Where does your spouse live? where are your Personal stuff? Have you applied for permanent residence or citizenship abroad?
These are some of the 17 screening questions the South African Revenue Service (SARS) is now asking South Africans living and working abroad who wish to obtain confirmation of their non-resident tax status – often seen as the final step in their tax migration journey.
Historically, taxpayers have focused on obtaining a Foreign Tax Residency Certificate, updating their SARS records and demonstrating that they have left South Africa.
However, recent SARS correspondence shows that the process has become considerably more sophisticated.
In a verification process involving a taxpayer who relied on a Double Tax Agreement (DTA) to support non-resident status, SARS issued a detailed information request that included a long list of separate questions intended to test whether the taxpayer actually qualified for treaty relief.
The questions provide rare insight into how SARS is working on DTA-based residency claims behind the scenes and may indicate the direction of future verification processes.
The importance of these questions is not necessarily individual answers. What is noteworthy is that SAS appears to be conducting a comprehensive treaty residence analysis rather than simply reviewing whether the taxpayer has physically left South Africa. The questions reflect a number of factors contained in international treaty tie-breaker provisions.
What SARS wants to know
The questions asked by SARS extended far beyond the taxpayer's departure date.
Among other things, SARS sought information regarding:
- the taxpayer's intention when leaving South Africa; • Their most definite and settled place of residence; • Their habitual residence and day-to-day lifestyle; • their place of business and Personal interests;• the interests of their spouse and family;• employment arrangements and contract terms;• banking relationships and financial Interests;• Immigration and residence status abroad;• Location of Personal goods;• social, cultural and community relations; and• Whether permanent residence or citizenship was sought in the foreign country.
Viewed collectively, it is clear that SARS is not simply asking whether the taxpayer has moved.
It is attempting to determine where the taxpayer's life is actually concentrated.
Why do these questions matter?
Many DTAs contain so-called “tie-breaker” provisions. These provisions apply where an individual may simultaneously be considered a tax resident in two countries under their respective domestic laws.
In such circumstances, the treaty must determine which country has the stronger claim to exclusive residence.
Depending on the treaty involved, factors such as permanent home, center of vital interests, habitual residence and nationality may be relevant.
It is noteworthy that many of the SARS questions seem to be directed precisely at these concepts.
Therefore, inquiries go far beyond the review of passport stamps or travel records. Instead, it seeks to establish the broad factual matrix necessary to properly implement the treaty.
End of the “I have left South Africa” approach
A common misconception among expatriates is that tax residency automatically ceases when they leave South Africa. Although physical departure is an important fact, it is only one part of the overall analysis.
A taxpayer may relocate abroad but still remain significant PersonalEconomic or family ties to South Africa.
Conversely, another taxpayer may be able to demonstrate that the center of their life has decisively shifted to another jurisdiction.
The difference is in the facts.
The questions now being raised by SARS show that the revenue authority is focusing on understanding those facts in detail.
A continuing trend is emerging
The 17-question verification request does not appear separately.
This follows several recent developments that indicate increased scrutiny of DTA-based non-residence claims.
Over the past year, taxpayers have experienced increased requests for supporting documentation, a focus on treaty tie-breaker provisions and greater scrutiny of the dates on which treaty residence is said to arise.
Overall, these developments suggest that SARS is moving towards a far more evidence-based approach to international tax residence disputes.
What should South Africans abroad learn from this?
The message emanating from SARS is becoming increasingly clear. Taxpayers relying on DTAs should expect to look beyond departure dates and foreign tax certificates from SARS.
Instead, the focus appears to be on the underlying facts that show where the taxpayer's life, family, financial interests and long-term relationships really lie.
So the most revealing aspect of the 17 questions is not the questions themselves: it is what they tell us about the approach to SARS.
For taxpayers claiming treaty non-residence, SARS is no longer simply asking whether they have left South Africa.
It is asking whether the facts support a conclusion that they are actually residents of somewhere else.
*Abdol is the legal manager of cross-border taxation at Tax Consulting SA.
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