The Panama Papers and, more recently, the Paradise Papers have been cause for a few worried brows among people with offshore investments. Individuals who have used offshore jurisdictions such as Jersey, Guernsey and Mauritius to evade tax have been exposed, often revealing complicated webs of offshore companies.
A study by the Tax Justice Network in 2012 showed that there was as much as US$32 trillion in hidden assets in tax havens, representing up to $280 billion in lost income tax revenues worldwide. These astounding revelations spurred on the implementation of Common Reporting Standards (CRS), a system developed by the Organisation for Economic Co-operation in 2014.
At an investor meeting in Cape Town this week, Michael Yuille, the managing director of Northern Cross Wealth Management, said that, through the Common Reporting Standards (CRS), governments and tax authorities can find out whether local tax residents have undeclared assets outside their country of residence.
Information about offshore bank accounts, share portfolios and other investment vehicles is automatically shared among countries registered with the CRS, which was developed by the Organisation for Economic Co-operation and Development.
“Whether via leaks such as the Panama Papers, hackers accessing information of offshore companies or via the CRS system, authorities now more than ever have access to this information,” Yuille said. He said severe penalties can be applied to offenders, who can also face criminal prosecution. The South African Revenue Service imposes penalties of up to 50% of the value of the undeclared assets.All assets should be declared, and investors must clarify their tax situation with the relevant authorities and be tax-compliant.
“The financial world is getting smaller. The CRS (and the Foreign Accounting Tax Compliance Act) are in place to enable authorities to stop tax evasion, financial crime and terrorism funding. Investors need to take their tax affairs seriously and make sure their offshore holdings are above board,” he said.
With the government under pressure to generate revenue from citizens and residents, the CRS has become a critical game-changer of which all investors should be aware, he said.