Time is running out for those who have not as yet considered the implications of what is required for disclosure or the possible implications of non-disclosure of offshore assets.
In the 2016 Budget, the now ex-finance minister Pravin Gordhan, announced the Special Voluntary disclosure programme (SVDP) for those individuals that did not previously utilise the opportunity to disclose undeclared offshore assets in the 2003/2004 amnesty.
It was estimated that approximately R65 billion was disclosed in the 2003/2004 amnesty with an estimated R200 billion or more still undeclared.
Treasury has made it clear that the SVDP is the last opportunity for those who have not declared any historical offshore assets to the local tax authorities and the Reserve Bank if these assets were in contravention of any exchange controls or the Tax administration act.
As from October 1 2016 to August 31 2017 taxpayers have been given an opportunity to disclose these assets and pay certain penalties in order to legitimise these assets and bring them into the tax net of Sars for any future tax liabilities.
Taxpayers who do not utilise this opportunity to come clean risk being taxed on the full amount that has not been taxed before, with no limitation on how far back Sars can raise assessments. So while properly disclosed applications under the SVDP will provide full immunity, those who do not come clean will be at the mercy of the revenue service with regards to the taxable period.
In addition, Sars could impose understatement penalties of 150% or 200% of the tax payable, together with interest. From an exchange control perspective the authorities are mandated to, where appropriate, recover the full amount of the contravention. A contravention of the exchange control regulations can lead to criminal prosecution.
As from September 2017 this year the first set of countries which include the G20, including South Africa and several others have agreed on the terms of the common reporting standards (CRS) to disclose information of tax payers who hold financial instruments in their country to the tax authorities in which they are tax resident.
This includes all financial instruments held by individuals and entities including trusts and foundations.
The SVDP is intended to encourage taxpayers to come forward on a voluntary basis to regularise their tax affairs with Sars and the Reserve Bank to avoid the imposition of under-statement or administrative penalties.
Sars has confirmed that any person may apply for SVDP. However, a person that is aware of a pending audit or investigation or is the subject of a not yet concluded audit investigation, may not use the scheme.
Individuals and companies may apply. Trusts may not. However, beneficiaries of trusts may apply provided they deem the assets and income of the trust as their own.
The SVDP consists of an application to the Reserve Bank for exchange control transgressions and an application to Sars for any tax transgressions.
The exchange control levy is 10% of the value of the assets as at 28 February 2016 if you opt to keep these funds offshore or 5% of you opt to bring them back to SA. If you pay for the penalty form SA sources rather than the offshore source an additional 2% is levied.
There are two disclosure options for tax transgressions. Voluntary disclosure programme (VDP) and SVDP.
What is VDP?
The voluntary disclosure programme has been in existence for several years already, allowing all tax payers an opportunity to voluntarily disclose any tax contraventions to Sars on which the tax liability would be calculated and interest applied to that liability. The one disadvantage is that if this route is selected Sars has the right to go back to the inception of the investment in order to calculate the exact tax liability since inception with interest applied to each respective tax period.
What is SVDP?
The SVDP is for a limited period until 31 August 2017 and is calculated using the capital value of all assets in contravention of the of the tax administration act at the end of every tax year from 28 February 2011 to 28 February 2015. 40% of the Highest value of the aggregate of all assets over these 5 years will be included in the taxable income of the individual in the 2015 tax period and tax payable thereon.
In addition Sars also charges interest on the outstanding tax due to them.
This ensures that all donations tax, dividends tax, capital gains tax and any income tax or estate duty liabilities will be exempt from the past.
However you need to clearly understand the implications of both the SVDP as well as the VDP in order to determine which route will be more beneficial.
I would suggest seeking professional advice and assistance in order to make an informed decision, but wouldn’t wait too much longer as August 31 2017 is fast approaching.