New draft Tax Bill shakes up corporate compliance: Thrusting public officers into the spotlight

By Danielle Annandale and Dr Hendri Herbst

The National Treasury of South Africa has recently unveiled the 2024 Draft Tax Administration Laws Amendment Bill (‘Draft TALAB’), which proposes significant revisions to the Tax Administration Act, No 28 of 2011 (‘TAA’). Among the critical changes is the overhaul of section 246, governing the appointment and responsibilities of public officers in companies. This article delves into the implications of these proposed amendments and underscores the importance for corporate taxpayers to understand and comply with the new requirements to avoid severe consequences for non-compliance.

A public officer acts as the representative taxpayer for a company, serving as the primary contact for the South African Revenue Service (‘SARS’) in cases of tax-related issues or non-compliance by the company.

SARS may hold certain categories of persons personally liable for the tax debt of another taxpayer, a representative taxpayer of a company being one such person. Public officers could, for example, be considered personally liable for tax that is payable by the company if, while the tax remains due, the public officer disposes of the money before or after the tax becomes payable and the tax could legally have been paid from that money.

Currently, section 246(2) provides a company with a one-month period from the commencement of business operations or the acquisition of an office to appoint a public officer. The provision also allows flexibility in selecting this individual, stipulating only that the appointee must be a senior official of the company or another suitable person. In both cases, the selection is subject to approval by SARS. Section 246(7) provides that SARS may withdraw its approval if it is of the opinion that that person is no longer suitable to represent the company as public officer.

Furthermore, in terms of section 246(3) if a company fails to appoint a public officer, SARS is empowered to designate this role to a director, company secretary, or another officer within the company.                                 

For many companies, the appointment of a public officer is an afterthought and not something that is necessarily considered upon formation.

National treasury has now proposed that section 246 be amended to stipulate that the public officer appointment for newly formed entities should happen simultaneously with CIPC registration and the allocation of an income tax number. A newly formed entity will thus have both its directors and public officer in place on formation. This will ensure that SARS has a dedicated contact person from the get-go.

The proposed amendments furthermore removes the requirement in section 246(1)(a) of the TAA that the appointment of a senior official of the company as the public officer is subject to the approval of SARS. In terms of the proposed amendments, approval by SARS will only be required in the instance that no senior official resides in the Republic and another person is appointed as the company’s public officer.

Section 246(3) is also subject to change by the proposed amendments. In the event that no public officer is appointed, the proposed amendment provides for a default rule of senior officials of the company who will be regarded as the public officer in order of priority.

The public officer must qualify for the role by meeting specific criteria, such as being a senior company official and a resident of South Africa, as outlined in subsection (2), and must not be disqualified according to subsection (8). If the public officer does not meet these criteria or is deemed unsuitable by SARS, the company will be considered as not having appointed a public officer. In such cases, the company has 21 business days to appoint a new public officer who meets the necessary requirements. If they fail to do so, a default list of potential public officers will be applied, or SARS may appoint a suitable person to act as the public officer for the company.

While non-compliance can result in administrative penalties, of greater concern may be section 234(2) of the TAA which indicates that any person who willfully or negligently fails to, inter alia, appoint a representative taxpayer is guilty of a criminal offence and is liable, upon conviction, to a fine or to imprisonment for a period not exceeding two years. Presumably, a director of the company could be held liable under section 234. It is therefore clear that, at least in principle, non-compliance with section 246 of the TAA is a high stakes game.

The proposed amendments to the 2024 draft TALAB underscore the increased emphasis SARS places on ensuring compliance and accountability within companies. By mandating the appointment of a public officer at the inception of a company and providing clear guidelines and penalties, SARS aims to streamline tax administration and enhance the governance framework. These changes, while adding a layer of responsibility for company directors and senior officials, also provide a structured approach to tax compliance, minimizing the risks of oversight and negligence. Companies must stay abreast of these regulatory shifts and take proactive steps to align their operational and administrative processes accordingly. In doing so, they will not only meet their statutory obligations but also foster a culture of diligence and transparency within their organizations. Ultimately, these reforms are designed to bolster the integrity of the tax system, ensuring that it is both fair and efficient for all stakeholders involved. Taxpayers should be proactive and seek appropriate advice to ensure they stay on the right side of the law.

To clarify the policy intent, the 2024 draft TLAB proposes that a legislative amendment be made to ensure that the exemption of the trust anti-avoidance measure in section 7C in respect of a loan that is subject to transfer pricing will only extend to the interest which is subject to the transfer pricing adjustment (5% in the example above). The balance of interest up to the official rate of interest (4.25% in the example above) will be subject to section 7C and will be deemed to be a donation made by the lender, and therefore subjected to donations tax.

If enacted, the proposed amendment will come into operation on 1 January 2025 and will apply in respect of years of assessment commencing on or after that date.

This proposed amendment in the 2024 draft TLAB is a clear indication that the SARS and National Treasury are intent on closing any loopholes in the tax legislation that may allow taxpayers to avoid or reduce their tax liabilities through the use of trusts. Taxpayers who have entered into or plan to enter into any loans, advances or credits with trusts, especially cross-border ones, should seek proper advice to ensure that their structures are not only tax efficient but also fully compliant with the relevant tax provisions. Failure to do so may result in significant tax consequences and penalties in the future.