Time to move on in structured debt deals
AVING identified about a decade ago that so-called structured debt transactions were defrauding the fiscus, the National Treasury together with the South African Revenue Service (SARS) (under the leadership of thencommissioner Pravin Gordhan), systematically worked to ensure that the tax legislation empowers the commissioner to collect its “dues”, despite the form of these transactions.
Essentially, the term “structured finance” has been used to loosely describe those transactions which achieve lower than market-related interest rates to the borrower, usually based on legitimate tax allowances secured by the lender.
Gordhan, as current finance minister, echoed the sentiments he expressed while he was commissioner — that his gripe is limited to “sophisticated tax loopholes” — which we have taken to mean those that “push the envelope” to secure tax benefits.
Over the past five years banks have been compelled to disclose the nature of all structured debt (and the parties involved) to SARS, sometimes going back many years. (It is notable that legislation demanding disclosure of these transactions only became effective on March 1 2005.) These disclosures bore the scrutiny of SARS and the outcome of many remain uncertain. It is true to say that, in principle, the basis of these transactions is not illegal.
Given the overhaul in legislation and both SARS and the treasury’s intentions made clear, it would be preferable if we could leave the past behind. An “amnesty” with regard to past transactions would not be inappropriate in the circumstances, given the commendable manner in which the financial services industry and taxpayers (who availed themselves of these “benefits”) have responded to allegations of undue tax benefits being derived.
The time and resources that it takes to defend these allegations (and the cost thereof) is sometimes not worth the effort for business, which should be focused on trade. This results in settlements with SARS on issues of principle that just do not set a good precedent. Needless to say, while SARS collects its funds, the public is left wondering what the fuss was all about with no certainty either way.