On 24 February 2016 the National Treasury released a Media Statement announcing a Special Voluntary Disclosure Programme (SVDP). According to the media statement, the purpose of the SVDP is to give non-compliant taxpayers an opportunity to voluntarily disclose offshore assets and income. The Common Reporting Standard (CRS), formally referred to as the Standard for Automatic Exchange of Financial Account Information, is an information standard for the automatic exchange of information (AEoI), developed in the context of the Organisation for Economic Co-operation and Development (OECD). The legal basis for exchange of data is the Convention on Mutual Administrative Assistance in Tax Matters and the idea is based on the USA Foreign Account Tax Compliance Act (FATCA) implementation agreements.
Well over 90 countries have already signed up to this new standard and it is anticipated that eventually all countries will participate. The reason why so many countries are keen to participate is because the Agreement greatly assists in detecting and preventing tax evasion. CRS will be implemented in two phases: the first phase will apply to financial information in respect of the 2016 calendar year and the second phase will apply to the financial information in respect of the 2017 calendar year. Each participating country has elected to participate from either the first or second phase as the initial reporting period. The initial date for reporting information in respect of the first phase is 30 September 2017 and the second phase is 30 September 2018. Thereafter, information will be reported annually by all participating countries. Counties participating in the first phase include South Africa, Mauritius, Guernsey, Isle of Man, Malta, Cyprus, UK and Ireland. Second phase participants include Singapore, Switzerland, Israel, Australia, New Zealand, Monaco and Hong Kong.
As SARS will be receiving information from 2017, time is running out for taxpayers who have not disclosed assets abroad. The SVDP will provide both individuals and companies with an opportunity to regularise their tax and exchange control affairs through one joint process. SVDP will apply for six months commencing from 1 October 2016 and ending on 31 March 2017.
Who Can Apply?
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Individuals and companies will be able to apply for the SVDP on the same basis as is currently provided for in Chapter 16 of the Tax Administration Act, No 28 of 2011. The existing voluntary disclosure programme will be extended to the SVDP.
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Trusts will not qualify for the VDP. However, settlors, donors, deceased estates or beneficiaries of foreign discretionary trusts may participate in the SVDP if they elect to have the trust’s offshore assets and income deemed to be held by them.
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Persons may not apply for the SVDP if they are aware of a pending audit or investigation in respect of foreign assets or foreign taxes, or if such audit or investigation has commenced. If the scope of the audit or investigation is in respect of an area other than foreign assets or foreign taxes, a person may apply for the SVDP.
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Amounts in respect of which SARS obtained information under the terms of an international exchange of information procedure will not be eligible for the SVDP.
Tax Relief Granted Under The SVDP
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Only 50 percent 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 subjected to normal tax;
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Investment returns on the offshore assets received or accrued from 1 March 2010 onwards will be included in taxable income in full and subjected to normal tax. Investment returns prior to 1 March 2010 will be exempt from normal tax;
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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;
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no understatement penalties will be levied where the SVDP application is successful; and
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SARS will not pursue criminal prosecution for a tax offence where the SVDP application is successful.
Exchange Control
Financial Surveillance Department of the South African Reserve Bank (FinSurv) will be offering South African Excon residents an opportunity to regularise their exchange control (Excon) affairs by applying for relief under the SVDP in respect of contraventions of the Exchange Control Regulations, 1961 and which contraventions include, inter alia, ownership of unauthorised foreign assets. Applications must be made pursuant to the provisions of Regulation 24 of the Excon Regulations.
The SVDP will apply to all residents (individuals and entities), and in respect of Excon contraventions that occurred prior to 29 February 2016. Residents who are the subjects of current and/or pending investigations by FinSurv will not qualify for relief under the SVDP.
Exchange Control Relief Granted Under The SVDP
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Applicants may be liable for a levy based on the current market value of the unauthorised foreign assets and/or structures as at 29 February 2016. The levy will be five percent of the leviable amount if the regularised assets or the sale proceeds are repatriated to South Africa, and ten percent of the leviable amount if the regularised assets are kept offshore;
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The levy must be paid from foreign-sourced funds. Where insufficient liquid foreign assets are available, an additional two percent levy will be added to the extent that local assets are used to settle the levy; and
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Individuals may not deduct their R10 million foreign capital allowance or any remaining portion thereof from any leviable amount and the levy may not be reduced by fees or commissions.
Where residents decide not to utilise the SVDP they will, at the discretion of FinSurv, have to pay a settlement ranging from ten percent to forty percent on the current market value of their unauthorised foreign assets. The determination of the settlement amount will depend on factors which include whether the applicant elects to retain the funds abroad or repatriates the funds.
It is important to note that residents who do not make use of the SVDP or voluntarily approach FinSurv, may face the full force of the law. The FinSurv is mandated to, in appropriate circumstances, recover the full amount of the contravention.