On 24 February 2016 the Minister of Finance announced a special voluntary disclosure programme (SVDP) which is aimed at encouraging South African taxpayers with undisclosed offshore assets to regularise their affairs before the commencement of the new global standard for automatic exchange of information between tax authorities. The global standard for automatic exchange of information is expected to start in September 2017.
We outline some of the important aspects of the proposed SVDP that South African resident taxpayers with undisclosed offshore assets should be aware of.
Tax relief under the SVDP
In terms of the revised draft bills, the following relief is available to taxpayers under the SVDP:
- undeclared amounts derived from offshore assets held during the period 1 March 2010 to 28 February 2015 are exempt from tax;
- taxpayers will only be taxed on 50% of the highest value of the aggregate of all assets situated outside of South Africa between the period 1 March 2010 and 28 February 2015. This is the market value of the assets determined in the foreign currency and translated to ZAR at the spot rate at the end of each year of assessment;
- no criminal prosecution for a tax offence will be pursed against the taxpayer; and
- no understatement and administrative penalties will be levied against the taxpayer (excluding penalties for late submission of returns).
Where a taxpayer previously held undisclosed assets which were disposed of before 1 March 2010 (other than by way of a donation or a disposal on loan account to a trust), they may also apply for relief under the SVDP dispensation by electing that the assets be deemed to have been held for the period 1 March 2010 to 28 February 2015
Who qualifies to apply for relief under the SVDP?
Individuals and companies may apply for the SVDP.
Trusts do not qualify for SVDP relief. However, settlors, donors, deceased estates of donors and beneficiaries of foreign discretionary trusts may participate in the SVDP if they elect to have the trust’s offshore assets and income deemed to be held by them.
Taxpayers may not apply for SVDP relief if they are aware of a pending audit or investigation into their foreign assets or taxes or where such audit or investigation has commenced, unless the audit or investigation is in respect of other assets.
Taxpayers may not apply for SVDP relief for foreign assets about which SARS obtained information under the terms of any international exchange of information procedure.
Why submit a SVDP application?
Although the revised draft bills still seem punitive for resident taxpayers whose offshore assets are worth a considerable amount of money, the benefit of submitting a SVDP application far outweighs the risk of being caught by SARS.
SARS and the National Treasury have warned that taxpayers who do not make use of the SVDP will face the full force of the law. If SARS establishes non-compliance, it will be entitled to levy tax for the entire period that the taxpayer under-declared their taxable income, the taxpayer will have understatement and non-compliance penalties levied against them and lastly, they may face criminal prosecution for any statutory offence arising from the non-disclosure.
Taxpayers have a limited window period of six months starting on 1 October 2016 and closing on 31 March 2017 to file their applications for relief under the SVDP.
Any applications made before the 1 October 2016 effective date or after the 31 March 2017 closing date will be determined in terms of the existing voluntary disclosure programme.
The draft bills dealing with the proposed SVDP relief were published on the same day of the announcement by the Minister of Finance and the public was invited to make formal submissions to them. The draft bills have since been revised to take into account public comments and on 20 July 2016, the National Treasury published the revised draft bills. The revised draft bills come a week after the Financial Surveillance Department of the South African Reserve Bank released a circular outlining the details applicable to the exchange control side of the SVDP.
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