Key Takeaways
- The South African Revenue Service (Sars) is cracking down on multinational companies that shift profits to tax havens to avoid paying higher taxes.
- Sars is also targeting ultra-rich tax dodgers who use trusts, special purpose vehicles, and family offices to mask their true wealth.
- The global minimum tax model is being adopted to help South Africa clamp down on multinationals that register their businesses in foreign tax havens.
- The South African government has passed a law requiring companies with an income of €750m or more to disclose their beneficial ownership.
- Sars has flagged 105 cases involving politically exposed persons for potential non-compliance, resulting in additional assessments totaling R107m.
Introduction to Tax Evasion
The South African Revenue Service (Sars) has set its sights on multinational companies that facilitate base erosion by shifting profits to tax havens to avoid paying higher taxes. This practice, known as trade-based money laundering, involves manipulating the value of goods to avoid paying full customs duties. For example, a good worth $20 may be declared as $1 on the invoice, allowing the importer to pay lower customs duties. Sars commissioner Edward Kieswetter has stated that this practice is a major concern for the revenue service, and they are working to clamp down on it.
Global Minimum Tax Model
The global minimum tax model is being adopted to help South Africa clamp down on multinationals that have their main operation in the country but register their businesses in foreign tax havens to avoid paying full corporate taxes in South Africa. This model will require companies to pay a minimum tax of 15% on their profits, regardless of where they are registered. The model is based on the principle that a company owes tax to the market where it is present, regardless of whether it has a physical office there. This is a significant shift from the traditional principle of physical presence, which determined a taxing right. With the proliferation of e-commerce and digital services, the physical presence principle is no longer effective, and the global minimum tax model is seen as a blunt instrument to deal with the abuse of tax jurisdiction.
Taxing the Ultra-Wealthy
Wealthy individuals can mask their true wealth through trusts, special purpose vehicles, and family offices. To combat this, the South African government has made it mandatory to disclose beneficial ownership. This means that companies with an income of €750m or more must disclose their beneficial owners, allowing Sars to track and tax their income accurately. Deputy finance minister Ashor Sarupen has stated that this law aligns South Africa with the Organisation for Economic Cooperation and Development (OECD) and G20 taxing standards for companies active in but not domiciled in a particular country.
Sars’ Efforts to Combat Tax Evasion
Sars has been working to combat tax evasion and non-compliance, particularly among politically exposed persons. Over the past three years, 105 cases involving politically exposed persons were flagged by the Sars risk engine for potential non-compliance. Of these, 29 cases were subjected to audit, resulting in additional assessments totaling R107m. A further 24 cases are currently under audit, and 52 cases remain in the risk profiling stage. Finance minister Enoch Godongwana has stated that these figures demonstrate Sars’ commitment to evidence-based, risk-driven compliance interventions, ensuring that all taxpayers, regardless of their public standing, are held to the same standards of accountability.
Conclusion
In conclusion, Sars is taking a tough stance on tax evasion and non-compliance, particularly among multinational companies and ultra-rich individuals. The adoption of the global minimum tax model and the requirement to disclose beneficial ownership are significant steps towards combating tax evasion and ensuring that all taxpayers are held to the same standards of accountability. As the South African government seeks to increase revenue and make up for aid cuts from the US and Europe, Sars’ efforts to combat tax evasion are crucial to ensuring that the country’s tax system is fair and effective.