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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