Vol­un­tary — and less costly — dis­clo­sure op­tions

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

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.

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