... of rugby, penalties & Christmas spirit

Accountancy SA,  Nov/Dec 2004  by Webb, Penelope

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News that the giant American food corporation Heinz may be seeking to expand its presence in South Africa brings to mind their famous advertising slogan in the sixties and seventies, "Heinz means beans".

Heinz former chief executive officer and wonderful raconteur Tony O'Reilly (now Sir Anthony O' Reilly, the ultimate boss of The Star newspaper and other publications here) self-deprecatingly tells a story about when, at the relatively advanced age of 32, he was still playing international rugby for Ireland.

On the Saturday of an international match the Irish Independent newspaper in Dublin carried the headline: "Heinz means has-beens". They were unkind. Like the soldier in one of Wilfred Owen's great poems, O'Reilly as a wing three-quarter had both mastery and mystery. He scored 33 tries in 10 games for the British Lions and, like his contemporary Lion Gordon Waddell, he was able to move from rugby into the highest ranks of business without difficulty.

But it is said that, unlike Waddell, one of the biggest adjustments O'Reilly had to make on moving from Ireland to the United States was in his dealings with the Inland Revenue. Successive Irish governments have supported theatre and the arts by means of special tax exemptions for artists, composers, painters, sculptors and writers, provided they are resident in Ireland. The friendliness of the people extends to the Irish Tax Inspectors who usually adopt a relaxed and open-minded attitude towards taxpayers.

By contrast, many Americans live in great fear of the Internal Revenue Service. While tax rates in the United States are lower than in most other countries, the IRS has enforcement powers that are draconian. An American summoned to the IRS offices for a desk audit of his tax return will have sleepless nights, even though he might be a paragon of probity.

One of the Heinz employees approached O'Reilly for assistance after the IRS had seized and sold his home for the amount owing in arrear tax which was $1750. The market value of the home was $43 000. The matter was referred to his Congressman and eventually, after many other similar complaints, a Taxpayers' Bill of Rights was enacted. In another case, the savings account of a ten year old girl in California was expropriated because her father owed about $1 000 income tax.

On the other side of the Atlantic, the tax authorities in Britain are often equally imperious and unsympathetic. Automatic non negotiable penalties are imposed for failing to register for VAT or for missing the deadline for filing a VAT return. The Courts have held that the only defence is a "reasonable excuse". But what is reasonable?

In one case, a businessman suffered from dyslexia and misread the turnover threshold for registration. He was penalised and the Court rejected his appeal. He was told that as he suffered from a disability he should have taken greater care. Dyslexia was no excuse said the magistrate.

During a strike by postal workers the VAT authorities continued to penalise businesses whose VAT returns were received late. A postal strike was not a reasonable excuse they were told. But, curiously, where an employee had loaded an incompatible golf game into the firm's computer with the result that the VAT data was wiped out irretrievably and the computer system was out of action for a month - that was considered a reasonable excuse. Sexual peccadilloes and adventures feature prominently as excuses, with inconsistent outcomes.

Give thanks that our own Receivers of Revenue are usually reasonable and fair and have not yet copied their colleagues in America and Britain. In addition, of course, our legislative system obliges the Receiver to give a taxpayer reasons for his decisions. In the past, some decisions were undoubtedly uninformed at best, and arbitrary and capricious at worst.

This new and welcome openness comes at a cost. SARS quite rightly expects honesty from taxpayers and an absence of creative exaggeration when claiming tax deductions. While it may still be possible to persuade them to waive penalties in certain circumstances, there is now virtually no hope of interest being waived.

Three or four years ago it seems that the Minister of Finance was intent on increasing the rate of interest on late tax payments to usurious levels. He was dissuaded but it appears that the Revenue Authorities were then instructed to waive interest only in exceptional circumstances. Most impartial observers would agree that this is fair.

So beware! Christmas Day this year falls on a Saturday and all VAT returns must be filed by Friday 24th December at the latest. Make sure that there are cheque signatories available that day. The Christmas spirit of goodwill to all seldom extends to SARS so do not expect any leniency as the Festive Season approaches.

There is only one, probably apocryphal, report of fiscal beneficence at Christmas. Research by a German academic has uncovered the existence of an Einkommensteur (income tax) on toymakers in Germany in the igth century. In the case of Oberfinanzdirektioner-Nurenberg v Nikolaus Spielsachen the taxpayer objected to the assessment on the grounds that all his toys were given away to needy children on Christmas Eve. His appeal was successful and every year since then his successors have continued the practice.