Nowhere to hide as tax net tightens

TAX collections are under pressure globally, so it’s no surprise that governments have shifted their focus to large companies and wealthy individuals.

This is partly a reaction to the fact that the rich seem to be getting richer while the rest of us get poorer. Companies stand accused of profit shifting and wealthy individuals are suspected of setting up sophisticated tax structures or of simply bypassing the formalities altogether and not declaring their wealth.

Thanks to this country’s particular history of strict exchange controls, South Africans who have opened an offshore investment, savings or bank account are regarded with suspicion. The recent naming of 1 787 South Africans with HSBC accounts in Switzerland is a case in point.

It’s important to remember that the journalists who exposed these HSBC accounts — which were valued at $102-billion and owned by people and companies in 203 countries — made it clear that their intention was not to imply that those individuals had broken the law.

That would entail a deeper investigation by the tax and justice authorities to determine which of these account holders, if any, intentionally evaded tax.

In our case, the South African Revenue Service said it was still analysing the information but “early indications are that some of these account holders may have utilised their HSBC accounts to evade local or international tax obligations”.

However, prosecuting any of these people would be a lot harder than it might seem as the evidence is based on stolen data and flouted secrecy laws.

Therein lies the rub. Surely, if even one illegal transaction is remedied through leaked information, the cause was a worthy one and should be applauded?

But the “leaker” in the HSBC case — systems engineer Hervé Falciani — is now wanted by the Swiss authorities and remains under French protection. The Swiss still have strict laws regarding stolen data.

South Africa is itself in the throes of ensuring data held by public companies meet strict criteria, especially as far as its dissemination is concerned.

The debate essentially revolves around where bank secrecy ends and when an individual or or- ganisation’s rights to privacy can legally be encroached upon. There are no definite answers and the authorities are trying to get individuals to come forward voluntarily to avoid facing stiffer penalties down the line. The flaw here, however, is that criminals obviously never step forward.

The ability of authorities to work together and for the banks to improve compliance levels is ultimately going to be the best way to eradicate money laundering and the illegal use of offshore accounts. The media will remain a critical role-player in unearthing these cases.

However, individuals themselves need to be aware that the risk of being detected is increasing, should they be tempted not to disclose offshore investments.

The foreign capital allowances for South Africans have increased from R4-million to R10million per person per year, or R20-million per family per year. This means that if you include the discretionary allowance of R1million a year, a family can legally send up to R22-million a year offshore.

South Africans, however, are liable for tax on all their worldwide income and capital gains because of our “residence-based” system. So, no matter where assets are invested, all returns are taxable in South Africa.

But if these investment returns are taxed twice due to local legislation in the country where the investment has been made, individuals can then ask for tax credits based on existing tax treaties with other countries.

Thankfully, the radical spikes we saw between 1994 and 1998 in money being funnelled offshore seem to have died down.

But investors are still using legitimate channels to take money offshore. They have every right to do that, as long as it is done legally and never has the intention to avoid tax.

Abbott is a tax director at Deloitte with a special interest in tax liabilities of mobile populations