Authors: Robert Gad, Anneke Meiring and Jadyne Devnarain
The purpose of the Tax Administration Act No. 28 of 2011 (the TAA), is to ensure the effective and efficient collection of tax, by aligning the administration of the tax Acts to the extent practically possible, prescribing the rights and obligations of taxpayers and other persons to whom the TAA applies, prescribing the powers and duties of persons engaged in the administration of a tax Act, and generally giving effect to the objects and purposes of tax administration.
The TAA provides that the South African Revenue Service (SARS) is responsible for the administration of the TAA under the control or direction of the Commissioner of SARS. The administration of a tax Act means, inter alia, to give effect to the obligation of the Republic to provide assistance under an international tax agreement, which means, a) an agreement entered into with the government of another country in accordance with a tax Act, or b) any other agreement entered into between the competent authority of the Republic and the competent authority of another country relating to the automatic exchange of information under the aforementioned agreement.
On 22 July 2015, SARS released for public comment, inter alia, the Draft Tax Administration Laws Amendment Bill, 2015 (Draft TALAB), to provide the necessary legislative amendments required to implement most of the tax proposals that were announced in the 2015 Budget on 25 February 2015. In terms of the Draft TALAB, 2015, it is proposed that the administration of the TAA should include giving effect to an international tax standard. It is further proposed in the Draft TALAB, 2015, that a new definition i.e. international tax standard will be introduced into the TAA and will be defined as an international standard as specified by the Commissioner by public notice for the exchange of tax-related information between countries.
In addition, it is proposed that section 3 of the TAA be amended to include the instance where SARS, in accordance with an international tax standard, obtained information of a person. In this regard, SARS may retain and exchange the information as and when required under an international tax agreement as if it were relevant material required for purposes of a tax Act and must treat the information obtained as taxpayer information.
According to the Draft Memorandum on the Objects of the Tax Administration Laws Amendment Bill, 2015:
this amendment is required to implement a scheme under which SARS may require South African financial institutions to collect information under an international tax standard, such as the OECD Standard for Automatic Exchange of Financial Account Information in Tax Matters, which encompasses the Common Reporting Standard (CRS) that was endorsed by G20 Finance Ministers in 2014. In order to implement the standard on a consistent and efficient basis, certain financial institutions must report on all account holders and controlling persons, irrespective of whether South Africa has an international tax agreement with their jurisdiction of residence or whether the jurisdiction is currently a CRS participating jurisdiction. This will substantially ease the compliance burden on reporting financial institutions as they would otherwise have to effect system changes and collect historical information each time a jurisdiction is added to the CRS or South Africa concludes a new international tax agreement. The reporting financial institutions will, pursuant to this amendment, be obliged by statute to obtain the information and provide it to SARS and should not contravene any relevant data protection laws.
The Protection of Personal Information Act No. 14 of 2013 (POPI), is largely consistent with the European Data Protection Directive (95/46/EC). Only those sections dealing with the setting up of the Information Regulator are in effect as yet. POPI applies to the processing of personal information (a) which is entered into a record by or for a responsible party by making use of automated or non-automated means (provided that in the case of the latter it forms part of a filing system or is intended to form part thereof), and (b) where the responsible party is (i) domiciled in the Republic, or (ii) domiciled outside of the Republic, but makes use of automated or non-automated means in the Republic. POPI will, in the second instance not apply where those means are used only to forward personal information through the Republic. POPI will therefore not apply to the personal information contained in tax related information exchanged between countries, where the responsible party is not domiciled in South Africa and does not make use of automated or non-automated means in the Republic, or only deploy such means for the forwarding of personal information.
In instances where POPI does find application, personal information has to be processed lawfully, and in a reasonable manner that does not infringe the privacy of the data subject. The purpose for which it is processed, has to be adequate, relevant and not excessive. Personal information may only be processed in a number of instances, including where (i) the data subject consents to the processing of his personal information, (ii) processing complies with an obligation imposed by law on the responsible party, or (iii) processing is necessary for the proper performance of a public law duty by a public body. POPI also prescribes specific requirements for the transfer of personal information to a country outside of South Africa. A transfer is allowed in certain instances, including where (i) the third party who is the recipient of the information is subject to a law, binding corporate rules or binding agreement which provide an adequate level of protection that is provided under POPI, or (ii) the data subject consented to such a transfer.
In light of the above, it is clear that the National Treasury aims to amend domestic tax legislation so as to ensure that SARS will be able to adhere to international standards and fulfil certain obligations under the relevant agreements. The goal is to create greater transparency and more efficient automatic exchanges of information between foreign tax authorities. It must be noted that personal information that forms part of tax related information that originates in South Africa and which is subject to POPI, will be subject to the consent and transfer provisions as set out above. Further, the responsible party (or data controller) in the foreign country will have to meet similar data protection requirements under the laws of that country.