The last chance to reg­u­larise for­eign as­sets

Business Day - Business Law and Tax Review - - BUSI­NESS LAW & TAX RE­VIEW - Beric Croome

IN THE 2016 Bud­get Re­view Fi­nance Min­is­ter Pravin Gord­han an­nounced a last op­por­tu­nity for South Africans hold­ing funds abroad that are not known to the South African Rev­enue Ser­vice (SARS) or the Re­serve Bank to reg­u­larise those as­sets. A re­vised draft bill reg­u­lat­ing the Spe­cial Vol­un­tary Dis­clo­sure Pro­gramme (SVDP) was pub­lished on July 20 and that bill is fast ap­proach­ing fi­nal­i­sa­tion.

On July 13 the Re­serve Bank is­sued a com­pre­hen­sive cir­cu­lar deal­ing with the ex­change con­trol as­pects of the SVDP.

It must be re­mem­bered that the Tax Ad­min­is­tra­tion Act con­tains the so-called Per­ma­nent Vol­un­tary Dis­clo­sure Pro­gramme (Per­ma­nent VDP), which does not con­tain any date by which an ap­pli­ca­tion must be lodged. Those tax­pay­ers wish­ing to reg­u­larise their for­eign as­sets will need to eval­u­ate whether to do so us­ing the Per­ma­nent VDP or SVDP, be­cause the method­ol­ogy is quite dif­fer­ent. The SVDP will be­gin on Oc­to­ber 1 2016 and will ter­mi­nate on March 31 2017.

The re­vised draft bill makes it clear that the amounts of re­ceipts and ac­cru­als not pre­vi­ously de­clared to SARS as re­quired by the In­come Tax Act or the Es­tate Duty Act for tax pur­poses, ex­clud­ing em­ploy­ees’ tax pur­poses, held off­shore dur­ing the pe­riod March 1 2010 to Feb­ru­ary 28 2015 will be ex­empt from tax. Thus, no do­na­tions tax, es­tate duty or in­come tax will be payable on the un­de­clared for­eign as­sets up to Feb­ru­ary 28 2015.

Clearly, with ef­fect from March 1 2015 tax­pay­ers must ac­count for in­come tax on in­come re­ceived on the for­eign as­sets and do­na­tions tax on as­sets do­nated there­after. Fur­ther­more, they will be sub­ject to es­tate duty when the per­son hold­ing the for­eign as­sets passes away after March 1 2015.

Any per­son who held a for­eign as­set wholly or partly de­rived from re­ceipts and ac­cru­als not pre­vi­ously de­clared to SARS as re­quired by the In­come Tax Act or the Es­tate Duty Act which was dis­posed of be­fore March 1 2010, other than by way of do­na­tion or dis­posal on loan ac­count to a trust may elect that the as­set is deemed to have been held for the pe­riod March 1 2010 to Feb­ru­ary 28 2015 on the ba­sis that the value for the pe­riod in ques­tion will be equal to its high­est value while ac­tu­ally held by the ap­pli­cant. If the ap­pli­cant is un­able to es­tab­lish the amount with cer­tainty, SARS may agree to ac­cept a rea­son­able es­ti­mate.

The re­vised draft bill re­quires that an ap­pli­cant must in­clude in their tax­able in­come in the 2015 tax year an amount equal to 50% of the high­est amount de­ter­mined in re­spect of the ag­gre­gate value of all for­eign as­sets re­ferred to above as at the end of each year of as­sess­ment end­ing on or after March 1 2010 but not end­ing on or after March 2015. Thus, tax­pay­ers will need to de­ter­mine the mar­ket value of all for­eign as­sets held, not pre­vi­ously de­clared to SARS and to con­vert the for­eign mar­ket value into rand at the spot rate at the end of each year of as­sess­ment.

As­sume that a tax­payer held for­eign as­sets on which for­eign in­come such as in­ter­ests, div­i­dends and cap­i­tal gains had not pre­vi­ously been re­ported to SARS for the tax years set out be­low: or a ben­e­fi­ciary of a for­eign trust may elect that any as­set lo­cated out­side SA which was held by the dis­cre­tionary trust from March 1 2010 to Feb­ru­ary 28 2015 will be re­garded as be­ing held by that per­son for pur­poses of all tax acts.

As a re­sult, the for­eign as­sets owned by the for­eign trust will be re­garded as form­ing part of the es­tate of the ap­pli­cant for pur­poses of es­tate duty on their death. The elec­tion avail­able for for­eign trusts ap­plies in re­spect of for­eign as­sets where such as­sets were ac­quired by the for­eign trust by way of a do­na­tion and which has been wholly or partly de­rived from any amount not de­clared to SARS as re­quired by the Es­tate Duty Act or the In­come Tax Act.

Prospec­tive ap­pli­cants need to as­cer­tain mar­ket val­ues of for­eign as­sets held at the end of Feb­ru­ary of each year for 2011 to 2015 so that they may as­cer­tain which value was the high­est in the five years in ques­tion. Where a per­son ap­plies for SVDP no un­der­state­ment penal­ties will be im­posed and SARS will not pur­sue a crim­i­nal pros­e­cu­tion for a tax of­fence when ap­pli­ca­tion un­der the SVDP is suc­cess­ful. the ap­pli­cant stip­u­lates the source of all unau­tho­rised for­eign as­sets and in­cludes de­tails of the man­ner in which such as­sets where trans­ferred and re­tained abroad.

To sub­mit an ap­pli­ca­tion for ex­change con­trol re­lief the ap­pli­cant must sub­mit proof of the mar­ket value of the for­eign as­set as at Feb­ru­ary 29 2016 as well as a de­scrip­tion of the iden­ti­fy­ing char­ac­ter­is­tics and lo­ca­tion of such for­eign as­set sup­ported by a val­u­a­tion cer­tifi­cate by a val­u­a­tor in the coun­try where the for­eign unau­tho­rised as­set is lo­cated. Fur­ther­more, the ap­pli­cant must sub­mit a sworn af­fi­davit or sworn dec­la­ra­tion set­ting out de­tails of the con­tra­ven­tion.

The Bank’s fi­nan­cial sur­veil­lance de­part­ment has in­di­cated that a levy of 5% would be payable on the value of the unau­tho­rised for­eign as­sets where those as­sets were repa­tri­ated to SA. The 5% levy must be paid from for­eign-sourced funds. If the ap­pli­cant chooses to re­tain the for­eign as­sets abroad, a levy of 10% is re­quired to be paid from for­eign-sourced funds. Where the ap­pli­cant is un­able to pay the 10% levy from for­eign-sourced funds be­cause the for­eign as­sets are illiq­uid, the levy may be in­creased to 12% of the value of the unau­tho­rised for­eign as­sets.

Ap­pli­cants will need to as­cer­tain the nature of the funds held abroad and whether those funds are held con­trary to the ex­change con­trol reg­u­la­tions, in which case the levy re­ferred to above will be payable. Where the for­eign funds re­late to tech­ni­cal vi­o­la­tions of ex­change con­trol reg­u­la­tions such that the ap­pli­cant failed to de­clare for­eign earn­ings or for­eign in­her­i­tances, a dis­clo­sure should be made to the ap­pli­cant’s au­tho­rised dealer and in most cases no levy will be re­quired.

Peo­ple who im­mi­grated to SA and who failed to place their for­eign as­sets on record on their im­mi­gra­tion can now do so without at­tract­ing any levy and can re­tain the as­sets abroad which they held prior to im­mi­gra­tion to SA.

Only a six-month win­dow to ap­ply for re­lief un­der the Spe­cial Vol­un­tary Dis­clo­sure Pro­gramme

Dr Beric Croome is a tax ex­ec­u­tive at ENSafrica.

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