New era of cross-border data sharing ahead
SA is a member of the Global Forum on Transparency and Exchange of Information for Tax Purposes. It has been confirmed that SA has undertaken to exchange information automatically in relation to new accounts and pre-existing individual high-value accounts by the end of September 2017.
SA has concluded a large number of double-taxation agreements with trading partners, allowing for the exchange of information. Furthermore, SA has signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, which took effect in SA on March 1 last year. That convention envisaged the automatic exchange of information by the countries that had signed.
In October last year, SA and 50 other jurisdictions translated their commitments under the convention into action by signing the Multilateral Competent Authority Agreement, which activates the automatic exchange of information based on the convention.
Bilateral exchanges will take effect between countries that file notifications under section 7 of the agreement. The agreement sets out the particulars of what information will be exchanged and the timing.
Section 2 sets out the information that countries are required to exchange automatically. SA will be required to exchange information regarding so-called “reportable accounts” of another jurisdiction which comprises financial accounts maintained by a reporting financial institution which has been identified as an account which is held by one or more persons that are reportable persons in relation to another country.
SA will be required to exchange the following information with other countries under the agreement:
The name, address, tax identification number, and date and place of birth in the case of an individual; The account number; The name and identifying number of the reporting financial institution;
The account balance or value at the end of the relevant calendar year or other appropriate reporting period; and
The total amount paid or credited to the account holder with respect to the account during the calendar year or other period.
Under section 3 of the agreement, the information is required to be exchanged automatically within nine months of the end of the calendar year to which the information relates.
For SA to comply with its obligations, it will require substantial information from financial institutions regarding accounts linked to persons resident in other countries. Under the provisions of section 26 of the Tax Administration Act the SA Revenue Service (SARS) Commissioner may issue public notices requiring financial institutions to submit returns to SARS reflecting detailed financial information.
SA has concluded an agreement with the US whereby South African financial institutions are required to report significant financial information to SARS for transmission to the US.
A detailed public notice was issued under section 26 of the act describing the information to be collated. No doubt further public notices will be issued by SARS setting out exactly what information financial institutions must supply to SARS so that it may be made available to other countries.
The Organisation for Economic Co-operation and Development has indicated that the Global Forum on Transparency and Exchange of Information for Tax Purposes would establish a peer review process to ensure the effective implementation of the automatic exchange of information.
Furthermore, governments party to the convention have undertaken to increase the level of information exchanged on request by including a requirement that beneficial ownership of all legal entities be made available to tax authorities and be capable of being exchanged with treaty partners.
This will enable tax authorities to ascertain who owns assets held by companies and trusts located around the world.
The forum has indicated that 89 of its member countries have committed themselves to implement reciprocal exchange of information on financial accounts automatically.
At the seventh meeting of the forum held in Berlin in October last year, it was announced that an initiative would be launched in Africa to increase awareness of the benefits of the exchange of information across the continent and to increase the number of African countries that are members of the forum. It would also help African tax administrations with the exchange of information.
It is clear the automatic exchange of information will begin in many countries during 2017 or no later than 2018.
Just as SA must provide financial information to other countries, SARS will receive information from other countries regarding South Africans who have bank accounts abroad. Taxpayers who are in default and have not made full and proper disclosure of their affairs to SARS should use the voluntary disclosure programme in the act to ensure they can remedy their defaults without facing criminal prosecution and in many cases escape penalties which would otherwise be payable.
It must be remembered that the programme contained in the act is a permanent feature of the law and does not have a date by which taxpayers must apply for relief.
Furthermore, those who may have violated the exchange control regulations should consider regularising their affairs with the financial surveillance department of the South African Reserve Bank.
Thereby they can regularise their affairs without facing criminal sanction for prior violations of exchange control regulations.
Convention opens the way for far greater scrutiny of ‘reportable accounts’
Dr Beric Croome is a tax executive at ENSafrica.