South Africa is a member of the Global Forum on Transparency and Exchange of Information for Tax Purposes. It has been confirmed that South Africa has undertaken to exchange information automatically in relation to new accounts and pre-existing individual high value accounts by the end of September 2017.
South Africa has concluded a large number of double taxation agreements with trading partners, which allows for the exchange of information in terms of those agreements.
Furthermore, South Africa has signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (“Multilateral Convention”), which Convention was gazetted during the course of last year, such that the Convention took effect in South Africa on 1 March 2014. That Convention envisaged the automatic exchange of information by the various countries which had signed the Convention.
Subsequently during October 2014, South Africa together with 50 other jurisdictions translated their commitments under the Multilateral Convention into action by way of the signing of a Multilateral Competent Authority Agreement that activates the automatic exchange of information based on the Multilateral Convention.
The Competent Authority Agreement is a multilateral framework agreement, such that the subsequent bilateral exchanges will take effect between those countries which file the subsequent notifications under section 7 of the agreement. Furthermore, the agreement sets out the particulars of what information will be exchanged, as well as the timing thereof.
The agreement comprises eight sections:
· section 1 contains definitions of terms used in the agreement
· section 2 sets out the information which will be automatically exchanged
· section 3 sets out the timing and method of the automatic exchange of information
· section 4 describes how the parties to the agreement will co-operate to ensure compliance with the agreement
· section 5 contains provisions to ensure confidentiality and the safeguarding of data
· section 6 sets out the process to consult to ensure the smooth operation of the agreement and also to amend the agreement
· section 7 sets out the subsequent notifications required under the agreement and how the agreement is then subsequently brought into effect
· section 8 sets out the role of the secretariat
As indicated above, section 2 of the agreement sets out in greater detail the information which countries are required to exchange automatically.
Under the agreement, South Africa will be required to exchange information regarding so-called “reportable accounts” of another jurisdiction which comprises financial accounts maintained by a reporting financial institution which has been identified as an account which is held by one or more persons that are reportable persons in relation to another country.
Information which South Africa will be required to exchange with other countries under the agreement is as follows:
· the name, address, tax identification number and date and place of birth in the case of an individual
· the account number
· the name and identifying number of the reporting financial institution
· the account balance or value as of the end of the relevant calendar year or other appropriate reporting period
· the total amount paid or credited to the account holder with respect to the account during the calendar year or other period as the case may be
Under section 3 of the agreement, the information is required to be exchanged automatically within nine months after the end of the calendar year to which the information relates.
For South Africa to comply with its obligations under the Multilateral Convention and indeed the Multilateral Competent Authority Agreement, it will require substantial information from the financial institutions in the country regarding accounts linked to persons resident in other countries.
Under the provisions of section 26 of the Tax Administration Act No. 28 of 2011 (“TAA”) the Commissioner may issue public notices requiring financial institutions to submit returns to SARS reflecting detailed financial information.
South Africa has concluded an agreement with the United States of America whereby South African financial institutions are required to report significant financial information to SARS for onward transmission to the United States of America.
A detailed public notice was issued under section 26 of the TAA describing the comprehensive financial information to be collated by financial institutions in South Africa for onward transmission to United States of America. No doubt further public notices will be issued by SARS setting out exactly what information financial institutions are required to supply to SARS so that that information may ultimately be made available to other countries in terms of the Multilateral Convention.
The OECD has indicated that the Global Forum will establish a peer review process whereby ensuring the effective implementation of the automatic exchange of information.
Furthermore, governments who are party to the Multilateral Convention have also undertaken to increase the level of information exchanged upon request by including a requirement that beneficial ownership of all legal entities be made available to tax authorities and capable of being exchanged with treaty partners. This will enable tax authorities to ascertain who owns assets held by companies and trusts located around the world.
The Global Forum has indicated that 89 of its member countries have committed to implement reciprocal exchange of information on financial accounts automatically.
At the seventh meeting of the Global Forum held in Berlin during October 2014, it was announced that an initiative will be launched in Africa to increase awareness of the benefits of the exchange of information across the African continent and also to increase the number of African countries who are members of the Global Forum. The Global Forum will also assist tax administrations in Africa regarding the exchange of information.
It is clear therefore that the automatic exchange of information will commence in many countries during 2017 or no later than 2018. Just as South Africa must provide financial information to other countries, SARS will receive information from other countries regarding South Africans who have bank accounts abroad.
Taxpayers who are in default and have not made full and proper disclosure of their affairs to the South African Revenue Service should utilise the Voluntary Disclosure Programme (“VDP”) enshrined in the TAA thereby ensuring that they can remedy their defaults without facing criminal prosecution and in many cases escaping penalties which would otherwise be payable. It must be remembered that the VDP contained in the TAA is a permanent feature of the law and does not have a date by which taxpayers must apply for relief.
Furthermore, those persons who may have violated the exchange control regulations should consider regularising their affairs with the Financial Surveillance Department of the South African Reserve Bank, thereby ensuring that they regularise their affairs without facing criminal sanction for prior violations of exchange control regulations.
Dr Beric Croome is a Tax executive: Edward Nathan Sonnenbergs Inc. This article first appeared in Business Day, Business Law & Tax Review (May 2015).Image from IISD Please contact me if there are copyright issues relating to use of image.
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