Just two months until voluntary tax disclosure

With an end-October deadline, the clock is ticking for taxpayers to submit voluntary disclosure programme (VDP) applications to SARS and the SA Reserve Bank with a view to putting their financial affairs in order if they owe tax o­n local assets or income, and by disclosing income and assets held offshore.

The VDP programme is an opportunity for substantial savings o­n interest and penalties that would otherwise be levied against tax transgressions, said Wayne Sorour, head of sales at Old Mutual International.

Sorour said non-compliant taxpayers had been given a 12-month period, until the end of October this year, in which to regularise their tax affairs. “Under the VDP in the Taxation Laws Second Amendment Act, taxpayers who make full disclosure will still have to pay the outstanding tax they owe o­n assets or income, but they will benefit from interest, penalty and additional tax relief.”

The programme gives individuals and corporates that took funds offshore illegally and those who defaulted o­n their tax affairs an opportunity to straighten their affairs with SARS.

“It also gives them a chance to regularise their affairs with the Reserve Bank in instances where there have been exchange control contraventions. Non-compliant taxpayers with money offshore should apply under the programme and regularise their international investments.

“Besides obtaining relief from penalties, additional tax, and interest, this will open the way to implement a proper investment strategy and financial plan that assesses and accommodates the individual’s capacity for risk. Additional value from a formal analysis process would be the latest portfolio construction techniques to maximise available investment opportunities.

“For most applicants, the fundamental reasons for holding assets offshore will probably not have changed, and the OMI Life Account 2 product offers a low-administration, tax-efficient investment vehicle for funds regularised under the VDP, which investors can legally retain offshore.”

Among the requirements for a valid disclosure:

*There must be a voluntary, full and complete disclosure in all material respects.
*There must be a default. Either inaccurate or incomplete information was submitted to SARS or the taxpayer failed to submit information which resulted in their being incorrectly assessed or an incorrect tax refund being paid.
*A penalty or additional tax would have been imposed had SARS discovered the default.
*The disclosure must be made in respect of a default which occurred at least 12 months before the commencement of VDP.

A taxpayer may apply for the VDP unless they are aware of a pending audit or investigation into their tax affairs by SARS, or an audit or investigation which has commenced but has not yet been concluded. Provisions are, however, made for exceptions to this rule.

Looking beyond the closing of the current VDP o­n 31 October 2011, the Tax Administration Bill 2011, expected to be enacted later this year, contains a permanent VDP providing relief to non-compliant taxpayers, albeit o­n less favourable terms than the current VDP. The o­ngoing disclosure option does not apply to exchange control offences.