International information exchange – organize your Airbnb

It emerged in March 2022 that the Irish Revenue Commissioners (ITA) contacted Airbnb Ireland UC (Airbnb), for the disclosure of specific information, in relation to revenue generated by the online accommodation booking platform, both and historical transactions.

This happened after the South African Revenue Authority (Sars) issued an exchange of information request to the ITA regarding South African resident hosts who did not have their Airbnb in good standing. The ITA acted immediately, committing Airbnb to the transactional listings covering the 2018/19 and 2019/20 tax years.

Don’t panic for non-compliant South African taxpayers

Airbnb proactively laid the groundwork for its cooperation with the publication of a notice to its South African user base stating that “your earnings on Airbnb are subject to South African tax regulations”. Whether this is a proactive risk mitigation measure for the company remains to be determined.

Airbnb serves as the data controller for the personal data of all hosts in South Africa and has been formally requested by the ITA to pass this information under their legal obligation to comply. It is further noted that prior to such sharing of information, the ITA will notify the relevant South African hosts.

Automatic exchange of information to eradicate non-compliance

Sars’ approach should come as no surprise; a review of South Africa’s domestic legal framework was proposed in the 2022 budget speech with the aim of facilitating joint audits. This proposal related in particular to the Tax Administration Act No. 28 of 2011 (the TAA), the requested amendment being that provision be made for the full use of joint audits with foreign tax authorities.

The ripple effect of this, as can now be clearly seen in the case of Airbnb, is the promotion of automatic exchange of information and the imposition of a legal obligation on the respective tax authorities under the provisions contained in the Multilateral Convention on Mutual Administrative Assistance in Tax Matters.

What is remarkable, simply based on the fact that Airbnb is the first of many entities targeted for the automatic exchange of information requests, is that multinational companies have historically opted for a jurisdiction such as Ireland , Mauritius or even the Virgin Islands. quartered taking into account a favorable tax treatment. This choice of jurisdiction, included a number of South African entities, thinking they were safe, before Commissioner Kieswetter started pushing the agenda of joint audits, to the point where they are now a reality, not leaving nowhere to hide.

The luck of the Irish has run out

As evidenced in recent months, and in light of the ongoing COVID-19 pandemic, our practice has Sars increasing its collection power to stamp out any semblance of non-compliance, whether domestic or offshore, and more with historical nonconformities. compliance, where taxpayers hoped the pandemic would be their saving grace, and an Airbnb, being a useful “other income”.

How this has played out in practice is that the tax authority has risen to the occasion, with aggressive collection measures implemented against historically non-compliant taxpayers, including wage garnishments, calls from the sheriff and even direct debits from business and/or personal accounts.

This has now extended to the area of ​​international tax agreements and frameworks, allowing Sars to expand further beyond the shores of South Africa and international accommodation booking platforms, as an example for taxpayers non-compliant South Africans around the world.

Now is not the time to take risks. Sars’ approach makes it clear that we are dealing with a competent tax authority. Why risk it when compliance is obviously the best way to go. Sars is willing and ready to assist all taxpayers as advised by Commissioner Edward Kieswetter, stating that Sars will do his best to “make it easy and transparent for taxpayers when transacting with the organization” .

A level of solution-based thinking

For South African taxpayers wishing to rectify a historical non-compliance through voluntary disclosure of information, as may be the case for South African Airbnb hosts, or ensure that their current compliance record remains clean stain, there are different solutions available from a legal point of view. .

The most proactive way to affect this disclosure is through a Voluntary Disclosure Program (VDP) application. The VDP application allows you to legally declare any undeclared assets, but not be subject to the penalties that would generally arise from such non-disclosure.

This is the first award from a compliance perspective and should be considered a priority for all taxpayers who have not yet received formal correspondence from Sars indicating specific liability due.

There also remains the option of a request under Section 92, or alternatively Section 93, pursuant to the TAA.

If the tax authority discovers a prior non-disclosure before the VDP request is submitted, there is still a final Hail Mary, by means of a Tax Debt Compromise Request (the Compromise).

The Compromise is intended to help individual and corporate taxpayers reduce their tax liability through a Compromise Agreement (the Agreement), which is entered into with Sars, on the basis of affordability and benefit to the tax.

The result of entering into the agreement is to significantly reduce your tax liability, to an amount the taxpayer can afford, provide a much-needed reprieve, and help the taxpayer on the road to recovery.

Once the agreement is duly signed and payment is made as proposed by the taxpayer and accepted by the Sars Compromise Committee, the balance of the debt due to Sars is written off by the tax authority.

The best strategy to address non-compliance

To protect yourself from a wall of penalties and interest, and even possible jail time, the best strategy is to always ensure compliance.

When you find yourself on the wrong side of the Sars, there is a first-mover advantage in seeking the appropriate tax advice, ensuring that the necessary steps are taken to protect you and your family from paying for your crimes. of non-compliance. However, where things go wrong, Sars must be hired legally, and we generally find them quite enjoyable when the correct fiscal strategy is followed.

As a general rule, any correspondence received from Sars should be directed immediately to a qualified tax practitioner or tax attorney, who will not only serve to protect the taxpayer from collection action being taken by Sars, but also to be specialists at full share. , the taxpayer will be properly advised on the most appropriate solution to ensure the proper functioning of his Airbnb.

Jashwin Baijoo is theLegal Manager at Africa Tax and Compliance at Tax Consulting SA.

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