New era of cross-bor­der data shar­ing ahead

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

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.

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