Taxpayers given last chance to come clean
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.