Eugene du Plessis, Director and Tax Lead at Grant Thornton.
With the noose tightening globally on individuals and enterprises that have used offshore structures to dodge exchange control and tax regulations, time is running out for South Africans to come clean. That time frame is a period of six months from 1 October this year under the Special Voluntary Disclosure Programme (SVDP) introduced by the Financial Surveillance Department of the South African Reserve Bank (FinSurv) and SA Revenue Service (SARS).
Eugene du Plessis, Director and Tax Lead at Grant Thornton, says the figurative noose is manifest in new regulations in the form of the OECD-led Base Erosion and Profit Shifting (BEPS) project and Common Reporting Standards that aim to lay bare non-compliant practices.
The magnitude of the problem is evident in OECD research that conservatively estimates that between 4% and 10% of global corporate income tax revenues, worth between US$100 billion and US$240 billion annually, are forfeited, due to non-compliance.
Past South African disclosure programmes in 2003 and 2010 jointly recovered more than R9 billion in taxes from undisclosed foreign assets held by citizens. The 2003 tax amnesty programme alone revealed that R48 billion was held abroad illegally by more than 43 000 people.
“The nature of this new foreign assets exchange control and tax SVDP is similar in many regards to the previous programmes although the focus is more on providing a window for individuals and companies to regularise their offshore affairs. It is not an amnesty, as was the case previously, although there is a strong incentive to use this opportunity that offers lower penalties,” he says. “Due to these past amnesties, it is unclear how many more undisclosed assets are still held abroad and how much more is likely to be recovered. But it could still be substantial given that this six-month programme is probably the last chance for people to come clean.”
He adds that authorities have made it patently clear that the full force of the law will be brought to bear on any persons or companies that are found to have not disclosed any offshore assets or foreign earned taxable amounts once this programme is concluded.
Apart from new global reporting standards and mechanisms to improve transparency between jurisdictions, another threat is evident in information leaks witnessed during 2015 related to secret HSBC bank accounts and the Panama Papers leak of earlier this year. These involuntary disclosures of offshore bank accounts and structures in tax havens have provided additional ammunition to tax authorities aiming to clamp down on these practices.
“It can be expected, therefore, that we may see a fair degree of interest in this latest programme,” Du Plessis says. “With exchange control penalties on undisclosed offshore assets ranging between 5% and 12% under the SVDP which is much lower than the penalties that could otherwise be imposed by FinSurv, it certainly makes sense to do so.”
Should the levy be paid from foreign-sourced funds, this is calculated at 5% on the value of unauthorised foreign assets or the sale proceeds if the assets are repatriated to SA, or 10% if the assets are retained abroad. If the levy is paid from locally-held funds and the assets are retained abroad, this is calculated at 12% of the value of unauthorised foreign assets.
While the final details of the exchange control SVDP for foreign assets has been published, SARS only recently published revised terms for the tax SVDP. This is still open for public comment and discussions with the final terms possibly changing before being finalised.
“However, under the revised terms an applicant can clear all historic income tax, capital gains tax, donations tax and estate duty exposures on undisclosed foreign assets by including 50% of the highest value of the aggregate of all foreign held assets between 1 March 2010 and 28 February 2015 that were derived from undeclared income in taxable income,” explains du Plessis. “Future income and capital gains on such assets will be subject to tax and such assets declared will form part of the applicant’s estate for donations tax and estate duty purposes.”
Du Plessis advises any persons or companies that may be unsure of whether their offshore assets and tax matters are compliant to consult with their accountants or auditors. This extends to anyone with an offshore trust.
South African trusts do not qualify to apply under the tax SVDP but may apply for relief under the exchange control SVDP. Where foreign assets are held by offshore trusts the donor or beneficiaries of the foreign trust may elect that the foreign assets of the trust be deemed to be held by the donor or beneficiary and such assets may therefore be subject to relief in terms of the SVDP.
It is interesting to note that VAT or payroll taxes transgressions may not be regularised under the SVDP and would need to be regularised under the parallel, ordinary voluntary disclosure programme.
“The catch here is that if an application is made under the SVDP for income tax transgressions, any non-disclosure of PAYE or VAT matters could become evident and could lead to an investigation by SARS,” du Plessis concludes.
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