A debt compromise is an agreement between SARS and the taxpayer in which the taxpayer undertakes to pay a portion of the total debt, and SARS accepts this in full and final settlement of the entire debt. SARS will write off the remainder of the debt, provided the taxpayer fulfills its payment undertaking and adheres to any additional conditions such as future compliance.
SARS officials have indicated that for tax debts below R5 million, the likelihood of a compromise being reached is high, while the evidentiary burden is low.
With SARS having upped its collection power to offset a massive budget deficit, aggressive collection steps are being taken, including garnishee orders for salaries, appointing Sheriffs to execute against the taxpayer’s property and even third party appointments, to siphone funds directly from the taxpayer’s business and/or personal accounts, with no prior warning.With this aggressive stance in mind, this is not the time to take risks.
CIRCUMSTANCES WHERE NOT APPROPRIATE TO COMPROMISE TAX DEBT
- The debtor was a party to an agreement with SARS to compromise an amount of tax debt within the period of three years immediately before the request for the compromise.
- The tax affairs of the debtor (other than the outstanding tax debt) are not up to date.
- Another creditor has communicated its intention to initiate or has initiated liquidation or sequestration proceedings.
- The compromise will prejudice other creditors (unless the affected creditors consent to the compromise) or if other creditors will be placed in a position of advantage relative to SARS.
- It may adversely affect broader taxpayer compliance; or
- The debtor is a company or a trust and SARS has not first explored action against or recovery from the personal assets of the persons who may be liable for the debt.
CONSEQUENCES OF NOT PAYING TAX DEBT
SARS has a number of debt collection options at their disposal, should a taxpayer fail to honour their tax obligation.
- Collect the debt from someone who holds money on your behalf, which is done via a 3rd party appointment i.e. employer, bank or customer;
- Submit a written statement to the Clerk of the Court, to be issued and treated as a Civil judgement, resulting in your name being blacklisted by the credit bureaus;
- Attach and sell your assets;
- Obtain a preservation order in respect of your assets;
- If you hold assets off-shore, an order can be obtained compelling the assets to be repatriated to South Africa and in the interim your right to trade or to travel can be restrained; and
- Liquidate your business or Sequestrate your Estate
SARS’ approach clearly shows you are dealing with a competent revenue authority. If you are owing a large tax debt it is better to act swiftly and enter into a payment arrangement with SARS. Your ideal outcome is to come clean, pay the reduced debt and take your name off SARS’ radar.
Our multidisciplinary team of tax attorneys and chartered accountants have a proven track record of negotiating with SARS and have assisted many companies to successfully request for a compromise arrangement. We guarantee legal professional privilege on your matter and follow a strict legal and compliant approach with solution-based thinking.