22 September 2010 | Category: Tax
Those who have contravened the exchange control or fiscal tax legislation in the past should seriously consider utilising the latest amnesty protection announced by SARS. This could be the last opportunity to regulate fiscal affairs without penalty, interest or criminal prosecution.
Mike Teuchert, tax partner at Grant Thornton Cape Town cautions, though, that in order to qualify for relief, full and complete disclosure will need to be made to SARS on a voluntary basis. “This will give rise to a potential penalty or additional tax which will not result in a refund.”
During this year’s Budget Speech by the Finance Minister in February this year, Mr Gordhan announced that there would be voluntary exchange control and tax disclosure programmes.
Exchange control disclosure programme
The Reserve Bank recently issued draft regulation 24 for comment by the public, which deals with the granting of relief for exchange control contraventions as well as details about the current voluntary disclosure programme.
“As such, the Exchange Control Programme regulations have not yet been finalised,” says Teuchert.
As it currently stands, the regulations state that Exchange Control infringements prior to 28 February 2010 need to be regularised on or before 31 October 2011.
Individuals would need to declare – disclosing all relevant details – any foreign loans raised by residents with possible recourse to South Africa, receipt of foreign inheritances before 17 March 1998, foreign income earnings by SA residents prior to 1 July 1997 and any foreign assets of immigrants to South Africa which are held abroad.
Declarations by organisations would apply to all approved foreign investments where there may be non-compliance to any of the conditions of approval; foreign loans raised which have recourse to South Africa and any unauthorised foreign investments.
“No levies will be payable in respect of the specific contraventions mentioned here,” says Teuchert. “However the so-called ‘loop-structures’ and donations that have been made by SA residents to foreign discretionary trusts will require a full application for disclosure, and the payment of a 10% levy from offshore assets.”
In addition, for loop structures the transfer of the asset will need to be made to a South African resident within six months from the date of submission of the application. For donations to foreign discretionary trusts, the founding documentation of the trust (i.e. the trust deed and any amendments) must accompany the application and the asset will be deemed to be that of the donor from inception.
“Should insufficient funds be available abroad to pay the levy,” adds Teuchert, “The levy can be paid out of local funds, but this will then be increased to 12%.”
Teuchert also warns that the payment of the levy may in itself trigger a tax event as this payment would invariably accompany a disposal of the foreign asset or a portion thereof. “This would especially be the case where foreign funds are being held in offshore bank accounts.”
Tax disclosure programme
In terms of the tax disclosure programme, The National Treasury has released the enabling legislation for contraventions and this is currently awaiting Parliament approval. “This legislation has already been through the preliminary parliamentary committee approval processes and it is not expected that there will be any changes to it at this stage,” says Teuchert.
The voluntary disclosure programme is open to all taxpayers and it applies to the admission of submitting any inaccurate or incomplete information to SARS. It also includes failure to submit information which may have caused the incorrect amount of tax being paid or inaccurate refunds being received.
“This includes all contraventions that occurred prior to 17 February 2010 relating to income tax, PAYE, CGT, VAT, Customs & excise, transfer duty, stamp duty / securities transfer tax, SDL and UIF,” says Teuchert.
Teuchert says that SARS will grant successful applicants protection from criminal or civil prosecution and 100% relief for any penalty and additional tax in respect of returns submitted before 17 February 2010 which were incorrect or inaccurate. “SARS will also grant 100% relief of interest where no audit has commenced, and where an audit has commenced only 50% of the interest where SARS directs that a taxpayer applies for relief.”
Applications will not be allowed for either the Exchange Control or Tax Disclosure programmes if an investigation has commenced or there is a pending audit underway.
The legislation for both amnesties require that successful applicants enter into a written agreement that includes all the material facts pertaining to the contravention, the amount of tax and where applicable, interest payable, payment arrangements, future treatment and undertakings by the parties.
Notes to editors
You may quote freely from this publication, provided you acknowledge the source. This publication is an outline for information purposes and should not be relied upon for detailed planning. Readers are advised to consult professional advisors for guidance relating to new or existing legislation which might affect their business and personal decisions.
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