Voluntary Disclosure Programme – SARS and SARB gear up

The VDP for tax and exchange control was announced by the Minister of Finance in the 2010 Budget Speech and has been in effect since November 2010. However, as with other voluntary programmes, uptake has been muted in the early months. SARS and the Financial Surveillance Department of the SARB have therefore embarked on a programme of dissemination of information to intermediaries and financial advisors to explain the benefits and implications.

 

The tax programme

From a tax perspective, the VDP offers taxpayers an opportunity to right any evasion of tax that may have been perpetrated prior to 17 February 2010. The key trigger for access to the VDP is that there must have been a “default”.

 

A default may comprise:

 

·           submission of inaccurate or incomplete information to the Commissioner;

·           failure to submit information; or

·           adoption of a tax position as a result of which the taxpayer:

  • was incorrectly assessed to tax;

  • paid the incorrect amount of tax;

  • or received a refund of tax.

 

The VDP allows taxpayers to make a full disclosure to SARS of the default, and for SARS to recover the tax that was not correctly paid or to recover any unjustified refund. The benefit to the taxpayer is that no interest or penalty will be imposed and immunity from prosecution will be given.

 

The VDP is not available to persons who are under investigation by SARS at the date of filing an application, except to the extent that they are able to satisfy the Commissioner that the default would not be expected to have been identified in the course of the investigation and if the application would be in the interest of good management of the tax system. In such an event, if qualified access is granted, the benefits of the VDP will apply with the exception that the remission of interest will be limited to 50% of the interest that would otherwise have been payable.

 

The exchange control programme

The exchange control VDP covers exchange control violations and is not linked to the tax VDP. Applications for tax and exchange control relief are required to be made separately. The exchange control VDP relates to contraventions of the exchange control regulations on or before
28 February 2010. By submitting a full disclosure of the irregularity it is possible for the applicant to regularise the position with the SA Reserve Bank without risk of prosecution or forfeiture subject to a potential liability to pay a VDP levy.

 

A number of circumstances may be regularised without payment of a levy.

 

For companies these include:

 

·           failure to submit annual financial statements and progress reports on approved foreign investments;

·           failure to lodge share certificates for approved foreign investments with authorised dealers;

·           failure to obtain approval for disposal of approved foreign investments or failure to repatriate the proceeds;

·           the holding of unauthorised foreign investments that meet the minimum criteria for foreign direct investment; and

·           the raising of foreign loans where the loan funds have been repatriated to South Africa but no disclosure made to the Reserve Bank.

 

For individuals, regularisation without potential liability to a levy is available in respect of:

 

·           failure to declare foreign assets on immigration;

·           failure to declare inheritances received before 17 March 1998; and

·           failure to repatriate foreign earned income derived before 1 July 1997.

 

In all other cases regularisation may be accompanied by a liability to pay a levy of 10% of the value of the unauthorised assets (subject to a reduction in the case of individuals in respect of unutilised foreign investment allowances), which must be funded out of foreign cash resources. In the event that the foreign assets are illiquid, it may be possible to negotiate payment out of local assets, in which case the levy will be 12%.

 

Practical guidance is available

Both SARS and the SARB have established specialised units to assist the public in determining the application of the VDP. It is possible for potential applicants or their representatives to approach these units on a no-name basis with a sanitised disclosure, and seek a non-binding opinion on the application of the VDP.

 

Financial Intelligence Centre Act (FICA)

The VDP does not afford complete protection to advisors that are subject to the requirements of FICA. However, it should be borne in mind that a reporting obligation does not arise where the income or foreign assets were derived from a lawful source (i.e. were not the proceeds of unlawful activity) and where, in addition, the professional advisor is assisting the client to absolve himself of a liability that would otherwise have arisen from past non-compliance with a tax or exchange control obligation. Therefore, assisting clients who in good faith are contemplating application under the VDP should not be expected to expose the advisor to significant adverse risk under FICA.

 

The VDP is available to everyone

The VDP net is cast wide and access is afforded to all persons from the smallest individual to the largest corporate group. Compliance officers have an opportunity to examine tax and exchange control practices within the entities to which they are responsible, with a view to eliminating or mitigating risks that may have arisen from past non-compliance. In this regard, the adoption of tax positions in relation to tax-structured transactions may be a significant issue of concern, particularly in light of the principles laid down in the Supreme Court of Appeal in the matter of C:SARS v NWK Limited [2010]

(Not yet reported).

 

The VDP will be available for applications submitted no later than 31 October 2011.

 

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Voluntary Disclosure Programme

Taxation Laws Second Amendment Act No. 8 of 2010

Exchange Control Regulations

Financial Intelligence Centre Act

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