Tax­pay­ers given last chance to come clean

Business Day - Business Law and Tax Review - - THE NEW AMNESTY - Beric Croome

THE finance min­is­ter re­leased de­tails of the pro­posed Spe­cial Vol­un­tary Dis­clo­sure Pro­gramme (SVDP) when he in­tro­duced his bud­get on Fe­bru­ary 24. The SVDP will al­low those tax­pay­ers who hold as­sets abroad which are not known to the South African Rev­enue Ser­vice (SARS) and/or the South African Re­serve Bank to reg­u­larise those as­sets on rea­son­able terms.

The world has be­come a smaller place since 9/11 and also as a re­sult of the au­to­matic ex­change of in­for­ma­tion for tax pur­poses glob­ally. SA is re­garded as an early adopter of the Com­mon Re­port­ing Stan­dard (CRS) which com­prises the stan­dard for the au­to­matic ex­change of fi­nan­cial ac­count in­for­ma­tion de­vel­oped by the Or­gan­i­sa­tion for Eco­nomic Co­op­er­a­tion and Devel­op­ment. Thus, SA will start to re­port fi­nan­cial in­for­ma­tion dur­ing the first half of 2017 in re­spect of ac­counts held as at De­cem­ber 31.

The re­main­ing coun­tries which in­clude, for ex­am­ple, Monaco and Switzer­land will im­ple­ment the stan­dard with ef­fect from Jan­uary 1 2017 and re­quire their first re­ports to be made in the first half of 2018. Thus, SA will start to re­ceive in­for­ma­tion from Switzer­land and other coun­tries, other than the early adopters, in 2018 re­gard­ing fi­nan­cial in­for­ma­tion re­lat­ing to ac­counts held in that coun­try.

Thus, the SVDP rep­re­sents the last op­por­tu­nity for tax­pay­ers to reg­u­larise unau­tho­rised as­sets held abroad be­fore SARS re­ceives data from for­eign rev­enue au­thor­i­ties re­gard­ing funds held off­shore.

The SVDP is con­tained in the 2016 Rates and Mone­tary Amounts and Amend­ment of Rev­enue Laws Bill, and deals with both the in­come tax and ex­change con­trol as­pects of the reg­u­lar­i­sa­tion process.

The Tax Ad­min­is­tra­tion Act con­tains as a per­ma­nent fea­ture of law a vol­un­tary dis­close pro­gramme, but that does not deal with ex­change con­trol is­sues, nor does it have any cut­off in­so­far as in­ter­est payable by tax­pay­ers is con­cerned, nor does it re­strict the pe­riod for which tax­pay­ers are re­quired to go back to.

The SVDP is at­trac­tive in that those amounts that were re­moved from SA with­out in­come tax be­ing paid thereon will not be fully taxed, such that only 50% of the cap­i­tal amount re­moved from the coun­try is li­able to tax in the first year of as­sess­ment end­ing af­ter March 1 2010 — that is the 2011 tax year.

Thus, where, for ex­am­ple, a tax­payer re­moved pre-tax amounts to­talling R1m over an ex­tended pe­riod of time be­fore March 1 2010, 50% thereof, that is R500,000, will be li­able to tax in the 2011 tax year at the rate of tax ap­pli­ca­ble then. Fur­ther­more, in­ter­est payable on the amounts pre­vi­ously taxed will run from March 1 2010 which is bet­ter than the cur­rent vol­un­tary dis­close pro­gramme where there is no lim­it­ing of the in­ter­est that may be­come payable by a tax­payer.

Those per­sons ap­ply­ing for relief un­der the SVDP must note that all amounts of div­i­dends, for­eign div­i­dends, in­ter­est or other sim­i­lar in­vest­ment in­come re­ceived ac­crued on or af­ter March 1 2010 must be dis­closed and will be li­able to tax. But any in­vest­ment in­come de­rived be­fore March 1 2010 is ef­fec­tively ex­empt and not li­able to tax.

Any nat­u­ral per­son (in­clud­ing the de­ceased estate of a nat­u­ral per­son), a close cor­po­ra­tion or com­pany is en­ti­tled to ap­ply for the SVDP where that tax­payer held a for­eign as­set on Fe­bru­ary 29, the value of which re­lated to any unau­tho­rised as­set which com­prises an amount not pre­vi­ously known to SARS or to the Re­serve Bank.

For­eign trusts are not able to ap­ply for SVDP di­rectly but the per­son who made funds avail­able by way of a do­na­tion to a for­eign trust will be en­ti­tled to ap­ply for relief where that ap­pli­cant ac­cepts that the as­sets owned by the for­eign trust are deemed to be held by that ap­pli­cant for tax in­come pur­poses only. This is sim­i­lar to the pro­vi­sions which ap­plied at the time of the amnesty which was avail­able in 2003.

Where a per­son has re­moved funds from SA in con­tra­ven­tion of the ex­change con­trol reg­u­la­tions they may reg­u­larise their po­si­tion with the Re­serve Bank by pay­ing a levy of 5% on the mar­ket value of the for­eign as­sets as at Fe­bru­ary 29 where those as­sets are re­turned to SA. If the ap­pli­cant chooses to re­tain their as­sets abroad, the levy payable is in­creased to 10% of the value of the for­eign as­sets held abroad. It must be noted that the for­eign in­vest­ment al­lowance, an amount of R10m per per­son per year, is not de­ducted from the value of the for­eign as­sets li­able to the levy. Where the ap­pli­cant is un­able to set­tle the ex­change con­trol levy from for­eign funds, the levy will be in­creased by 2% to the ex­tent that lo­cal as­sets are utilised to pay the levy due to the Re­serve Bank.

Those per­sons who choose to utilise the SVDP will be in a favourable po­si­tion in that they can reg­u­larise their af­fairs with both SARS and the Re­serve Bank with­out any fear of a crim­i­nal pros­e­cu­tion and on what I be­lieve is a rea­son­able ba­sis. Ap­pli­cants may lodge ap­pli­ca­tions from Oc­to­ber 1 and must ad­here to the dead­line and clos­ing date of the SVDP of March 31 2017. Those per­sons who hold funds abroad which are not known to the au­thor­i­ties in SA are urged to utilise the SVDP to reg­u­larise their af­fairs in SA. Fail­ure to do so will re­sult in the au­thor­i­ties be­com­ing aware of the funds held abroad as a re­sult of the au­to­matic ex­change of in­for­ma­tion and in such a case those tax­pay­ers will be li­able to penal­ties and could face crim­i­nal pros­e­cu­tion.

In the case of vi­o­la­tions of ex­change con­trol those per­sons who choose not to reg­u­larise their af­fairs could be re­quired to pay levies rang­ing from 10%-40% of the cur­rent mar­ket value of their unau­tho­rised for­eign as­sets.

Per­sons wish­ing to ap­ply for relief need to start col­lat­ing fi­nan­cial in­for­ma­tion sooner rather than later so that they can meet the tight dead­line.

Vol­un­tary dis­clo­sure pro­gramme al­lows for unau­tho­rised off­shore as­sets to be reg­u­larised

Dr Beric Croome is a tax ex­ec­u­tive at ENSafrica.

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