Understanding automatic exchange of information to deal with non-compliance
As of March 2022, it has been revealed that the Irish Tax Authority (ITA) has contacted Airbnb Ireland UC (Airbnb), for the disclosure of specific information regarding income earned from the online accommodation booking platform, which includes both present and past transactions.
This followed after the South African Revenue Service (SARS) sent an exchange of information request to the ITA, asking about non-compliant South African resident hosts. The ITA acted swiftly and contacted Airbnb for transactional lists from the 2018/19 and 2019/20 tax years.
Time for non-compliant South African Airbnb hosts to get proactive
Airbnb has already established the groundwork for their collaboration by issuing a notification to its South African user base stating that “your earnings on Airbnb are subject to South African tax rules.”. Whether or not this is a proactive risk mitigation strategy for the firm is yet unknown.
Airbnb is the data controller for all South African hosts’ personal information, as required by the ITA under their legal responsibility to comply. It’s also stated that prior to this data sharing, the ITA will notify the affected South African hosts.
The SARS approach should not come as a surprise. In the 2022 Budget Speech, the government proposed reviewing South Africa’s domestic legal framework to make it easier for joint audits. This amendment was intended to be included in the Tax Administration Act, No. 28 of 2011 (the TAA), which is South Africa’s principal tax legislation.
The effect of this, as seen in the example of Airbnb, is the encouragement of automatic information exchange and a legal responsibility on the tax authorities by virtue of the provisions included in the Multilateral Convention on Mutual Administrative Assistance in Tax Matters.
What’s remarkable, simply based on Airbnb being the first of many targeted businesses for automated information exchange requests, is that multi-national corporations have traditionally chosen a jurisdiction like Ireland, Mauritius, or even the Virgin Islands as their headquarters in light of its favourable tax treatment.
Before Commissioner Kieswetter began promoting the idea of joint audits, a number of South African firms believed they were immune because they had never been audited by a foreign authority, only to discover that their accounts had been examined by an international entity and thus expose themselves to risk.
Time is up
As shown in recent months, and in light of the ongoing COVID-19 epidemic, SARS increased its collections power to eliminate any hint of non-compliance, domestic or foreign, and more so with historical non-compliance, where taxpayers have hoped the pandemic would be their saviour.
This is how it has played out in practice: the revenue authority has risen to the challenge, with stringent collection actions taken against non-compliant taxpayers, including wage garnishments, sheriff calls, and even money directly from company and/or personal accounts.
Since then, this has expanded internationally into tax treaties and frameworks, allowing SARS to operate outside of South Africa’s borders and into global accommodation booking platforms as an example for non-compliant South African taxpayers worldwide.
Now is not the time to take chances. The SARS methodology demonstrates that we are dealing with a competent revenue authority. Why risk it when compliance appears to be the most effective route?
Commissioner Edward Kieswetter advised that SARS will do everything in its power to assist all taxpayers, as advised by Commissioner Edward Kieswetter, stating that they would “make it easy and seamless for taxpayers when they transact with the organisation”.
Voluntary Disclosure of Information
For South African taxpayers who want to disclose information as part of a voluntary disclosure, or want to ensure that their existing compliance record is flawless, there are several legal options available.
The most effective approach to influence this disclosure is through a Voluntary Disclosure Program (VDP) application. The VDP application allows you to make a legal declaration of any hidden assets without incurring the formalities that would usually come with such non-disclosure.
This should be looked at as a high priority for all taxpayers who have not yet received any official correspondence from SARS, allowing you to identify a specific liability owed.
There is also the choice of a Section 92 or Section 93 request, as per the TAA.
If SARS uncovers prior non-disclosure before the VDP is submitted, there is one last possibility: a Compromise of Tax Debt application (the Compromise).
The goal of the Compromise is to assist individuals and businesses in lowering their tax burden by means of a Compromise Agreement (the Agreement), which is negotiated with SARS on the basis of affordability and fiscal benefit.
The Agreement will greatly reduce your tax liability to an amount that is affordable for you. This will give you some relief and help you get back on your feet.
After the agreement has been properly completed, payment is made to the SARS’ Compromise Committee, and the revenue authority writes-off the remainder of its liability to SARS.
How to tackle non-compliance
Compliance is still the best approach in order to avoid fines, interest, or even potential jail time.
When you’re on the wrong side of SARS, there’s a first-mover advantage in seeking competent tax advice and making sure you take the appropriate precautions to protect yourself and your family from paying for your crimes of non-compliance. When things do go wrong, though, SARS must be engaged lawfully.
As a general rule, any and all communications from SARS should be promptly addressed by a skilled tax professional or tax attorney, who will not only shield the individual from SARS implementing collection actions but will also advise them on the best course to keep their Airbnb in good standing.
If you’d like Leading Edge to help with your AirBNB tax compliance – please contact us here
