Part D
Compromise of tax debt
Category: Part D – Compromise of tax debt (TAA)
Section 200 (TAA) – Compromise of tax debt
200. Compromise of tax debt
A senior SARS official may authorise the ‘compromise’ of a portion of a tax debt upon request by a ‘debtor’, which complies with the requirements of section 201, if-
(a) the purpose of the ‘compromise’ is to secure the highest net return from the recovery of the tax debt; and
(b) the ‘compromise’ is consistent with considerations of good management of the tax system and administrative efficiency.
Section 201 (TAA) – Request by debtor for compromise of tax debt
201. Request by debtor for compromise of tax debt
(1) A request by a ‘debtor’ for a tax debt to be ‘compromised’ must be signed by the ‘debtor’ and be supported by a detailed statement setting out-
(a) the assets and liabilities of the ‘debtor’ reflecting their current fair market value;
(b) the amounts received by or accrued to, and expenditure incurred by, the ‘debtor’ during the 12 months immediately preceding the request;
(c) the assets which have been disposed of in the preceding three years, or such longer period as a senior SARS official deems appropriate, together with their value, the consideration received or accrued, the identity of the person who acquired the assets and the relationship between the ‘debtor’ and the person who acquired the assets, if any;
(d) the ‘debtor’s’ future interests in any assets, whether certain or contingent or subject to the exercise of a discretionary power by another person;
(e) the assets over which the ‘debtor’, either alone or with other persons, has a direct or indirect power of appointment or disposal, whether as trustee or otherwise;
(f) details of any connected person in relation to that ‘debtor’;
(g) the ‘debtor’s’ present sources and level of income and the anticipated sources and level of income for the next three years, with an outline of the ‘debtor’s’ financial plans for the future; and
(h) the ‘debtor’s’ reasons for seeking a ‘compromise’.
(2) The request must be accompanied by the evidence supporting the ‘debtor’s’ claims for not being able to make payment of the full amount of the tax debt.
(3) The ‘debtor’ must warrant that the information provided in the application is accurate and complete.
(4) A senior SARS official may require that the application be supplemented by such further information as may be required.
Section 202 (TAA) – Consideration of request to compromise tax debt
202. Consideration of request to compromise tax debt
(1) In considering a request for a ‘compromise’, a senior SARS official must have regard to the extent that the ‘compromise’ may result in-
(a) savings in the costs of collection;
(b) collection at an earlier date than would otherwise be the case without the ‘compromise’;
(c) collection of a greater amount than would otherwise have been recovered; or
(d) the abandonment by the ‘debtor’ of some claim or right, which has a monetary value, arising under a tax Act, including existing or future tax benefits, such as carryovers of losses, deductions, credits and rebates.
(2) In determining the position without the ‘compromise’, a senior SARS official must have regard to-
(a) the value of the ‘debtor’s’ present assets;
(b) future prospects of the ‘debtor’, including arrangements which have been implemented or are proposed which may have the effect of diverting income or assets that may otherwise accrue to or be acquired by the ‘debtor’ or a connected person in relation to the ‘debtor’;
(c) past transactions of the ‘debtor’; and
(d) the position of any connected person in relation to the ‘debtor’.
Section 203 (TAA) – Circumstances where not appropriate to compromise tax debt
203. Circumstances where not appropriate to compromise tax debt
A senior SARS official may not ‘compromise’ any amount of a tax debt under section 200 if-
(a) 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’;
(b) the tax affairs of the ‘debtor’ (other than the outstanding tax debt) are not up to date;
(c) another creditor has communicated its intention to initiate or has initiated liquidation or sequestration proceedings;
(d) 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;
(e) it may adversely affect broader taxpayer compliance; or
(f) 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 under Part D of Chapter 11.
Section 204 (TAA) – Procedure for compromise of tax debt
204. Procedure for compromise of tax debt
(1) To ‘compromise’ a tax debt, a senior SARS official and the ‘debtor’ must sign an agreement setting out-
(a) the amount payable by the ‘debtor’ in full satisfaction of the debt;
(b) the undertaking by SARS not to pursue recovery of the balance of the tax debt; and
(c) the conditions subject to which the tax debt is ‘compromised’ by SARS.
(2) The conditions referred to in subsection (1)(c) may include a requirement that the ‘debtor’ must-
(a) comply with subsequent obligations imposed in terms of a tax Act;
(b) pay the tax debt in the manner prescribed by SARS; or
(c) give up specified existing or future tax benefits, such as carryovers of losses, deductions, credits and rebates.
Section 205 (TAA) – SARS not bound by compromise of tax debt
205. SARS not bound by compromise of tax debt
SARS is not bound by a ‘compromise’ if-
(a) the ‘debtor’ fails to disclose a material fact to which the ‘compromise’ relates;
(b) the ‘debtor’ supplies materially incorrect information to which the ‘compromise’ relates;
(c) the ‘debtor’ fails to comply with a provision or condition contained in the agreement referred to in section 204; or
(d) the ‘debtor’ is liquidated or the ‘debtor’s’ estate is sequestrated before the ‘debtor’ has fully complied with the conditions contained in the agreement referred to in section 204.