Johannesburg - The special voluntary disclosure programme for South African taxpayers with undeclared foreign assets has been revised to eradicate complexities that threatened its overall success.
The concept of “seed capital”, introduced in the initial programme, had many taxpayers and their advisers stumped because of the uncertainty as to how they would determine the correct amount.
Following several comments and a consultation meeting with taxpayers and tax advisers, it is no longer required to determine the “seed capital” that has been taken offshore without declaring it to the SA Reserve Bank and the SA Revenue Service (Sars) to calculate the tax liability.
The Treasury said instead of calculating two amounts (seed capital and investment returns) non-compliant taxpayers now only needed to determine one amount.
Window period
Johan van der Walt, a committee member of the SA Institute of Tax Professionals, said taxpayers now had to only determine when their offshore asset value was at its peak during the window period (March 1, 2010 to February 28, 2015), and pay tax on 50 percent of the value of the amount in rand terms.
Tax will only be levied on the regularised assets going forward.
Prior to the change, taxpayers were expected to account for all the assets taken offshore over the window period, relate it back to rands and pay 50 percent tax on the amount in the 2011 tax year. In addition, income on the foreign assets for the same period would have been fully taxed.
“The complexity around seed capital is now gone. It would have been almost impossible to determine exactly how much and when the money was taken out of the country because of the lack of historical records,” Van der Walt said.
Finance Minister Pravin Gordhan announced the special voluntary disclosure programme in his Budget speech this year to enable non-compliant taxpayers another opportunity to get their tax affairs in order.
Previous tax and exchange control amnesties have brought undeclared assets worth billions back into the tax net. However, it has been stated that billions remain undeclared.
South Africa is one of almost 60 governments that have committed to the annual automatic exchange of financial account information through the Common Reporting Standard from September next year. Another 50 countries have committed to exchange financial information from 2018.
“Very few taxpayers are currently being audited in terms of their offshore assets because the exchange of financial information (between governments) has not yet started to flow,” said Van der Walt, who also heads the dispute resolution and tax controversy division of KPMG.
Cross-border advisory firm Breytenbachs said in its latest newsletter that Sars had obtained access to international tax agreements’ shared information and shared same (typically the Foreign Account Tax Compliance Act information sent across by the Internal Revenue Service) with the SA Reserve Bank.
“Accordingly, persons already subject to (the SA Reserve Bank) or Sars investigations (on undisclosed foreign assets) will not be able to avail of the special voluntary disclosure,” Breytenbachs said.
A legislative amendment at the start of this year allows taxpayers to participate in the special disclosure programme to regularise their offshore assets, even if they are being investigated or audited for other tax types.
Van der Walt expressed concern about the future tax liability for beneficiaries of foreign trusts who step into the shoes of the trust for tax purposes. “Once the individual steps into the shoes of the trust and declare the income, it seems as if the assets in the foreign trust will be included in the beneficiary’s estate for estate duty purposes.”
Van der Walt said that might prove to be “disadvantageous” to the individual to take such a step.
Concern
Dan Foster, the head of international private clients at Webber Wentzel, said the issue relating to trusts was still of great concern, and in some respects unclear. “It could create double or triple tax charges in respect of donations tax and estate duty on the same amounts,” he warned.
The election to step into the shoes of the trust is only available for trusts funded with donations and not with loans, which would require a different approach.
“Taxpayers must consider the consequences very carefully if they intend to make such an election. Beneficiaries seeking to make the election (as opposed to donors) should be particularly cautious, specifically if there are many beneficiaries living in different countries.”
Foster said South Africa was not the only country offering a voluntary disclosure programme and families might fall into dispute over who should disclose offshore trust assets in which countries.
The SA Reserve Bank last week published its exchange control circular regarding details and information required for an application to regularise exchange control contraventions in terms of the special disclosure programme.
A levy of 5 percent on assets repatriated to South Africa will be payable by successful applications; 10 percent if the applicant chooses to keep the assets offshore. A levy of 12 percent will be payable on foreign assets where the 10 percent levy is not paid from foreign-sourced funds.
The Treasury has allowed another round of comment on the revised programme contained in the draft Revenue Laws Amendment Bill. The due date for comment is August 8. However, Van der Walt does not anticipate further changes to the legislation.
BUSINESS REPORT