Filing can save companies millions in tax penalties
This article delves into the complexities of a dispute between BP and the South African Revenue Service (SARS) concerning the exportation of fuel and the associated refunds under the Drawback of Customs and Excise Duties Scheme (DAS).
This case illuminates critical points about compliance, documentation, and the burden of proof in tax matters.
Investigation by SARS
SARS initiated an investigation into several consignments of fuel that BP claimed to have exported to Zimbabwe. The crux of SARS' inquiry was the legitimacy of these export claims and the corresponding requests for DAS refunds. SARS' skepticism arose from several discrepancies and inconsistencies in BP's documentation and procedures, notably:
The fuel was not exported from a licensed warehouse, contravening customs regulations.
The alleged Zimbabwean recipients of the fuel did not exist or were not known importers of fuel, raising doubts about the destination of the exported products.
Transport vehicles claimed by BP to have carried the fuel to Zimbabwe never crossed the border, as per SARS' electronic tracking records, suggesting the fuel might have been diverted locally.
BP's failure to provide conclusive documentation to prove the fuel's exportation, coupled with findings that most export documents were falsified.
The transporters employed by BP were not licensed to remove goods in bond, indicating procedural non-compliance in the handling of the fuel.
BP's Defense
BP presented a counter-narrative, asserting that it sold diesel to intermediaries who then purportedly sold it to importers in Zimbabwe. BP positioned itself as the "exporter of record," facilitating these transactions because the intermediaries lacked the requisite licensing to claim DAS refunds. BP's claim for DAS refunds was predicated on its payment of excise duty, fuel levy, and road accident fund levy, from which it sought reimbursements post-export. BP vehemently denied engaging in or facilitating any fraudulent activities regarding these transactions.
SARS' Formal Demands
Following its investigation, SARS issued four letters of demand to BP on 13 February 2020, which BP did not satisfy. These demands, as per Section 44(10) of the Customs and Excise Act, became immediately payable upon issuance, legally obligating BP to settle the claimed amounts. SARS escalated the matter with a final demand and a notice of legal proceedings on 24 February 2020, reinforcing the obligation of BP to pay the demanded amounts and indicating that any objections from BP would not defer this payment obligation.
The importance of documentation
This case underscores the importance of stringent compliance with customs and excise regulations, the necessity for thorough and accurate documentation in supporting claims of exportation, and the legal responsibilities of companies in proving the legitimacy of their tax rebate or refund claims. It also highlights the procedural mechanisms employed by SARS in enforcing compliance and the legal recourse available to tax authorities in addressing suspected fraudulent or non-compliant activities.
Accurate documentation is pivotal in supporting claims of exportation, serving as the cornerstone of trust in international trade and ensuring compliance with customs regulations.
This documentation, which includes bills of lading, export declarations, and consignment receipts, provides verifiable proof that goods have been shipped and received according to specified terms and in adherence to customs laws. It not only facilitates the smooth clearance of goods through customs but also substantiates the legitimacy of transactions between trading partners and tax authorities. Moreover, accurate documentation underpins the entitlement to tax rebates and refunds, allowing exporters to reclaim duties, taxes, or levies paid on materials or products that are subsequently exported. This system is designed to prevent double taxation and maintain competitive pricing of goods in international markets, contingent upon the provision of comprehensive and precise documentation to prove exportation.
The responsibility to demonstrate the legitimacy of export transactions and thereby qualify for tax rebates or refunds squarely falls on the shoulders of the exporting company. This legal obligation entails a detailed presentation of documents tracing the goods' journey from departure to delivery, effectively placing the burden of proof on the exporter. Inaccurate or falsified documentation not only risks legal penalties, financial losses, and reputational damage but also invites rigorous scrutiny from tax authorities, such as SARS, vigilant against fraudulent claims.
The emphasis on meticulous record-keeping and accurate representation of trading activities is crucial to avoid adverse legal and financial repercussions, ensuring that the fiscal interests of the state are protected, and that fair competition among businesses is maintained.
Guide on record keeping for accountants and bookkeepers
Under Section 28 of the Companies Act and Section 25 of the Regulations, companies are mandated to maintain accurate, complete, and secure accounting records in one of the official languages of the Republic. These records must be sufficient to satisfy the company's obligations for financial statement preparation and compliance with applicable laws. The records should include detailed information on assets, liabilities, loans, revenue, expenditures, and inventory, among other financial transactions. They must be stored safely at the company's registered office or a location accessible from it and kept in a manner that protects against loss, damage, falsification, and facilitates falsification detection. Electronic records must be retrievable in a readable and printable format. Compliance with these requirements ensures transparency, accountability, and the integrity of companies.
Checklist for Companies
This checklist serves as a comprehensive guide for companies to ensure adherence to the accounting record-keeping requirements as outlined in the Companies Act and its Regulations, safeguarding the transparency, accountability, and integrity of their financial practices.
General Accounting Records
Keep accurate and complete records in an official language.
Store records at or accessible from the company's registered office.
Assets and Liabilities
Maintain a record of non-current assets and liabilities, including acquisition and revaluation details.
Document loans and financial obligations involving shareholders, directors, and related parties.
Revenue and Expenditures
Keep daily records of money received and paid out, with sufficient detail for transaction identification.
Record all credit purchases, sales, and services, including party identification.
Inventory and Stock
Maintain records of inventory, annual stocktaking, and financial year-end stock values.
Electronic Records
Ensure electronic records are secure, retrievable, and convertible to readable and printable forms.
Provide precautions against electronic record loss due to media damage or system failure.
Additional Precautions
Implement measures against theft, loss, damage, destruction, and falsification of records.
Facilitate the discovery of any falsifications.
Compliance and Reporting
Notify the Commission of any financial year-end changes using Form CoR 25.
Ensure records enable the company to meet all reporting requirements and support financial statement compilation and audits or reviews.
Non-Profit Specifics
(If applicable) Keep detailed records of revenue from donations, grants, and membership fees.
Legal and Regulatory Compliance
Adhere to additional legal and agreement-based requirements for keeping accounting records.
SARS record keeping requirements
The SARS policy on taxpayer record retention, effective from 27 November 2023, outlines the obligations for maintaining accurate and accessible records in compliance with the Tax Administration Act (TAA). It specifies the need for authorization to retain records in non-standard forms or outside South Africa, ensuring records meet integrity standards for SARS' accessibility and analysis. The policy details requirements for electronic records, including their form, storage, and accessibility, emphasizing the importance of secure, retrievable, and comprehensible records for SARS inspections, audits, or investigations. Applications for non-standard or foreign-based record retention must be submitted via email, with outcomes communicated in writing.
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