an administrative proceeding with respect to a return containing an error of which the tax practitioner is aware, the tax practitioner should advise the taxpayer to disclose the error to SARS.  If the tax practitioner believes that the taxpayer could be subject to criminal prosecution, the taxpayer should be advised to seek specialist advice, before taking any action.
  • It is the taxpayer’s responsibility to decide whether to correct the error.  If the taxpayer does not correct an error, a tax practitioner should withdraw from representing the taxpayer in the administrative proceeding and consider whether to continue a professional or employment relationship with the taxpayer.
  • A tax practitioner should consider consulting with his or her own legal counsel before deciding on recommendations to the taxpayer and whether to continue a professional or employment relationship with the taxpayer.
  • The potential for breaching client confidentiality or infringing tax law and the potential adverse impact on a taxpayer of a tax practitioner’s withdrawal, as well as other considerations may create a conflict between the tax practitioner’s interests and those of the taxpayer.

It is of utmost importance to remind a client of his rights and obligations under the different tax acts and to document all responses given by the client in, for example, the working papers and to store all written correspondence in this regard.  It is submitted that if you have done so, that you cannot be held responsible for any non-compliance on your client’s side.  It is further submitted that you need not inform SARS of the client’s non-compliance.

The decision to continue a professional relationship with the taxpayer needs to be judged by the tax practitioner and firm, after considering the client’s response to pointing out the client’s non-compliance/errors.

Thus, whether a tax practitioner or a firm may be held liable for the non-compliance may depend on the content of the engagement letter/contract concluded with the client.  Ensure that all communication of the breach of the tax laws to your client is documented. It is of vital importance to protect you as tax practitioner and your firm from any potential legal claims in this regard.