South Africa – Special Voluntary Disclosure Programme Announced in Budget 2016

South Africa – Special Voluntary Disclosure Programme

In this GMS Flash Alert we report on the newly announced Special Voluntary Disclosure Programme (“SVDP”) and compare it against the existing Voluntary Disclosure Programme (“VDP”).

Related content

flash-alert-2016-044

In the 2016 Budget Speech1 delivered on 24 February 2016, by South Africa’s finance minister, a Special Voluntary Disclosure Programme (“SVDP”) was announced relating to the regularisation of offshore assets.  The SVDP will run from 1 October 2016 to 31 March 2017.

We highlight below some of the important considerations of the proposed regularisation procedures and terms, and compare against the existing procedures and terms.

WHY THIS MATTERS

The OECD’s Automatic Exchange of Information initiative accompanied by the Common Reporting Standards (“CRS”), sets the framework for sharing information between tax jurisdictions.

The reality is that detailed information about South Africans’ unauthorised assets held abroad, as well as the undeclared income generated by such assets, will soon become available to the South African authorities.

The timing of the Budget announcement of the SVDP therefore gives individuals subject to South African taxation a once-off six month window to regularise their tax defaults and / or Excon contraventions, i.e., prior to the information exchange taking place.  

Background

South African taxpayers presently have an opportunity to regularise their tax defaults with the South African Revenue Service (“SARS”) by means of the Voluntary Disclosure Programme (“VDP”), which is applicable for all kinds of tax defaults (other than customs).  South African Exchange Control (“Excon”) residents also presently have an opportunity to regularise any exchange control contraventions with the South African Reserve Bank (“SARB”).  The exchange control regularization process (as it currently operates) is a separate process to the tax VDP.

Proposed SVDP: Who Can Apply?

  • Individuals and companies may apply for the SVDP on the same basis as for the existing Voluntary Disclosure Programme contemplated in Part B of Chapter 16 of the Tax Administration Act, 2011.  That is to say, an initial “no-name approach” may be made, applications may be made in a representative capacity, etc.
  • Trusts will not qualify to apply for the SVDP. 
  • Settlors, donors, deceased estates or beneficiaries of foreign discretionary trusts, however, may participate in the SVDP if they elect to have the trust’s offshore assets and income deemed to be held by them. 
  • Persons aware of a pending audit or investigation in respect of foreign assets or foreign taxes or who have an audit or investigation in respect of foreign assets or foreign taxes that has commenced may not apply for the SVDP.  

Requirements for a Valid Tax VDP Application

The requirements for a valid VDP have been expanded and the said disclosure must: 

a) be voluntary;

b) involve a “default” which has not occurred within five years of the disclosure of a similar “default” by the applicant;

c) be full and complete in all material aspects;

d) involve a behaviour which gives rise to the SARS being able to levy an under-statement penalty charge;

e) not result in a refund due by SARS; and

f) be made in the prescribed form and manner.

A person cannot apply for VDP relief if the potential applicant is aware of a pending SARS audit or SARS investigation that is related to the default which the potential applicant wishes to disclose or where the SARS audit or SARS investigation (relating to the “default”) has commenced but has not been concluded by SARS.

Comparison of Benefits, Obstacles, and Challenges between the VDP and SVDP (1 October 2016 – 31 March 2017) as Relates to Tax Defaults

Like the VDP legislation which is already statutorily defined, the SVDP proposals will also be legislated.  Provided the requirements for a valid VDP application have been met, the SARS has no discretion to disallow an applicant access to the VDP or SVDP.  See the side-by-side comparisons below.

VDP

  • Investment income (interest, dividends, and capital gains) must be declared. Presently, applications need to make declarations from the 2002 tax year (1 March 2001).To the extent that capital tax is due, the capital tax is payable.
  • Seed money is not taxable to the extent that the seed money (capital) was transferred offshore with after-tax monies.
  • Interest remains payable from the first year of reported defaults.
  • No under-statement penalties will be levied.
  • Relief from administration penalties (excl. penalties on the late submission of returns).
  • Relief from criminal prosecution.

SVDP (tax)

  • Only investment income (interest, dividends, and capital gains) from 1 March 2010, need be declared. Any investment income prior to 1 March 2010 is exempt.
  • SARS will seek to tax 50% of the total amount used to fund the acquisition of unauthorized offshore assets (acquired before 1 March 2015) in taxable income, which will be subject to normal tax.
  • Interest remains payable on tax debts from 1 March 2010.
  • No under-statement penalties will be levied,
  • Relief from administration penalties (excl. penalties on the late submission of returns).
  • Relief from criminal prosecution. 

Comparison of Benefits, Obstacles, and Challenges between the VDP and SVDP (1 October 2016 – 31 March 2017) as Relates to Excon Contraventions

The tables below apply where the person is not already under investigation by the South African Reserve Bank.

The Regularisation Process

  • No time limitation to which contraventions apply.
  • 20% levy should the funds / investments be repatriated to South Africa.
  • 25% levy should the holder elect to retain the funds / investment offshore.
  • Where there are mitigating factors, the levy could possibly be reduced.

SVDP (Excon)

  • Applicable to contraventions which occurred prior to 29 February 2016.
  • A 5% levy will apply where the regularised assets are repatriated to South Africa.
  • A 10% levy will apply where the regularised assets remain offshore.
  • An additional 2% levy will apply where local assets are utilised to settle the levy.
  • The ZAR 10 million foreign investment allowance cannot be used to reduce the amount on which the levy is calculated.

KPMG NOTE

The KPMG International member firm in South Africa is liaising with SARS and the SARB regarding the final steps for approval/enactment of legislation, as well as how tax and exchange control VDP applications filed with SARS and SARB will be affected (if at all) given the announcement of the proposed SVDP.

FOOTNOTE

1  For the 2016 Budget speech, click here.

CONTACTS

If you require additional information or assistance, please contact your local GMS or People Services professional or one of the following professionals with the KPMG International member firm in South Africa:

 

Carolyn Chambers

tel. +27 11 647 5764

carolyn.chambers@kpmg.co.za

 

Melissa Duffy

tel. +27 82 719 5643

melissa.duffy@kpmg.co.za

 

Salome Smit

tel. +27 82 718 8731

Salome.smit@kpmg.co.za

The information contained in this newsletter was submitted by the KPMG International member firm in South Africa.

© 2016 KPMG Services (Pty) Limited, a South Africa private company and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.

Flash Alert is an Global Mobility Services publication of KPMG LLPs Washington National Tax practice. The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

Connect with us

 

Request for proposal

 

Submit

KPMG's new digital platform

KPMG International has created a state of the art digital platform that enhances your experience, optimized to discover new and related content.