JOHANNESBURG – South Africans with undeclared offshore funds may only have a few months to get their affairs in order or risk facing significant penalties and even criminal prosecution as revenue authorities start the automatic exchange of information.
The Common Reporting Standard (CRS), a set of global standards that govern how tax authorities in participating countries share information about the financial assets of their taxpayers, comes into operation from next year.
South Africa is one of the “early adopters” of the CRS. Other signatories include Luxembourg, Liechtenstein, Malta, Cyprus, the UK, Isle of Man, Guernsey, Jersey, France, Germany, Greece, India, Ireland and Italy to name a few.
Judy Snyman, fiduciary specialist at AlphaWealth, says the group of countries who signed up as early adopters will start collecting information in January 2016 with the intention to share the information from September 2017 onwards.
The late adopters, which include countries like Switzerland, Hong Kong, Singapore, Monaco, the Bahamas, Australia, New Zealand and Canada, will start gathering information in January 2017 and disclose it sometime during the next year. More than 70 countries have signed up so far.
The CRS was compiled by the Organisation for Economic Co-Operation and Development (OECD) on behalf of the G20 countries. The parties were of the view that base erosion and profit shifting was a growing problem and wanted to ensure that they could access the tax revenue on all of the assets held offshore by their taxpayers, Snyman says.
While governments generally perceive the offshore assets of their taxpayers as a significant opportunity to increase tax revenue, this can only be done if the taxpayer discloses these accounts or if financial institutions provide authorities with the data.
In terms of the CRS, the governments of signature countries have moved the burden of collecting data onto financial institutions.
Snyman says institutions such as banks and insurance companies will have to collect information about the taxpayers of participating countries. A South African taxpayer with a bank account in Jersey for example will find that the Jersey bank will collect his details including his name, address, tax residence and tax number and report this along with his account information to the Jersey tax authority, which will then provide the information to the South African Revenue Service (Sars).
“Sars will be getting a lot of information about its taxpayers.”
This exchange of information between participating countries will make tax evasion significantly more difficult, if not impossible.
But the fact that this information will be available to Sars does not necessarily mean that it will automatically result in a tax liability.
Snyman says where taxes have been paid in accordance with the law and dividends, interest and other proceeds earned in foreign accounts have been declared, taxpayers won’t be affected.
However, it is imperative that taxpayers with undeclared offshore funds get their affairs in order.
Under the Tax Administration Act (TAA), the understatement penalties in terms of a voluntary disclosure are manageable and typically 5% and 10% depending on whether it was gross negligence or intentional tax evasion, but it can be up to 200% in cases where it is not the taxpayer’s first evasion offence, she says.
Moreover, tax evaders could also be criminally prosecuted if the offence comes to light, but if they willingly disclose their wrongdoing, the criminal element is taken off the table.
Snyman says the Reserve Bank is likely to be more lenient with regard to penalties where individuals of their own accord disclose that they have taken money offshore without exchange control approval, but this is decided on a case-by-case basis.