Voluntary — and less costly — disclosure options
WITH the Panama Papers headlining across the world, the global exchange of information measures introduced by the Organisation for Economic Co-operation and Development (OECD) will apply to SA from next year to ensure that countries share investment information to reduce tax evasion.
The Panama Papers comprise 11.5-million detailed documents of more than 214,000 offshore companies. They were compiled by a Panamanian corporate service provider and include the identities of company shareholders and directors and reveal how wealthy individuals hide their assets.
The papers identified a number of heads of state, government leaders and government officials in a number of countries and it is clear some vehicles were used for fraud, drug trafficking and tax evasion. The information can be traced as far back as the 1970s.
The South African Revenue Service (SARS) has announced that it will investigate implicated South Africans, who could be guilty of tax evasion and avoidance through offshore structures.
However, the Tax Voluntary Disclosure Programme (VDP) may bring some relief. The VDP provides taxpayers with relief from understatement penalties, administrative penalties and criminal prosecution in certain instances where they disclose noncompliance to SARS.
A VDP application must be voluntary; involve a default not previously disclosed to SARS by the applicant or by a representative; be full and complete; potentially result in understatement penalties; and not result in a refund from SARS. Application must be made in the predetermined form and manner. A default refers to a submission of inaccurate or incomplete information to SARS, or failure to submit information or adoption of a tax position, if the submission, nonsubmission, or adoption resulted in understatement.
VDP applicants may not be under SARS audit or investigation for that default, except if SARS is satisfied that the default would not have been detected in the audit or investigation and it would be in the interest of good management of the tax system and the best use of SARS’ resources.
Successful VDP applicants enter into binding written agreements with SARS, which need to include the material facts; the amount payable and the understatement penalty; the payment terms and dates; and any other undertakings by SARS or the taxpayer. Taxpayers may submit anonymous VDP applications to request a nonbinding SARS opinion on applicability.
Finance Minister Pravin Gordhan in his budget speech in February announced a Special Voluntary Disclosure Programme (Special VDP).
The Special VDP will provide relief for the six months from October 1 to March 31 2017.
It is only available to individuals and companies, and donors, deceased estates of donors or beneficiaries in relation to foreign discretionary trusts, if they elect to have the trust’s offshore assets and income deemed to be held by them. Trusts and amounts used to directly or indirectly fund assets that have been disclosed to SARS in terms of the international exchange of information procedure will not qualify for the Special VDP.
The special VDP will grant relief of 50% of the total amount used to fund the acquisition of offshore assets before March 1 last year. Investment returns pre-March 1 2010 will be exempt from normal tax but will comprise taxable income post March 1 2010. Interest on tax debts to fund the acquisition of offshore assets or investment returns on those offshore assets will apply from March 1 2010.
No understatement penalties will be levied if a Special VDP application is successful. SARS will not pursue criminal prosecution if a Special VDP application is successful.
The Special VDP also extends to disclosures in terms of the exchange control contraventions in terms of which the Reserve Bank will grant taxpayers the opportunity to regularise their exchange control affairs in a less costly manner than Reserve Bank discovery.
The VDP and Special VDP provide the opportunity for taxpayers to regularise their domestic and cross-border tax issues in a less costly manner and in the process could enhance the tax base. This may bring relief against the consequences of the Panama Papers if disclosure is made before SARS discovery.
Taxpayers can still regularise their domestic and cross-border tax issues
Ferdie Schneider is head of tax at BDO South Africa.