What you should know about the special voluntary disclosure programme

information you will need to apply, because the application period is very short. You should not expect the application period to be extended.

The special VDP will operate for six months, and applications must be submitted between October 1, 2016 and March 31, 2017.

‘PERMANENT’ VDP

If you do not apply for the special VDP but use the “permanent” VDP provided for in the Tax Administration Act, a levy of between 10 and 40 percent will be imposed on the current market value of the assets, depending on whether or not the funds are repatriated. As with the special VDP, the levy must be paid from foreign-sourced funds, Ferdie Schneider, the head of tax at BDO South Africa, says. If they it is not, an additional levy of two percent will be imposed.

The “permanent” VDP does not provide for relief for interest on unpaid tax and does not specify how many years back a taxpayer must disclose offshore income and assets. As a result, the interest on the outstanding tax could exceed the funds held offshore, which is a major deterrent to many potential applicants, Schneider says.

WHO SHOULD APPLY?

You should apply for the special VDP if: ◆ You failed to declare tax on offshore assets, regardless of how they were acquired (left offshore after you immigrated, acquired offshore, or taken offshore illegally).

Hanneke Farrand, the head of the private clients department and a tax director at law firm ENSafrica, says it is unclear whether foreign inheritances and earnings will be excluded from the special VDP, as they were from the 2004 “grey money” amnesty.

◆ You exported money from South Africa in contravention of the exchange controls.

◆ You failed to repatriate an unspent travel allowance.

Farrand says if you took money out of South Africa in contravention of the exchange-control regulations in place at that time and the regulations have subsequently been relaxed, the South African Reserve Bank will take into account the date on which the funds were illegally remitted offshore and determine whether a levy should be imposed according to the regulations that were then in force.

Schneider says the special VDP applies to individuals and corporates, and you may initially apply anonymously through your representatives.

Trusts cannot apply for the special VDP; only individuals who are regarded as donors (or the deceased estates of donors) or beneficiaries can.

Donors and beneficiaries can choose to be deemed to be the holders of the income and assets, which will result in these assets being included in their estates for estate duty purposes, and in the calculations when a disposal for capital gains tax purposes occurs – for example, on death or emigration.

SPECIAL VDP HAS A PRICE

Farrand says the proposal in the special VDP legislation to include 50 percent of the capital used to seed an undisclosed offshore investment could result in a high tax liability. This could result in the special VDP having a less favourable outcome than expected, and this concern is likely to be raised at public hearings on the legislation, Farrand says.

She says it is unclear what constitutes seed money and, specifically, whether it includes a loan used to acquire offshore assets, and if so, whether interest can be charged on this loan. Farrand says the draft legislation seems to assume that such seed money is derived from pre-tax funds.

The special VDP seems to cover contraventions of the tax legislation in respect of offshore assets and exchange-control contraventions. It is not clear whether the special VDP will be available if you contravened the tax laws but not the exchange-control regulations, she says.

Farrand says the revised Revenue Laws Bills issued this week require that you first apply for the “permanent” VDP provided for in the Tax Administration Act. Once agreement has been reached with the South African Revenue Service, you will be able to apply for the special VDP.

National Treasury will provide the standing committee on finance with an informal briefing on the draft Rates & Monetary Amounts Bill and Amendment of Revenue Laws (Administration) Bill, including the special VDP, on Tuesday.

Public hearings on the bills will be scheduled for a future date.