The wait is over: This is what the Special Voluntary Disclosure Programme will offer

The Minister of Finance announced the Special Voluntary Disclosure Programme (SVDP) in the 2016 Budget Speech. The legislation governing the SVDP finally came into effect on 19 January 2017 when the Rates and Monetary Amounts and Amendment of Revenue Laws Act, No 13 of 2016 (Revenue Laws Act) and the Rates and Monetary Amounts and Amendment of Revenue Laws (Administration) Act, No 14 of 2016 (Revenue Laws Administration Act) were published in the Government Gazette.

The two pieces of legislation mentioned above set out the rules of the tax SVDP. The rules applicable to the exchange control (Excon) SVDP are governed by two circulars released by the South African Reserve Bank (SARB) in July and October 2016 as well as a third circular released today, 27 January 2017. This article will focus mainly on the rules applicable to the tax SVDP, but we will also refer to the Excon SVDP where applicable. We reported on the previous draft versions of the SVDP legislation in our Alerts of 15 April 2016 and 29 July 2016.

Circumstances under which the SVDP is available

The substantive provisions of the tax SVDP are contained in s14 to s18 of the Revenue Laws Act. In terms of s15(2) of the Revenue Laws Act, the amount payable in terms of the SVDP will be equal to the amount of the receipts and accruals not declared to the South African Revenue Service (SARS) as required by the Estate Duty Act, No 45 of 1955 (Estate Duty Act) or the Income Tax Act, No 58 of 1962 (Income Tax Act), from which an asset, situated outside the Republic and held by the person during the period 1 March 2010 to 28 February 2015, was wholly or partly derived. Section 15(3) allows taxpayers who disposed of an asset that was wholly or partly derived from receipts and accruals not declared to SARS as required by the Estate Duty Act or the Income Tax Act, before 1 March 2010, to also make use of the SVDP, unless the asset was disposed of by way of a donation or disposal on loan account to a trust.

Section 18 of the Revenue Laws Act states that if a person is a beneficiary or a donor in relation to a foreign discretionary trust, the person may also elect that any asset situated outside the Republic as contemplated in s18(2), which was held by the discretionary trust during the period 1 March 2010 to 28 February 2015 be deemed to have been held by that person for the purposes of all tax Acts.

Amounts payable in terms of the SVDP

Section 16 of the Revenue Laws Act states that the amount subject to tax in terms of the SVDP will be 40% of the highest value of the aggregate of all assets situated outside South Africa between 1 March 2010 and 28 February 2015 that were wholly or partly derived from receipts and accruals not declared to SARS as required by the Estate Duty Act or the Income Tax Act. In terms of s16(2), the value referred to in s16(1) is the market value of the asset in terms of the relevant foreign currency and translated to rand at the spot rate on the last business day in South Africa on or before the end of each year of assessment. In other words, if an asset was held from 1 March 2010 to 28 February 2015, one will look at the market value in rand on the last day of each year of assessment, being 28 or 29 February. In terms of s16 of the Revenue Laws Act, the highest of these market values will be multiplied by 40% and this amount will then be included in the first year of assessment ending on or after 1 March 2014, which in the case of individuals, will be the 2015 year of assessment.

If an asset was disposed of before 1 March 2010, the tax payable will be calculated in a similar manner with the only difference being that the asset will be deemed to have been held during the period 1 March 2010 to 28 February 2015 for purposes of s15 and s16. Where the value of such an asset cannot be determined, SARS can agree to accept a reasonable estimate of the value of the asset.

In terms of s17 of the Revenue Laws Act, an asset referred to in s15 that was held and not disposed of on the last day of the year of assessment on or before 28 February 2015 must be deemed to have been acquired on that day at a cost equal to the value of the asset under s16 in the relevant foreign currency. In other words, the asset declared in terms of the SVDP will have a new base cost which, for capital gains tax purposes, will apply when the asset is later disposed of. This provision does not appear in previous draft versions of the legislation.

Procedural aspects and consequences of successful application

The process for the SVDP is dealt with by the Revenue Laws Administration Act. It states in s2 that a SVDP application must be made under Part B of Chapter 16 of the Tax Administration Act, No 28 of 2011 (TAA), which means that the process will be the same one applicable to normal VDP applications. Section 2 further states that an application may not be made by or on behalf of a trust or in respect of receipts and accruals from which an asset that has been disclosed to SARS under an international tax agreement was wholly or partly derived. Persons may not apply for the SVDP if they are aware of a pending audit or investigation in respect of foreign assets or if such an audit or investigation has commenced unless the scope of the audit or investigation is in respect of other assets, ie other than foreign assets or foreign taxes, for example PAYE.

An important change is that SVDP applications can now be made until 31 August 2017, whereas the draft legislation stated that SVDP applications could only be submitted until 30 June 2017. If a SVDP application is successful, no understatement penalties will be levied and SARS will not pursue criminal prosecution for a tax offence. Taxpayers should be aware that future income, including income received in the 2016 year of assessment will be fully taxed and will not be subject to the SVDP. It is also possible that successful applicants will have to pay interest on the outstanding tax from the due date of their tax return for the 2015 year of assessment.

In terms of the Media Statement released by National Treasury on 30 September 2016 (Media Statement), SARS and the SARB have established a joint application process. The Media Statement states that applications for tax relief under the SVDP may be made in the new SVDP section of the VDP01 form that has been available on SARS eFiling from 1 October 2016. According to the Media Statement, applications for Excon relief may be made on the new SVDP01 form, also hosted on eFiling.

Comment

Taxpayers should be aware that the SVDP process does not affect the availability of the normal VDP process which applies in terms of the TAA. However, from 1 September 2017, taxpayers will no longer be able to receive tax relief under the SVDP. With regard to Excon relief, the SARB released exchange control circular 4/2017 on 27 January 2017, which states that the Excon SVDP will now also be available until 31 August 2016. The rules of the Excon SVDP are contained in exchange control circular 6/2016, which we reported on in our Alert of 15 July 2016, and in exchange control circular of 8/2016.

Tax and Exchange Control Alert

by Louis Botha



Amendments to the Special Voluntary Disclosure Programme

Panama1Author: Mareli Treurnicht.

On 24 February 2016 the Minister of Finance announced the Special Voluntary Disclosure Programme (SVDP) as part of the 2016 Budget Speech. On the same date, the draft Rates and Monetary Amounts and Amendment of Revenue Laws Bill (First Draft Revenue Laws Bill) and the draft Rates and Monetary Amounts and Amendment of Revenue Laws (Administration) Bill were released. These bills contained the proposed provisions in respect of the SVDP.

Following input from the public, National Treasury released the amended draft Rates and Monetary Amounts and Amendment of Revenue Laws Bill (Second Draft Revenue Laws Bill) and the amended draft Rates and Monetary Amounts and Amendment of Revenue Laws (Administration) Bill (Second Draft Revenue Laws Administration Bill) on 19 July 2016. An Explanatory Memorandum and a media statement on the SVDP accompanied these bills.

In terms of s2 of the Second Draft Revenue Laws Administration Bill, an application under the SVDP must be made under Part B of Chapter 16 of the Tax Administration Act, No 28 of 2011 and must be received by the South African Revenue Service (SARS) between 1 October 2016 and 31 March 2017. An application may not be made on behalf of a trust or in respect of receipts and accruals from which an asset that has been disclosed to SARS under an international tax agreement was wholly or partly derived.

According to the Explanatory Memorandum, a person may not apply for the SVDP if that person is aware of a pending audit or investigation in respect of foreign assets or foreign taxes or if such an audit or investigation has commenced. However, the Explanatory Memorandum makes it clear that, if the scope of an audit or investigation is in respect of other assets (ie assets other than foreign assets or foreign taxes, for instance if the audit or investigation relates to payroll taxes), a person may still qualify for relief under the SVDP.

According to the Explanatory Memorandum and the media statement, 50% of the highest value of the aggregate of all assets situated outside South Africa between 1 March 2010 and 28 February 2015 that were derived from undeclared income will be included in the taxable income of a person and subject to tax in South Africa. The value referred to is the market value of the asset determined in the relevant foreign currency and translated into South African rand at the spot rate at the end of the tax period in which the highest value fell. The provisions in this regard are set out in s15 and s16 of the Second Draft Revenue Laws Amendment Bill. As pointed out in the media statement, the calculation now consists of one amount instead of two different amounts (ie seed capital and investment returns), as was the case under the First Draft Revenue Laws Bill.

The Explanatory Memorandum also points out that the undeclared income that originally gave rise to the offshore-held assets will be exempt from income tax, donations tax and estate duty liabilities that arose in the past. However, future income will be fully taxed and assets declared will remain liable for donations tax and estate duty in the future, should the applicant donate these assets or pass away while holding them.

Any non-compliance with taxes and levies such as value-added tax, payroll taxes, the skills development levy and unemployment insurance fund contributions will not qualify for the SVDP.

The Explanatory Memorandum and media statement also state that, where taxpayers disposed of any foreign assets prior to 1 March 2010, such taxpayers may also apply for the SVDP. In such instance, where the value of the assets cannot be determined, the Commissioner may agree to accept a reasonable estimate of the value. The provisions in this regard are contained in s15 of the Second Draft Revenue Laws Bill.

The Explanatory Memorandum further states that no understatement penalties will be levied where an application under the SVDP is successful. SARS will further not pursue criminal prosecution against an applicant for a tax offence where an application under the SVDP is successful.

The proposed SVDP will be deemed to have come into effect on 1 October 2016 and will apply for a period of six months ending on 31 March 2017.

Written by Mareli Treurnicht and Louis Botha




Exchange control circular issued in respect of special voluntary disclosure programme

taxation 6Author: Mareli Treurnicht.

On 13 July 2016 the Financial Surveillance Department (FinSurv) of the South African Reserve Bank (SARB) issued exchange control circular no. 6/2016 (Circular) regarding details and information required in an application for exchange control relief submitted as part of the joint tax and exchange control Special Voluntary Disclosure Programme (SVDP) which was announced by the Minister of Finance in the 2016 Budget Speech.

The SVDP will run for a period of six months from 1 October 2016 to 31 March 2017 (SVDP Period). The SVDP will afford South African residents (individuals, sole proprietorships, partnerships, deceased estates, insolvent estates, South African trusts, close corporations and companies) and former residents the opportunity to disclose their foreign assets held in contravention of the Exchange Control Regulations, 1961 (Regulations) so as to regularise their affairs from an exchange control perspective.

According to the Circular, applications for exchange control relief under the SVDP must be made pursuant to the provisions of Regulation 24. Applications and the relevant supporting documents must be submitted electronically to the SVDP unit via the South African Revenue Service’s (SARS) eFiling system, alternatively at any SARS branch. The Circular states that separate electronic application forms for the tax and exchange control relief have been created. The SVDP unit will be jointly operated by FinSurv and SARS.

The Circular has warned that any party involved in a matter currently under investigation by FinSurv may not apply for exchange control relief under the SVDP. Further, no applications for exchange control relief under the SVDP may be made prior to the official commencement date of the SVDP, namely 1 October 2016.

Applications may be made in a personal or representative capacity, however, any application made in a representative capacity will require proof of authority. The relevant proof must be submitted with the SVDP application.

According to the Circular, FinSurv may grant relief to a South African resident in terms of Regulation 24, provided that:

  • the unauthorised foreign assets for which the relief is sought were held on or before 29 February 2016;
  • applications are made within the SVDP Period;
  • the declaration made by the applicant is voluntary;
  • the applicant makes full disclosure of all unauthorised foreign assets and stipulates the source of these assets and includes details of the manner in which the assets were transferred and retained abroad;
  • the applicant furnishes all documentation and information as stipulated in the SVDP application form, including:
  • the market value of the unauthorised foreign asset as at 29 February 2016 in the foreign currency of the country in which such asset is situated;
  • a description of the identifying characteristics and location of the unauthorised foreign asset;
  • a valuation certificate by a valuator of the country where the unauthorised foreign asset is located, or a valuation by a sphere of government in the country where such asset is located, or an original or certified statement of account indicating the balance or market value, or any other form of proof of the value of that asset as the Treasury may on good cause shown allow to be submitted; and
  • a sworn affidavit or solemn declaration of the contravention; and
  • the applicant furnishes any additional information relating to the unauthorised foreign assets as may be required in terms of the SVDP.

Applicants will be liable to pay a levy based on the market value of the unauthorised foreign assets as at 29 February 2016. The following conditions will apply to the levy:

  • a levy of 5% will be payable on the value of the unauthorised foreign assets or the sale proceeds thereof if such assets are repatriated to South Africa. The levy must be paid from foreign-sourced funds;
  • a levy of 10% will be payable on the value of the unauthorised foreign assets if such assets are retained abroad. The levy must be paid from foreign-sourced funds;
  • a levy of 12% will be payable on the value of the unauthorised foreign assets in circumstances where the 10% levy is not paid from foreign-sourced funds;
  • applicants may not deduct any exchange control allowance or any remaining portion thereof from the leviable amount;
  • the levy may not be reduced by any fees or commissions;
  • the levy must be paid within three months from the date of receipt of notification from FinSurv;
  • where the 5% or 10% levy is payable, the levy must be repatriated to South Africa to an account held at a local authorised dealer (such as a commercial bank) and must be converted in South Africa at the ruling spot exchange rate; and
  • the Rand proceeds of the foreign currency introduced by means of the 5% or 10% levy or the Rand value of the 12% levy must be paid by the authorised dealer into an account held at the Corporation for Public Deposits (CPD) established in terms of s2 of the Corporation for Public Deposits Act, No 46 of 1984.

In instances where the unauthorised foreign assets are denominated in multiple foreign currencies, applicants will be permitted to convert those foreign currency amounts to United States Dollar (USD) for purposes of the levy and by using the rate of exchange as at 29 February 2016. The conversion rate of major foreign currencies to USD as at 29 February 2016 will be published on the SARB website.

According to the Circular, confirmation of administrative relief will only be furnished once the applicable levy has been paid to the CPD and, where applicable, conditions imposed by the SARB have been met.

Applicants aggrieved by FinSurv’s decision to refuse an application or to declare void any applications previously approved may lodge a written objection with the Head of FinSurv and must deliver a notice of this objection within 30 days from the date of delivery of the FinSurv notice refusing administrative relief, or withdrawing or declaring void the previous relief granted.




Section 104 of the Tax Administration Act and the meaning of ‘exceptional circumstances’ – a cautionary tale

Summer-Sky-1Author: Heinrich Louw (Senior Associate).

In terms of s104 of the Tax Administration Act, No 28 of 2011 (Act), a taxpayer who is aggrieved by an assessment or decision of the South African Revenue Service (SARS), may object to the assessment or decision.

The Act states that the objection must be lodged within 30 business days from the date of the assessment. A senior SARS official may extend this period by no more than 21 business days, unless the official “…is satisfied that exceptional circumstances exist which gave rise to the delay in lodging the objection”.

In ABC (Pty) Ltd v The Commissioner for the SA Revenue Service (ITC Case Number: 0038/2015), the South Gauteng Tax Court had to consider the meaning of this provision.

Facts

After the taxpayer was audited by SARS in May 2014, assessments were raised against the taxpayer in December 2014 in respect of various taxes. The taxpayer had to lodge its objection by 2 March 2015, but only did so on 5 June 2015, meaning it was 65 business days late. SARS disallowed the objection in a letter dated 22 June 2015, as ‘no exceptional reasons had been furnished’.

The taxpayer appealed against SARS.

Judgment

The court held that in order to satisfy the ‘exceptional circumstances’ requirement in s104(5)(a), the onus was on the taxpayer to prove that there were “…unusual facts…which have a causal connection to the delay which resulted”.

To support its contention that there were exceptional circumstances present, the taxpayer raised a number of arguments:

  • First, the assessments and objections thereto involved complex issues of law. This argument was rejected as the nature of the complexities were never indicated.
  • Second, the delay was due to the courts being closed over December 2014 and January 2015, during the court recess period. The court rejected this argument as the courts’ closure had no impact on lodging the objection to SARS on time.
  • Third, the taxpayer alleged that it was negotiating with SARS from December 2014 to March 2015. Except for a visit by the taxpayer’s auditor to the SARS offices on 19 January 2015, there was no evidence that meetings had taken place between the taxpayer and SARS. This argument was consequently rejected.
  • Fourth, the taxpayer became dissatisfied with the abilities of its auditor and stopped using his services. The court rejected this argument and held that the taxpayer seemed to be dissatisfied with SARS’ response as opposed to the competence of its auditor. This appeared to be the case, as a letter prepared by the auditor was very similar to an undated opinion of counsel, which formed part of the papers and was apparently acceptable to the taxpayer.
  • Fifth, the taxpayer was only able to obtain new professional advice from a practitioner in Florida and received the name of his legal representative in April 2015, who then prepared an undated opinion for the taxpayer. As the taxpayer is based in Springs, on the West Rand, the court took judicial notice of the fact that there were a number of other attorneys’ firms in the “…Witwatersrand region and up into Sandton…”, that the taxpayer could have approached after receiving the assessments in December 2014.

The court concluded that none of these arguments proved the existence of unusual facts, which were causally connected to the delay. The taxpayer also raised a number of other arguments for the first time in court, which were all rejected as they had no merit and as they were not relevant to the ‘exceptional circumstances’ enquiry. With reference to SARS Interpretation Note 15 (IN15), which sets out SARS’ interpretation of s104 of the Act, the court also rejected an argument that the taxpayer’s objection enjoyed good prospects of success, as the argument was based on counsel’s opinion that was not submitted to SARS prior to its decision to disallow the objection. The document contained nothing that showed that the taxpayer had a prima facie case and constituted no more than the ‘mere say-so’ of the taxpayer’s counsel.

Comment

In its conclusion, the court indicated that it is sympathetic to an ignorant taxpayer who is confronted with an enormous amount of tax to be paid in terms of an assessment. However, it added that in this instance the taxpayer, whose assessed liability runs into millions of rands, should have taken its tax responsibility more seriously by seeking tax advice from a firm of attorneys that specialise in such matters as soon as it received the assessments in December 2014.

It appears that had the taxpayer acted sooner and more decisively in responding to the assessments, the court might have found in its favour despite the delay of 65 business days. IN15 lists the following events as examples of what may constitute ‘exceptional circumstances’ in terms of s104(5)(a):

  • A natural or human-made disaster;
  • A civil disturbance or disruption in services;
  • A serious illness or accident; and
  • Serious emotional or mental distress.

IN15 goes on to state that the mere existence of one of these factors is not sufficient, but that the taxpayer needs to demonstrate that one of these factors were the reason for the delay. Although the court did not provide examples of what would constitute ‘exceptional circumstances’, the judgment seems to suggest that events less exceptional than the examples cited in IN15, could constitute ‘exceptional circumstances’. However, the judgment is very clear that if the lateness in lodging the objection is due to the taxpayer’s delay in obtaining proper legal advice, the ‘exceptional circumstances’ requirement will not have been met. The judgment should serve as a caution to taxpayers, to obtain legal advice as soon as possible, once they have received an assessment from SARS. Although the appointment of a tax practitioner does not absolve a taxpayer from its responsibilities under the Act, the speedy appointment of a tax practitioner will no doubt assist a taxpayer’s cause, especially where it seeks to object to a SARS assessment and where more than
30 business days might be required to prepare such an objection.

 




Special voluntary disclosure programme: is the carrot big enough or will taxpayers risk facing the stick?

Budget 2016 finalA special voluntary disclosure programme (Special VDP) was announced on 24 February 2016 by the Minister of Finance in the 2016 Budget Speech, which is intended to provide further relief to qualifying persons in addition to the relief provided by the standard voluntary disclosure programme under the Tax Administration Act, No 28 of 2011 (TAA).

On 12 April 2016, National Treasury (Treasury) released a media statement in which the public is requested to make formal submissions on draft legislation that sets out the legal framework of the Special VDP.

The relevant draft legislation comprises the following:

  • the Rates and Monetary Amounts and Amendment of Revenue Laws Bill (Revenue Laws Bill); and
  • the Rates and Monetary Amounts and Amendment of Revenue Laws (Administration) Bill (Revenue Laws Administration Bill).

Revenue Laws Bill

In terms of s13(1) of the Revenue Laws Bill, only certain persons who are resident as at 29 February 2016 may apply for relief under the Special VDP. They are as follows:

  • Any natural person, a close corporation or company, holding any foreign asset on 29 February 2016, and where the value of that asset was derived from:
  • an unauthorised asset, being any foreign asset accumulated or transferred in contravention of the Exchange Control Regulations; or
  • any amount that was not declared to the South African Revenue Service (SARS), in contravention of any tax legislation;
  • Any natural person, or certain related parties to an applicant holding an unauthorised asset (as mentioned above), who assisted (otherwise than solely in an advisory capacity) such applicant on or before 29 February 2016, in one of two ways:
  • by accumulating foreign assets; or
  • by transferring funds or assets from South Africa for the benefit of that applicant in a manner that contravened the Exchange Control Regulations or any tax legislation, and those foreign assets, funds or assets are no longer held by that person.

In terms of s14 of the Revenue Laws Bill, a donor or beneficiary in relation to a non-resident discretionary trust may also elect that any asset situated outside South Africa and which was held by the trust on 28 February 2015, be deemed to be held by that donor or beneficiary, provided that certain requirements are met.

Section 15 of the Revenue Laws Bill provides that 50% of the total amount used to fund the acquisition of unauthorised assets acquired before 1 March 2010, must be included in the taxable income of the person in the first tax year ending after 1 March 2010. The amount will not be subject to normal tax in an earlier tax year.

In terms of s16 of the Revenue Laws Bill, in addition to the relief provided by the standard voluntary disclosure programme, the following amounts will be exempt from normal tax in respect of the Special VDP:

  • 50% of the total amount used to fund the acquisition of unauthorised assets if those assets were acquired before 1 March 2015; and
  • 100% of any dividends, foreign dividends, interest, rental or other investment income received or accrued before 1 March 2010 in respect of the said unauthorised assets.

The term ‘unauthorised assets’ is defined in s12 of the Revenue Laws Bill as any foreign asset, which was accumulated as foreign assets or transferred from the Republic in contravention of the Exchange Control Regulations. In this context, a ‘foreign asset’ is defined as any funds held in a foreign currency and any asset transferred from or accumulated outside South Africa, excluding any foreign bearer instrument.

Section 13(2) of the Revenue Laws Bill states that the Special VDP does not apply where any amounts have not been declared or where there was a failure to comply with the requirements of the Income Tax Act, No 58 of 1962 (Act) in respect of the following taxes:

  • employees’ tax, in terms of paragraph 2 of the Fourth Schedule to the Act;
  • withholding tax on foreign entertainers and sportspersons, in terms of Part IIIA of Chapter II of the Act;
  • withholding tax on royalties, in terms of Part IVA of Chapter II of the Act;
  • withholding tax on interest, in terms of Part IVB of Chapter II of the Act; and
  • dividends tax, in terms of Part VIII of Chapter II of the Act.

Revenue Laws Administration Bill

Section 2(1) of Revenue Laws Administration Bill states that a Special VDP application must be made in terms of the existing provisions in the TAA relating to the standard voluntary disclosure programme. The only additional requirement is that the application must be submitted between 1 October 2016 and 31 March 2017. In terms of s2(2), the application may not be made by or on behalf of a trust or in respect of an amount that has directly or indirectly funded an asset that has been disclosed to SARS under an international tax agreement.

In terms of s3 of the Revenue Laws Amendment Bill, any gross negligence or intentional tax evasion that is disclosed under the Special VDP before notification of an audit or investigation, will enjoy relief in the form of a 0% understatement penalty. Under the existing provisions, gross negligence or intentional tax evasion that is disclosed before notification of an audit or investigation, attracts a 5% and 10% understatement penalty respectively.

Comment

In response to a parliamentary question, the Minister of Finance recently indicated that SARS has collected R6.3 billion under the standard voluntary disclosure programme, since it was launched in 2012. He also indicated that 8,401 taxpayers had made applications under the programme between 2012 and 16 March 2016.

However, there are concerns that in their current form, the Revenue Laws Bill and Revenue Laws Administration Bill do not go far enough to encourage taxpayers to disclose any transgressions relating to foreign assets. Currently, the standard programme grants successful applicants relief in the form of immunity from criminal prosecution, a significantly reduced understatement penalty and 100% relief in respect of certain administrative non-compliance penalties. Although the elimination of all understatement penalties and the fact that certain income received from unauthorised assets prior to 1 March 2010 will be exempt from tax should be lauded, it remains to be seen whether the proposed relief will be a sufficient incentive. For example, it remains to be seen whether taxpayers will make use of the Special VDP where 50% of the amount that was used to obtain the relevant assets will be subject to tax.

Treasury’s media statement of 12 April 2016 indicates that written comments must be forwarded to Treasury by 29 April 2016. The media statement also states that the Standing Committee on Finance in Parliament will shortly be having a briefing, and begin the hearing process for both bills.

 




SARS MEDIA STATEMENT – Special Voluntary Disclosure Programme in respect of offshore assets and income

Budget 2016 finalIn the 2016 Budget Speech, the Minister of Finance announced a Special Voluntary Disclosure Programme to give opportunity for non-compliant taxpayers to voluntarily disclose offshore assets and income. With a new global standard for the automatic exchange of information between tax authorities providing SARS with additional information from 2017, time is now running out for taxpayers who still have undisclosed assets abroad. To encourage compliance, Government proposes a Special Voluntary Disclosure Programme for individuals and companies to regularise both their tax and exchange control affairs for a limited window period described below.

The South African Revenue Service (SARS) and the South African Reserve Bank (SARB) are working jointly to ensure that applications for the Special Voluntary Disclosure Programme are assessed through one joint process for both tax non-compliance and exchange control contraventions.

(Full PDF LAPD-LPrep-Draft-2016-19 – Media Statement – Special VDP – 24 February 2016 )

TAX RELIEF

Window period of Special Voluntary Disclosure Programme

  • Applications for relief under the Special Voluntary Disclosure Programme will apply for a limited window period of six months starting on1 October 2016 and closing on 31 March 2017.

 

Persons that may apply for the Special Voluntary Disclosure Programme

  • Individuals and companies may apply for the Special Voluntary Disclosure Programme on the same basis as for the existing Voluntary Disclosure Programme contemplated in Part B of Chapter 16 of the Tax Administration Act, 2011. That is to say, an initial “no-name approach” may be made, applications may be made in a representative capacity, etc.
  • Trusts will not qualify to apply for the Special Voluntary Disclosure Programme.
  • Settlors, donors, deceased estates or beneficiaries of foreign discretionary trusts may, however, participate in the Special Voluntary Disclosure Programme if they elect to have the trust’s offshore assets and income deemed to be held by them.
  • Persons may not apply for the Special Voluntary Disclosure Programme if they are aware of a pending audit or investigation in respect of foreign assets or foreign taxes or an audit or investigation in respect of foreign assets or foreign taxes has commenced. However, if the scope of an audit or investigation is in respect of other areas (other than foreign assets or foreign taxes, e.g. in respect of PAYE), persons may still qualify to apply for relief under the Special Voluntary Disclosure Programme.
  • Amounts in respect of which SARS obtained information under the terms of any international exchange of information procedure will not be eligible for the Special Voluntary Disclosure Programme.

 

Relief granted under the Special Voluntary Disclosure Programme

  • Only 50 per cent of the total amount used to fund the acquisition of offshore assets (“seed money”) before 1 March 2015, if the applicant failed to comply with a tax Act administered by SARS, will be included in taxable income and subject to normal tax.
  • Investment returns in respect of those offshore assets received or accrued only from 1 March 2010 onward will be included in taxable income in full and subject to normal tax.
  • Investment returns prior to 1 March 2010 will be exempt.

 

Interest charged in terms of the Special Voluntary Disclosure Programme

Interest on tax debts arising from the disclosure of amounts used to fund the acquisition of offshore assets or investment returns in respect of those offshore assets will commence only from 1 March 2010.

 

Waiver of penalties under the Special Voluntary Disclosure Programme

No understatement penalties will be levied where an application under the Special Voluntary Disclosure Programme is successful.

 

Exemption from criminal prosecution under the Special Voluntary Disclosure Programme

As is currently the case in the existing Voluntary Disclosure Programme, SARS will not pursue criminal prosecution for a tax offence where an application under the Special Voluntary Disclosure Programme is successful.

Application process under the Special Voluntary Disclosure Programme

The application process for the existing Voluntary Disclosure Programme will be extended to the Special Voluntary Disclosure Programme.

EXCHANGE CONTROL RELIEF

Disclosure of Exchange Control Contraventions under the Special Voluntary Disclosure Programme

  • The Financial Surveillance Department of the South African Reserve Bank (FinSurv) will be offering an opportunity to South African residents to regularise their exchange control affairs by applying for relief under the Special Voluntary Disclosure Programme of contraventions of the provisions of the Exchange Control Regulations, 1961 and which contraventions include, inter alia, the ownership of an unauthorised foreign asset(s).
  • Applications for relief for Exchange Control under the Special Voluntary Disclosure Programme are to be made pursuant to the provisions of Regulation 24 of the Exchange Control Regulations, 1961.
  • South African residents (individuals and entities) will be allowed to disclose and regularise their exchange control contraventions that occurred prior to 29 February 2016.
  • South African residents who are the subject of any current and/or pending investigation by FinSurv into their contraventions of the provisions of the Regulations will not qualify for Exchange Control relief under the Special Voluntary Disclosure Programme.

 

Window period of the Special Voluntary Disclosure Programme

Applications for Exchange Control Relief under the Special Voluntary Disclosure Programme will commence on 1 October 2016 and will continue until 31 March 2017

 

Exchange Control Relief under the Special Voluntary Disclosure Programme

  • Applicants who are granted administrative relief in respect of unauthorised foreign assets and/or structures (of whatever nature, excluding bearer instruments) may have to pay a levy based on the current market value thereof as at 29 February 2016.
  • The following conditions will apply:
  • 5% of the leviable amount if the regularised assets or the sale proceeds thereof are repatriated to South Africa;
  • 10% of the leviable amount if the regularised assets are kept offshore;
  • The levy must be paid from foreign-sourced funds. Where insufficient liquid foreign assets are available, an additional 2% will be added, to the extent that local assets are utilised to settle the levy; and
  • Individuals will not be allowed to deduct their R10 million foreign capital allowance or any remaining portion thereof from any leviable amount and the levy may not be reduced by any fees or commissions.

 

Exchange Control Relief post the Special Voluntary Disclosure Programme

South African residents who do not apply for Exchange Control Relief under the Special Voluntary Disclosure Programme and voluntarily make a full disclosure directly to FinSurv outside of the Special Voluntary Disclosure Programme shall, at the discretion of FinSurv, have to pay a settlement ranging from 10% to 40% on the current market value of their unauthorised foreign assets. The determination of the final settlement amount will, inter alia, depend on whether the applicant elects to retain the funds abroad or repatriate such funds.

 

South African residents who neither applied for Exchange Control relief in terms of this Special Voluntary Disclosure Programme nor voluntarily approached the FinSurv for assistance may face the full force of the law. In this regard, the FinSurv is mandated to, where appropriate, recover the full amount of the contravention.

 

Treatment of disclosure and regularisation

Further information on the treatment of disclosures and declarations in respect of specific transactions conducted by natural persons, corporates and donors of discretionary trusts will be made public in due course.

 

TAX LEGISLATION AND EXCHANGE CONTROL REGULATIONS

Provisions regarding tax relief under the Special Voluntary Disclosure Programme will be made available in the Rates and Monetary Amounts and Amendment of Revenue Laws Bill, 2016, the Rates and Monetary Amounts and Amendment of Revenue Laws (Administration Bill), 2016 and under the Exchange Control Regulation 24 of 1961.

 

Issued by National Treasury on 24 February 2016




New rules for international cooperation on taxpayer’s affairs

oecdAuthor: Ferdie Schneider (BDO).

Greater transparency will expose undeclared offshore accounts

Globalisation has dramatically increased cross-border financial activities.This necessitated enhanced co-operation and understanding between tax authorities to curb tax evasion and to ensure a fair allocation of taxes among the jurisdictions in which the activities take place.

The Organisation for Economic Co-operation and Development (OECD) developed a Common Reporting Standard (CRS) for the automatic exchange of information relevant to tax. Over 50 jurisdictions have agreed to comply with the CSR, including South Africa, committing to exchange data in September 2017. Other jurisdictions will participate from 2018. 

The bottom line of the reporting standard is: “I will show you mine if you will show me yours.” The effect is that the UK, for example ,is obliged to report all financial accounts held in the UK by the South Africans residing there.

It forms part of the initiative by the G20 leaders to address base eriosion and profit shifting by multinational companies engaged in cross-border activities. It aims to promote greater fairness and trust in the international tax system.

South African tax residents who have relied on offshore bank-secrecy rules to keep their financial matters beyond SARS’ reach are left with a small window of opportunity to regularise their tax position before SARS starts knocking on their doors.

SARS is likely to discover undeclared offshore funds given the greater transparency due to the reporting standard. This may result in criminal prosecution and understatement penalties. However, an application to SARS under the Voluntary Disclosure Program (VDP), prior the undeclared funds being discovered could grant relief from criminal prosecution, depending on the circumstances.

All financial institutions have to provide SARS with the financial data of their clients who are residents of other countries participating in the exchange of information process. This data includes interest in trusts and other entitities. This information can readily be imported into the taxpayer database of each participating country, by using a standard reporting format. It will flash out taxpayers who have evaded or avoided paying tax, as well as those who may have made an error when submitting their tax returns.

This initiative, in conjunction with other legislations such as the US Foreign Account Tax Compliance Act (FACTA) and the EU Savings Tax Directive, aims to build and strengthen tax transparency and reporting globally. FACTA is aimed at forcing non-US financial institutions (including banks, investment managers and even trusts) to report on US citizen account holders.

For a developing country like South Africa the common global reporting standard may be counterproductive as more resources are required to set up the relevant structures. In South Africa we may not have the capacity as yet to take on the extra reporting. Furthermore, the privacy of the collected and submitted information is not clearly stated.

Implementing the CSR will place significant responsibilities on financial institutions. Clear communication with clients is paramount for effective management of these new responsibilities. All customers will have to be informed of the new reporting requirements regarding their documentation.

It is vital that clients and customers are warned of the potential tax consequences of not reporting under the CRS and that the penalties could be high.

This article first appeared on the January/February 2016 edition on Tax Talk.




Voluntary disclosure relief to be widened

Ruaan van Eeden (Director at Cliffe Dekker Hoffmeyr
The Tax Administration Act, No 28 of 2011 (TAA) currently provides for various forms of relief in respect of disclosures made by qualifying taxpayers of their tax defaults under the Voluntary Disclosure Programme (VDP). The recently published Tax Administration Laws Amendment Bill 2015 (TALAB) makes a welcome proposal to widen the scope of available relief to qualifying taxpayers, to include any penalties relating to the late payment of tax.

The VDP is a formal statutory process, provided for in Part B of Chapter 16 of the TAA, and in terms of which qualifying taxpayers can approach the South African Revenue Service (SARS) on a voluntary basis for purposes of disclosing their tax defaults. Upon a successful VDP application and conclusion of an agreement with SARS, the taxpayer will enjoy relief from understatement penalties (which could be up to 200% in severe cases) and administrative non-compliance penalties. Additionally, SARS will not pursue criminal proceedings against the taxpayer.

Currently, the VDP does not provide relief for late payment penalties or interest (for example, the 10% late payment penalty for Value-Added Tax or employees’ tax). These are generally dealt with outside the VDP process at SARS branch office level, once the VDP process has been completed. In other words, the VDP process, as it currently stands, does not necessarily prevent a taxpayer from seeking relief from late payment penalties or interest. However, the process at SARS branch office level is less formal and, in some cases, open to subjective application of the law as it pertains to available remedies to remit penalties or interest, in whole or in part.

The proposed amendment in the TALAB states that VDP relief will now be widened to include late payment penalties (interest still remains excluded), which essentially eliminates the ‘secondary’ process of attempting to obtain relief at SARS branch office level. The proposed amendment, which becomes effective on the date of promulgation of the TALAB (likely January 2016), brings into play a potentially risky interim time period for prospective VDP applicants. The question now arises whether such applicants should wait for promulgation of the amendment?

The risk in waiting for promulgation is that VDP relief for understatement penalties tapers down where voluntary disclosure is made after SARS has issued a notification of audit or investigation. For example, VDP relief would in most cases result in no understatement penalties being levied, however, where SARS has issued notification of an audit or investigation, it will be entitled, depending on the severity of the case, to levy understatement penalties of up to 75%.

It may therefore be a dangerous (and unnecessary) gamble to wait for promulgation of the proposed amendment on the basis that SARS could, at any time, issue a notification to a taxpayer to conduct an audit or investigation.

 




South African Revenue Service – Voluntary Disclosure Programme

International Taxation
International Taxation

On 9 July 2015 the South African Revenue Service (“SARS“) issued a media statement informing allSouth African resident taxpayers, who hold foreign bank accounts, that an investigation was underway and taxpayers were therefore requested to make use of its Voluntary Disclosure Programme(“VDP“) to regularise their tax affairs.

If you have a foreign bank account, and have used that bank account to evade your local or international tax obligations, you have until 12 August 2015 to declare this information under the VDP,after which time SARS will start their auditing process.

Clients are reminded that under the VDP, you will still have to pay any South African tax and theinterest which is due on that tax.  However the advantage of making a disclosure under the VDP is that you will be granted  relief from penalties and further, you will not be subject to any criminal prosecution.