Grace pe­riod for dis­clo­sure of off­shore as­sets

Business Day - Business Law and Tax Review - - THE NEW AMNESTY -

IN TERMS of the au­to­matic ex­change of in­for­ma­tion agree­ment in­tro­duced by the Or­gan­i­sa­tion for Eco­nomic Co-op­er­a­tion and Devel­op­ment (OECD), SA and other tax au­thor­i­ties will be ex­chang­ing tax­payer in­for­ma­tion from next year.

To en­cour­age com­pli­ance, the finance min­is­ter an­nounced a spe­cial vol­un­tary dis­clo­sure pro­gramme (VDP) in re­spect of off­shore as­sets and in­come in his Fe­bru­ary bud­get speech. This joint ini­tia­tive of the Rev­enue Ser­vice (SARS) and the Re­serve Bank will en­able tax­pay­ers with unau­tho­rised off­shore as­sets to make vol­un­tary dis­clo­sure to rec­tify tax or ex­change con­trol vi­o­la­tions. The 2003 and cur­rent amnesty were an­nounced fol­low­ing the South African tax sys­tem’s chang­ing from the res­i­dence to the world­wide ba­sis of tax­a­tion in 1997.

Pro­vi­sions re­lat­ing to the VDP have been made avail­able in the Rates and Mone­tary Amounts and Amend­ment of Rev­enue Laws Bill, 2016, the Rates and Mone­tary Amounts and Amend­ment of Rev­enue Laws (Ad­min­is­tra­tion Bill), 2016, and un­der the Ex­change Con­trol Reg­u­la­tion 24 of 1961.

Tax­pay­ers can ap­ply for the VDP from Oc­to­ber 1 this year to March 31 2017. In­di­vid­u­als and cor­po­rates may ap­ply, ini­tially on a no-names ba­sis and may also be made by tax­payer rep­re­sen­ta­tives. This needs to be done on the same ba­sis as the VDP con­tem­plated in Part B of Chap­ter 16 of the Tax Ad­min­is­tra­tion, 2011.

Per­sons aware of a pend­ing au­dit or in­ves­ti­ga­tion in re­spect of for­eign as­sets or for­eign taxes, or per­sons al­ready un­der such au­dit or in­ves­ti­ga­tion, will not qual­ify. Trusts will also not qual­ify. If the scope of the au­dit or in­ves­ti­ga­tion is in re­spect of other ar­eas a per­son may still qual­ify. Set­t­lors, donors, de­ceased es­tates or ben­e­fi­cia­ries of for­eign dis­cre­tionary trusts may par­tic­i­pate if they elect to have the trust’s off­shore as­sets and in­come deemed to be held by them. The VDP will not ap­ply to amounts dis­closed to SARS in terms of an in­ter­na­tional ex­change of in­for­ma­tion pro­ce­dure.

Unau­tho­rised funds repa­tri­ated to SA will be sub­ject to a 5% ex­change con­trol levy, and funds kept off­shore will be sub­ject to a 10% ex­change con­trol levy. These levies will be based on the mar­ket value of the as­sets on Fe­bru­ary 29 this year. The VDP will al­low South African res­i­dent in­di­vid­u­als and com­pa­nies to dis­close and reg­u­larise their ex­change con­trol con­tra­ven­tion that oc­curred be­fore Fe­bru­ary 29. In­di­vid­u­als will not be al­lowed to claim their R10m (or re­main­ing part thereof) for­eign cap­i­tal al­lowance as a de­duc­tion.

The levy may also not be re­duced by fees or com­mis­sions paid. Where a li­able per­son has not ap­plied for the VDP, a levy rang­ing from 10% to 40% will be im­posed on cur­rent mar­ket value. The quan­tum of the im­po­si­tion will de­pend on whether the funds are repa­tri­ated or not. The levy must be paid from for­eign-sourced funds. To the ex­tent that lo­cal funds are used to pay the levy, an ad­di­tional 2% levy will be im­posed.

The VDP will grant tax relief of 50% of the to­tal amount (“seed money”) used to ac­quire off­shore as­sets be­fore March 1 last year to be in­cluded in tax­able in­come and sub­ject to tax. Only re­turns on those off­shore as­sets re­ceived or ac­crued on or af­ter March 1 2010 will be in­cluded in tax­able in­come. Re­turns that ac­crued prior to that date will be ex­empt. In­ter­est on tax debts re­sult­ing from the dis­clo­sure will be payable from that date.

The tax and ex­change con­trol amnesty of 2003 raised be­tween R3bn and R7bn. At the time, for­eign funds held by South Africans amounted to about R69bn, of which R48bn was held with­out au­tho­ri­sa­tion. A re­cent re­port re­vealed that about R28bn (or 0.57% of SA’s gross do­mes­tic prod­uct) was held by South African cit­i­zens in more than 2,000 HSBC Swiss bank ac­counts. Al­though this may seem sig­nif­i­cant, it only rep­re­sents one re­port from one bank in one tax haven.

The VDP now al­lows tax­pay­ers a grace pe­riod within which to make dis­clo­sure be­fore the au­to­matic ex­change of in­for­ma­tion agree­ment of the OECD comes into op­er­a­tion in SA next year. No un­der­state­ment penal­ties will be levied and suc­cess­ful ap­pli­ca­tion will not re­sult in pros­e­cu­tion or im­pris­on­ment.

Tax­pay­ers can ap­ply from Oc­to­ber 1 this year to March 31 next year

Ferdie Sch­nei­der is head of tax at BDO South Africa.

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