The South African Minister of Finance announced in the 2010 Budget that legislation would be introduced to encourage taxpayers to regularise prior transgressions of the tax statutes in South Africa and the Exchange Control Regulations. The 2010 Budget Review indicated that voluntary disclosure relief would encourage individuals, with unreported foreign bank accounts, to disclose fully those accounts to the South African Revenue Service. South Africa has concluded a large number of agreements for the avoidance of double taxation with various countries and those agreements allow for the exchange of information between SARS and foreign revenue authorities.
In addition, SARS is in the process of concluding various tax information exchange agreements with a number of other countries traditionally regarded as tax havens. The voluntary disclosure programme is, therefore, being introduced to encourage taxpayers to regularise prior violations of the various tax statutes.
Details of the voluntary disclosure relief were first contained in the Draft Taxation Laws Second Amendment Bill, released by National Treasury for public comment on May 10 2010. The final version of the legislation, now known as the Voluntary Disclosure Programme and Taxation Laws Second Amendment Bill (29 of 2010), (VDPTLSAB) was introduced in the National Assembly on Tuesday August 25. It must be pointed out that the voluntary disclosure relief does not constitute an amnesty in that any tax that should have been paid and was not paid over to SARS, will always remain payable.
The voluntary disclosure relief is available to any taxpayer liable to pay any tax to SARS. The VDPTLSAB defines "tax" as including any tax, duty, levy, penalty and additional tax imposed in terms of any legislation administered by the Commissioner. Therefore, any taxpayer, be it a natural person, company, trust or close corporation, or other taxpayer is entitled to apply for the relief so long as they comply with the requirements contained in the legislation.
In order to qualify for the relief, the taxpayer must be in default insofar as the tax affairs are concerned and this means that inaccurate or incomplete information must have been submitted to SARS, with the result that the assessment was not for the correct amount of tax due or, alternatively, that an incorrect tax refund was made by SARS to the taxpayer.
It must be noted that persons facing a tax audit or investigation do not, generally, qualify, for relief under the programme. SARS may, in certain circumstances, allow for a person who is under audit or investigation to apply for the relief. Under the legislation, the Commissioner is empowered to direct that a person, who is under audit or investigation, may apply for voluntary disclosure relief where the Commissioner is of the opinion that the default in respect of which the person wishes to apply for the relief, would not otherwise have been detected during the audit or investigation and, furthermore, that the application would be in the interest of good management of the tax system and the best use of the Commissioner's resources.
The VDPTLSAB indicates that a person is deemed to be aware of a pending tax audit or investigation or that the tax audit or investigation has commenced where a representative of the taxpayer, an officer or shareholder or member of the person, where that person is a company, a partner in partnership with that person, a trustee or beneficiary of the taxpayer, if the person is a trust, or a person acting for or on behalf of or as an agent or fiduciary of the taxpayer, has become aware of the pending audit or investigation, or that tax audit or investigation has commenced.
Requirements for a valid voluntary disclosure
For a taxpayer to qualify successfully for the relief available under the programme, it is necessary that the disclosure is voluntary and must involve a default of the taxpayer's obligations to SARS. It is essential that the taxpayer makes full and proper disclosure of the default and that the default involves the potential application of a penalty or additional tax. The taxpayer is required to apply for the relief in the prescribed form. At this stage, SARS has not yet released the documentation required and will probably do so only once the legislation has been enacted.
A taxpayer may not apply for the relief where the disclosure will result in a refund due by SARS.
The Memorandum on the objects of the VDPTLSAB indicates that the application for the relief must be submitted during the period November 1 2010 to October 31 2011.
It is important to note that, in terms of the VDPTLSAB, the default or violation of the taxing statutes must have occurred prior to February 17 2010.The cut-off date is intended to prevent taxpayers from committing violations on an ongoing basis and just prior to the period for the submission of applications commencing.
Advantages of applying for the relief
Where a taxpayer successfully applies for the relief, they are assured of no criminal prosecution for the violation of the taxing statutes of the country.
In addition, the taxpayer will receive 100% relief for penalties and additional tax, other than the administrative penalties leviable under s75B of the Income Tax Act, Act 58 of 1962, as amended.
Further, qualifying taxpayers will receive 100% relief in respect of interest that would otherwise have been payable to SARS. Where, however, the taxpayer is subject to an audit or investigation and it has been decided by SARS that the person may still apply for the relief only 50% of the interest, that would otherwise have been leviable, will be imposed.
In all cases, the underlying tax remains payable to SARS, regardless of the nature of the tax. It is for this reason that it cannot be said that the voluntary disclosure relief constitutes an amnesty.
Confirmation of eligibility
The legislation contains an innovative provision whereby the Commissioner is authorised to issue a non-binding private opinion as to whether a person qualifies for the relief, so long as the person provides sufficient information for SARS to reach a decision. This information need not include the identity of any party to the default. Thus, it would appear that tax practitioners may seek guidance from SARS as to whether a particular taxpayer qualifies for the relief or not.
Left: Taxpayers who chose to participate in Voluntary Disclosure Relief must disclose material facts and figures. SARS officials will then consider their proposal and an agreement will be concluded.
Agreement to be concluded by a taxpayer and SARS
The legislation requires that the Commissioner and the qualifying taxpayer must conclude an agreement regarding the voluntary disclosure. The agreement must disclose details of the material facts of the default on which the voluntary disclosure relief application is based. In addition, the agreement must reflect the amount payable by the taxpayer, which must separately reflect the tax and interest amount due by the taxpayer as well as the arrangement and dates of payment. The voluntary disclosure agreement is also required to deal with the treatment of the tax issue in future years or periods and must contain details of the undertakings by the parties to the agreement.
Withdrawal of relief
Where the taxpayer fails to disclose material information, the relief granted under the legislation may be withdrawn and any amount paid under the voluntary disclosure agreement, will be treated as part-payment in respect of any outstanding tax in respect of the relevant default. In addition, SARS may, in such cases, institute criminal proceedings against the taxpayer for any statutory offence under a taxing statute or related common law offence.
SARS to issue a tax assessment
The legislation requires that SARS must issue an assessment to the taxpayer reflecting the agreement concluded under the voluntary disclosure relief programme. Clearly, any such assessment issued is not subject to an objection or appeal in that the assessment will be based on disclosures made by the taxpayer to SARS under the voluntary disclosure programme.
Reporting of information
The Commissioner is required to submit certain information to the Auditor-General and to the Minister of Finance regarding all applications receiver for voluntary disclosure relief. It is important to note that such information must be disclosed in such a manner that the privacy of the taxpayer is assured and does not disclose the identity of any qualifying taxpayer. The Commissioner must disclose the number of voluntary disclosure agreements concluded by taxpayers and SARS, the amount of tax and interest assessed and the relief granted under the legislation.
The voluntary disclosure relief programme will not work unless defaulting taxpayers may also regularise their position with the Exchange Control Department of the South African Reserve Bank. As a result, SARB will allow for the regularisation of prior transgressions of the Exchange Control Regulations.
The draft guidelines published by the Reserve Bank indicate that persons applying for the voluntary disclosure relief will be required to pay a levy of 1O% on the value of unauthorised foreign assets held by them as at February 28 2010. The applicant will be required to introduce the levy from funds located abroad, or, where they choose to settle the levy due to SARB by utilising domestic funds or the foreign assets are illiquid, the levy will amount to 12%.
Thus, where a person holds foreign funds in contravention of the Exchange Control Regulations, they may regularise those funds with the Exchange Control Department by following the processes to be announced by the Reserve Bank and to pay the levies as indicated above. In addition, companies which have violated the exchange control regulations may regularise those violations under the voluntary disclosure programme and pay the levy set.
Those taxpayers who have failed to comply with the tax laws and/or Exchange Control Regulations should avail themselves of the voluntary disclosure relief to take effect on November 1 2010. It is clear that the relief is available to all taxpayers.
Thus, for example where a company has failed to comply with its employees' tax obligations or its VAT obligations, it is entitled to seek the relief under the provisions contained in the legislation. In addition, those taxpayers who have removed funds from South Africa in contravention of Exchange Control Regulations and did not apply for amnesty under the Exchange Control Amnesty and Amendment of Taxation Laws Act (12 of 20O3), may now seek the relief available under the provisions contained in the legislation. It must be noted that the relief will only be available in respect of applications lodged with the authorities from November 1 2010 to October 31 2011.
Taxpayers who qualify for relief will benefit under the programme in that no additional tax, penalties or interest will be imposed and, furthermore, SARS will not institute criminal prosecution.
Dr Beric Croome is a tax executive with Edward Nathan Sonnenbergs. This article first appeared in the September 2010 issue of the law magazine “Without Prejudice”
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Advocate of the High Court of South Africa | Tax Author | Tax Accountant CA(SA) | Taxpayers' Rights | Tax Administration | Trust & Estate Specialist |
Saturday, 25 September 2010
Wednesday, 15 September 2010
Agreements set to tighten global tax net
During 2011, South Africa (SA) will be reviewed by its peers as part of the Global Forum on Transparency and Exchange of Information. SA has concluded many double taxation agreements with its trading partners, which typically allow for the exchange of information from SA to other countries and, similarly, for the Commissioner of the South African Revenue Service (SARS) to request information from foreign revenue authorities.
From a review of the SARS website, it is apparent that tax information exchange agreements are being negotiated or are in the process of finalisation, but have not been signed, with the following countries: Argentina, Bahamas, Bermuda, British Virgin Islands, Cayman Islands, Dominica, Gibraltar, Guernsey, Isle of Man, Jersey, Liberia, Lichtenstein, Monaco, Netherlands, Antilles and San Marino.
The move to finalise such agreements with certain countries moved a step closer when, on August 4, 2010 SARS advised the Finance Standing Committee of developments regarding tax information exchange agreements to be concluded with Bahamas, Bermuda, Cayman Islands, Guernsey, Jersey and San Marino.
The purpose in concluding tax information exchange agreements is to allow for one country to request tax information from another jurisdiction to ensure compliance with another with the first country's tax laws.
Taxpayers in SA will, with effect from November 2010 until 31October 2011, be entitled to participate in the voluntary disclosure programme to regularise their tax affairs where they have failed to make full and proper disclosure to SARS. The voluntary disclosure programme does not constitute an amnesty in that the income tax or any other taxes that were not paid timeously, must always be paid.
The advantage of participating in the programme for a defaulting taxpayer is that SARS will be legally required to waive interest, additional tax and penalties that would otherwise have been leviable on the tax not previously paid by the taxpayer. Further, the programme allows for the regularisation of breaches of the exchange control regulations.
The Global Forum on Transparency and Exchange of Information is aimed at enhancing tax compliance internationally and encouraging states to conclude tax information exchange agreements, thereby encouraging taxpayers to make full and proper disclosure of their income to their respective revenue authorities. The purpose of a tax information exchange agreement is to allow for the effective exchange of information between tax authorities of various states.
Tax information exchange agreements, which are in the process of being finalised by SARS, closely follow the Organisation for Economic Co-operation and Development (OECD) Model Tax Information Exchange Agreement which ensures that bank secrecy or the absence of a domestic tax interest can no longer be used to deny a request for the exchange of information.
SARS informed the Standing Committee on Finance on August 4 that article 1 of the proposed Guernsey tax information exchange agreement will allow for the exchange of information that is foreseeably relevant to the enforcement of the domestic laws of SA and Guernsey concerning taxes covered by the agreement. The scope of the agreement covers information that is relevant to the determination, assessment, enforcement or collection of tax in respect of persons subject to those taxes, or to an investigation of tax matters, or the prosecution of criminal tax matters.
Article 7 provides that all information provided and received by the authorities, typically the revenue authorities of the countries, shall be kept confidential.
Once the agreement takes effect, SARS will be entitled to request information pertaining to South African taxpayers from Guernsey regarding income derived by such persons, as well as information pertaining to trusts.
From a review of the presentation made by SARS to the Standing Committee on Finance, it would appear that the articles contained in the agreements to be concluded with the Cayman Islands, San Marino, Bermuda, Bahamas and Jersey are very similar, if not identical, to those articles contained in the proposed agreement with Guernsey.
The OECD has encouraged countries to enter into tax information exchange agreements to enhance the degree of tax compliance internationally. Those taxpayers in SA who have removed funds from the country in contravention of the exchange control regulations and have failed to comply with their domestic tax obligations should, therefore, seriously consider taking advantage of the voluntary disclosure programme.
lt must be borne in mind that once the tax information exchange agreements are concluded by SA with the countries mentioned above, SARS will be entitled to request information under the agreements from those countries in order to assist it in assessing South African residents to tax on income which such persons may have derived off-shore, or to deal with funds which have escaped the South African tax net and are now located abroad.
From a review of the Organisation for Economic Co-operation and Development (OECD) website, it is apparent that a significant number of countries have already concluded agreements with other countries in order to counter international tax evasion. The OECD has pointed out that those countries that may previously have been treated as tax havens have made commitments to the OECD to implement transparency and effective exchange of information agreements for tax purposes and, as a result, 38 states are no longer listed on the list of uncooperative tax havens.
The OECD has indicated that all jurisdictions surveyed by the Global Forum on Transparency and Exchange of Information have committed to the internationally agreed tax standard. The internationally agreed tax standard was developed by the OECD in cooperation with non-OECD countries and was endorsed by the G20 finance ministers at their meeting in Berlin in 2004 and by the UN's Committee of Experts on International Co-operation in Tax Matters in 2008.
Taxpayers need to be aware, therefore, that the world has become a far smaller place as a result of the OECD initiative to reduce evasion in the international tax arena and those taxpayers in SA who have failed to comply with their obligations should take advantage of the voluntary disclosure programme, failing which SARS will seek to recover tax on undisclosed income and, more than likely, institute criminal prosecutions.
▪ Dr Beric Croome is a tax executive at ENS. This article first appeared in the September 2010 “Tax Bites” column of the Business Law & Tax Review in the Business Day.
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