access to legal services is limited.
The Bill sets out to correct these problems, as well as, inter alia, to:
- transform and unite the legal profession;
- remove any barriers for entry into the profession;
- strengthen the independence of the profession;
- ensure the accountability of the profession to the public;
- and establish a Legal Services Ombud.
Among the noteworthy provisions of the Bill are that an attorney may at any time apply to the Council to convert his or her registration to that of an advocate, and vice versa. The Bill prescribes that the Council must make rules setting out the circumstances in which, and the criteria to be complied with, to give effect to such a conversion.
Much has been said lately about the prescription of community service for legal practitioners, with senior members in the Justice department stating that legal practitioners will be required to perform community service similar to that performed by newly qualified doctors. The Bill states that the Minister may, on recommendation of the Council, prescribe community service which may include service during training by candidate lawyers or recurring service by practitioners (upon which their continued registration will depend).
"Community service" may mean, for example, delivering legal services to the public, providing legal training on behalf of the Council, serving as a judicial officer such as commissioner in the small claims court, or serving as a prosecutor. There are no grounds to assume that such community service will be limited to the rural areas, as has been published in major online sources lately.
A very interesting new addition proposed by the Bill is that the Minister may ("request the President to") confer the status of Senior Legal Practitioner upon a deserving practitioner. Which is to say, we will henceforth have Senior Attorneys in the same way as we have always had Senior Counsel.
Online sources have recently quoted sources in the Justice Department as saying that the Bill aims to make legal fees more affordable. These sources claim that fee parameters similar to that of medical aid tariffs will be put in place and a legal practitioner will not be able to charge more than 100% of the tariff. The Bill in its current form however does not say this but merely states that the council may make rules on the setting and collection of fees. It is unclear at the moment precisely how much leeway practitioners will have in this regard.
To the man in the street this may seem like a fantastic idea, however it is not practical as the larger law firms with enormous overheads would simply not be able to survive charging within a prescribed tariff. Of course one does not know exactly what the tariff would be, but if the aim of the Bill is to make access to legal services more affordable then one can only assume that the prescribed tariff would be on the low side.
At this stage it is unclear whether these promised changes will occur, or will wash away as rhetorical utterances. It is even less clear whether changes made will become lasting changes. Some of the more drastic changes referred to in local online sources do not appear in the Bill itself, but may come up in the regulations. A full review of this proposed legislation is difficult without said regulations, as it is comparable to reading a novel which includes only the introduction and conclusion.
Beware, beware, the tax man's here
by Andrew Duncan
The third tax amnesty in seven years has been announced. Following the Exchange Control Amnesty (which closed in February 2004) and the Small Business Amnesty (May 2007) we now have a "Voluntary Disclosure Programme", to last from 1 November 2010 to 31 October 2011.
The memorandum dealing with the Taxation Laws Second Amendment Bill explains that "… In line with greater international cooperation over bank secrecy and enhanced measures to prevent money laundering, the VDP will also enable taxpayers with unreported banking accounts overseas to fully disclose such untaxed revenue. Although penalties and interest will be waived for successful applicants, the full amount of tax will remain due."
Defaulting taxpayers will be granted relief subject to three provisions: that disclosure is complete; that SARS was not aware of the default; and that a penalty would have been imposed had SARS discovered the default in the normal way.
From the memo it is clear that Treasury knows there are massive amounts of monies held offshore. During the 2004 amnesty I estimated that probably 80% of the persons holding monies offshore sought amnesty, but they held probably only 20% of illegal foreign assets. The 20% who did not declare, did not, I think, fully realize what the tax consequences would be. The sophistication of SARS and other tax collectors, national and international, is now so extensive that to hide income becomes a sweaty past-time.
And no longer can anyone say "Aha, except in Switzerland". The cornerstone of Swiss financial pre-eminence has been the secrecy that their banks offered customers. No longer. Last year, the Swiss bank UBS avoided prosecution in the USA by transferring €780 million together with data on more than 250 American clients. Now, following a Settlement Agreement with the US, Swiss law has breached its foundational rule and has authorized UBS to furnish data on some 4,450 clients.
South Africa is not alone in its high recent rate of tax amnesties. Italy's third amnesty in 8 years ended – after an extension – in April this year, netting €5.6 billion. Our new amnesty follows this one in sweeping up relatively modest pickings while warning the bittereinders of many sleepless nights coming up.
Who may apply? There is slight confusion in that our new Amnesty refers to a person as defined in the Income Tax Act (which includes an insolvent estate, a deceased estate and a Trust). But the Interpretation Act, which applies to the Income Tax Act, has a broader idea of "person", including any Company and indeed any body of persons. So anyone and everyone can apply!
This tax relief programme will work side by side with an Exchange Control Amnesty and Voluntary Disclosure Programme which was posted to the Reserve Bank's website on 1st July, 2010. Public comment is sought on it until 2nd August 2010. It follows the lines of the 2004 Amnesty save that an Applicant will have to pay 10 - 12% on funds illegally offshore in excess of R4 million. It is a wider amnesty in that it also applies to companies and legal entities (mostly) technical infringements such as not repatriating dividends or selling off foreign assets without reporting the sale which will only require a declaration to regularize the position without payment of a levy.
For individuals as with the previous Amnesty there is likewise a Declaration for technical type infringements such as monies inherited before 17th of March 1998, or immigrants' assets held prior to 1st July 1997 but not disclosed with no levy being imposed. Keeping the balance of travel allowances off shore or donating undisclosed assets to Trusts, or being involved in a "loop structure" however will be subject to the levy and a similar formal application process. To be entitled to apply, a contravention will have to have taken place before the end of February 2010, when the measures were first mulled.
Once this process is over it is in my view is the end of Exchange Control for individuals. The thesis appears to be that one cannot legalize "off-shore naughty business" at the stroke of a pen unless those who have profited from it have first come clean and paid up and if you don't, then beware the Taxman!
Getting to know one's SARS from one's elbow
by Andrew Duncan
A tax practitioner's life is nothing if not fascinating. Consider just one of our privileges, the recurring opportunity to test our wits against a SARS Interpretation Note.
Section 11(1)(e) of the VAT Act allows for the sale of an enterprise as a going concern to be subject to VAT, but at a zero rate. Thus for instance a property owning company selling off township stands could dispose of the whole development to another developer at a zero VAT rate. Likewise an office block rented out as offices could be disposed of as a rental earning enterprise. Often a developer purchasing such an enterprise structures the transaction through a shelf company which, at the time of the transaction, may not be registered for VAT.
Under Section 11, the time of supply, which determines whether Purchaser and Seller are registered for VAT, is at the conclusion of the sale. But in respect of immovable property, Section 9(3)(d) makes an exception. Here, the critical moment is the date of registration of transfer. Thus, if at the conclusion of the sale the Purchaser was not registered, it could still register for VAT up until the date of registration of transfer of the property.
A new Interpretation Note 57 has now been issued, replacing the previous Note 24.
In one happy sentence, Note 57 tells us that “In the event that the Purchaser is not yet registered as a vendor at the time of concluding of the Agreement, it is advisable that the agreement provide for the application of the zero rate, subject to the Purchaser being a registered vendor with effect from the date the Agreement is concluded…” Perhaps, dear reader, we tax persons lack imagination. But our heads spin when we try to work this out.
Note 57 goes on to say that “In the event that the Purchaser has not applied for registration before concluding the Agreement, the supply cannot be zero-rated and must therefore be subject to VAT at the rate of 14%.”
After further surprises, from which I for the moment protect you, we receive the cherry on the top of this ice-cream cake of mystification. Where the Act says that there must be an “income earning activity on the date the ownership of the enterprise is transferred”, Note 57 obligingly informs us that this means that “the parties agree to keep the enterprise active and operating until its transfer”. A wondrous thing is the English language, we see.
Somewhere, no doubt, trustful tax advisers labour to complete this impossible jigsaw of conflicting instructions. For our part, we at Walkers have respectfully suggested to SARS that a return to the withdrawn Note 24 might more correctly reflect the legal position. We await their reply with eagerness.
SARS is also auditing taxpayers who have entered into zero rated sales of fixed property, apparently in an attempt to increase collections through penalties and interest. For instance, upon selling a rental earning enterprise, the seller had better ensure that the sale includes the leasing activities, i.e. office administration. Otherwise VAT will apply at the standard rate, often attracting penalties and interest from the date of sale. Indeed I was recently informed by a highly placed official at SARS that SARS was not prepared to allow the zero rating VAT provisions to be used as an ATM by unscrupulous VAT Vendors!
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