South Africans who find themselves exposed for tax evasion via the Panama Papers should declare all their offshore assets now and not wait for the Special Voluntary Disclosure Programme (SVDP), which only kicks in from October 1 2016 to March 31 2017.
The SVDP, which was announced by Finance Minister Pravin Gordhan in his 2016 budget speech, offers an opportunity for non-compliant taxpayers to voluntarily disclose offshore assets at less cost than it would cost for doing so through the regular VDP, which is already in effect and runs indefinitely.
For more on the cost of disclosure through the normal VDP, see this article.
Vlok Symington, group executive for product oversight, legal and policy at Sars says that, under the normal VDP, there is no cap on the number of years that the revenue service can go back in terms of looking at investment income, whereas under the SVDP, only the last five years of taxable income are relevant. Defaulters are exempt from any income accrued before then. Also, seed money (which refers to investment capital or the profits put back into that investment) is fully taxable under the VDP, whereas with the SVDP only 50% is taxable, he says.
“Another point is that under the normal VDP, understatement penalties and some of the other administrative penalties remain payable – although they are a bit less than what you would find if someone did not go the VDP route – but with the SVDP, there are no understatement penalties,” he adds.
It is important to note that, from late 2017, the G20 countries will be sharing tax revenue on all the offshore assets of their taxpayers with each other through the adoption of Common Reporting Standards. This means Sars will know exactly what assets you may have abroad. If you are found to have misled the authorities through the SVDP, Symington says the agreement is null and void and you can be prosecuted. That is why it is best for those individuals to declare their offshore assets sooner rather than later,
The problem is that both programmes are only applicable to individuals who do not already have an audit/investigation pending. So, once the Panama Papers are released to the public early next month, there is every possibility that implicated South Africans will be investigated before October.
Looking at this tweet from the Financial Mail, it’s fair to assume that there are likely to be at least some South Africans who are likely to be appraised by the tax man.
Investec prominent in Panama Papers https://t.co/bqMUp3fUQi
— Financial Mail (@FinancialMail) 28 April 2016
Symington says Sars is expecting the data from the International Consortium of Investigative Journalists (ICIJ), who are managing the papers from Mossack Fonseca within an online database, in early May. But it will take some time to analyse the data and before they decide who to investigate.
“Until you have received a letter from Sars stating that you will be audited, you can still make use of the SVDP and the VPD,” says Symington, adding that time is already ticking for those looking to take advantage of the October programme.
“Until Sars has engaged you by sending a letter saying that they are going to audit you, you can still make use of the disclosure programmes. But we will follow normal audit procedures so, as soon as a name is given, we will engage that person whether or not it is after the first of October. It could very well be that somebody gets engaged before that date and thus forfeits the opportunity to take advantage of the SVDP.”
This won’t be like the HSBC list
Melissa Duffy, associate director of global mobility services and employment tax advisory at KPMG, says VDP applications rose sharply around August last year during the HSBC list saga, when a list of people who had HSBC accounts found its way into the public domain and landed in the hands of Sars. The South Africans named were then afforded a very short a four-to-eight-week window of opportunity to approach Sars and declare their assets before the taxman came knocking.
“At KPMG alone, we had individuals who paid up to R30 million in tax penalties and interest during that particular period,” says Duffy.
But, according Symington, Sars will not be giving anybody notice periods as was done with the HSBC list. He advises that people should start to prepare for the SVDP window now, by getting their paperwork (i.e bank statements and other such documents) ready, because that will allow them to submit their SVDP applications soon after the SVDP window opens on October 1.
Says Symington: “Getting in early will mitigate their risk for audit selection….I don’t expect Sars to follow the same procedure that we used for the HSBC list. I don’t think we are going to issue a kind of warning to people that may or may not be implicated in the Panama papers… It is better for someone to disclose under the normal VDP just to be on the safe side.”
Citizens found guilty of tax evasion can incur a fine amounting to anything from 150% to 200% of their taxable income. Worse they could spend up to five years in jail.