“As the world becomes increasingly globalised and cross-border activities become the norm, tax administrations need to work together to ensure that taxpayers pay the right amount of tax to the right jurisdiction. A key aspect for making tax administrations ready for the challenges of the 21st century is equipping them with the necessary legal, administrative and IT tools for verifying compliance of their taxpayers” OECD (Organisation for Economic Co-operation and Development).
The advent of the internet and the global economy has made the sharing of information a mere finger- click away and organisations such as the OECD have the specific intention of regulating the sharing of such information. In line with OECD objectives, tax authorities around the world have begun to cooperate in an effort to take advantage of the possibilities of sharing information that will ultimately enable them to increase their tax collection base.
An agreement devised in the context of the new global standard for automatic exchange of tax information between the taxation authorities has enabled SARS to probe offshore investments held by South African citizens. In the current economic environment, where capital outflows are on the rise, this could mean a massive increase in the earnings potential of SARS.
The Special Voluntary Disclosure Program (SVDP) is an opportunity afforded by SARS for the voluntary disclosure of foreign assets and relief for contravention of the Exchange Control Regulations, and is valid from 1 October 2016 until the 31st of March 2017 (6 months).
Voluntary disclosure of foreign assets
The SVDP covers companies, deceased estates, beneficiaries of foreign discretionary trusts and individuals, but does not apply to trusts since trusts are already constrained by not being allowed to hold direct offshore assets.
The requirements for an SVDP application are:
- The disclosure must be voluntary.
- It must involve a default which has not previously been disclosed by the applicant or representative of the applicant.
- It must be full and complete in all material aspects.
- It must involve the potential imposition of an understatement penalty in respect of the default.
- It must not result in a refund due by SARS.
- It must be made in the prescribed form and manner.
The effect of the relief afforded by SARS under the SVDP is as follows:
- 50% of the total amount used to fund the acquisition of the offshore assets is taxable (if such amount constitutes “pre-tax” money).
- Investment returns (e.g. interest, dividends, capital gains) from 1 March 2010 onwards are taxable.
- Interest on tax debts arising from the pre-tax funding money and from the investment returns will only start accumulating from 1 March 2010.
Failure to comply will result in the imposition of understatement penalties and other administrative penalties.
Exchange Control Contraventions
The SDVP also applies to Exchange Control contraventions and applies to contraventions before the 29th of February 2016 which are not currently under investigation by the Financial Surveillance Department of South Africa (“Finsurv”).
Successful applications for Exchange Control relief are subject to a levy based on the current market value of the foreign assets as at 29 February 2016, with 5% levied on assets repatriated to South Africa and 10% if the assets remain offshore.
The levy must be paid from foreign-sourced funds and where insufficient liquid foreign assets are available, local assets may be used at an additional levy of 2%. Furthermore, the current R10 million foreign capital allowance may not be offset against the non-disclosed amounts.
So if you have not come clean under past amnesty periods, here is your opportunity to bring your affairs in order as this may be the last time that SARS extends an olive branch.
If you need our assistance in processing the amnesty, then give us call.