Ruan Jooste’s interesting Business Day article raises the question whether tax structuring is under threat. Although it correctly reminds us that companies engaging in tax structuring need to proceed with caution, tax structuring is alive, well and lawful.
Getting advice on a balanced approach to tax structuring and implementing robust structures which achieve the best tax outcome that money can buy, coupled with a focus on careful implementation remains an imperative in any well-run business.
Tax planning properly encompasses compliance and commercial and structuring realities. Not utilising the best structure available only leads to taxpayers paying more than is due.
The article points out that implementation and compliance concerns are often the Achilles heel of the taxpayer. It isn’t the tax implications of the transaction that land the taxpayer in court, but rather that their version is often not borne out by the evidence. Therefore the proper planning and implementation of a good tax planning structure is key to the success of the anticipated tax results.
An example of implementation undermining a cogent tax structure was seen in the collaborative efforts of the South African Revenue Services and the Australian Tax Office in their combined effort to collect taxes from an Australian resident who had emigrated from South Africa. You will find many examples in the courts where good tax structures have failed due to sloppy implementation.
This raises the question: “Is tax planning dead?” The answer is “No”, because the Income Tax Act is complex and tax planning is permissible and essential. Taxpayers are entitled, and well-advised, to ensure that they understand the tax implications of any transactions that they are entering into, and structure their affairs to achieve the most tax efficient result, within the limits of the legislation.
In line with international trends, the days of overly-aggressive structures and transactions which teeter on the fine line between legitimate planning and avoidance are on the wane. You need a careful approach to tax planning. The current trend to perceive any tax planning to hold reputational and commercial risks, regardless of whether or not the structure complies with the relevant laws, is not justified.
On the contrary, as the tax system becomes more sophisticated and complex, tax planning becomes increasingly important. Ignoring possible tax effects and entering into an avoidably inefficient transaction can significantly affect the benefits of entering into a transaction in the first place. Tax planning properly encompasses compliance and commercial and structuring realities. Not utilising the best structure available only leads to taxpayers paying more than is due.