The heat is on: where to with unauthorised off-sh... | KPMG | ZA

The heat is on: where to with unauthorised off-shore assets?

The heat is on: where to with unauthorised off-sh...

The latest SA Revenue Service (SARS) press release on the “HSBC list” has, again, focussed attention on the unauthorised off-shore assets (and unpaid taxes) of well-to-do South Africans – but is this ‘call for action’ likely to yield the best result?


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Says Johan van der Walt, Head of Dispute Resolution and Tax Controversy at KPMG; “Having initiated the 2010/11 Voluntary Disclosure Programme (VDP) at SARS, the following are a few  KPMG perspectives on the vexed question of High Net Worth Individuals (HNWI’s) hiding money off-shore, as well as some suggestions on how to best regularise the current situation.”

  • Taking money overseas in contravention of the Exchange Control (Excon) regulations has been happening irrespective of the prevailing political dispensation. It accelerated post Sharpeville (1960’s), and has continued unabated (despite the liberalisation of the Excon regime over the last decade). Recent discussions with Swiss private banks however, confirm that staggering amounts went off-shore as a nest-egg or “just in case I need to start over”. South Africa has been playing this national sport for more than half a century;

  • Swiss (and for that matter global) banking secrecy has largely been eroded and no longer offers protection. This came about mainly through the USA’s Foreign Account Tax Compliance Act (FACTA) and the Organisation for Economic Co-operation and Development’s (OECD) initiatives of getting revenue authorities to focus on HNWI’s as well as the upcoming automatic exchange of information procedures (with SA forming part of the early adopters group);

  • SA residents would prefer to regularise Excon contraventions with the SA Reserve Bank (SARB) and disclose previously undeclared off-shore income to SARS. Unfortunately, certain reservations (and perceptions) must first be addressed to optimise the coming clean process. There is distrust in the market about the current regularisation regimes which, in combination, could be monetarily quite punitive. Potential applicants are keen “to do the right thing” – but not at all costs, it appears;

  • To date, SARS’ VDP has yielded R8.8bn in back taxes. Only some R705m relates to past undeclared income in respect of unauthorised off-shore assets. This indicates that much of the unauthorised assets, and the off-shore income earned on same, have not yet been regularised.

Based on this, what is required to optimise the coming clean process for all stakeholders?


In recent face-to-face discussions with Swiss private banks, it was evident that the following might have to be revisited:

  • Some Swiss banks are actively pushing for clients to regularise, otherwise the money can no longer be managed in Switzerland. SA resident clients who do not fully understand, or distrust, the SA regularisation regimes might be tempted to move the money into other riskier jurisdictions, to amend the reporting triggers for the automatic exchange of information (meaning that SA will not be alerted when the information exchange occurs) or to completely sever links with SA, e.g. by emigrating. This has to be seen in the context of the recent New World Wealth report stating that, between 2000 to 2014, more than 8 000 HNWI’s (i.e. investable assets exceeding US $ 1m) have left SA;

  • The dual regularisation channels (SARS for tax and SARB for Excon) means navigating two distinct applications processes. A single channel covering both Excon contraventions and tax defaults would be preferable. Potential applicants also view the combined effect of the Excon levy (20 – 25% levy range) plus back taxes (going back many years and even decades) as punitive since it could mean a wipe-out of 40%, or more, of the total off-shore capital. KPMG’s discussions with Swiss banks show that the SA approach is probably quite expensive compared to other countries’ VDP regimes. That could explain the limited uptake and the paltry R705m in back taxes yielded thus far by the VDP. Hence, a redesign of the local regularisation offering might be called for;

  • Potential applicants have furthermore indicated concerns about information confidentiality. There appears to be concerns about the risk of extortion, kidnapping, violent robbery, data leaks, etc. Although both SARS and SARB have stringent statutory obligations relating to information confidentiality, perceptions that regularisation might be risky could well deter potential big-ticket applicants from coming clean;

  • There are misgivings about a name-and-shame approach where identities, off-shore assets and undeclared income are splashed across newspaper front pages. International precedent shows that discreet, administratively straight-forward VDP regimes with a single once-off levy on the total off-shore assets (and where the bank plays an active facilitation role) are more successful. As soon as applicants face forced repatriation, the threat of criminal prosecution, discretionary relief and complex rules, they tend to try and find alternatives – and unscrupulous advisers to assist.

The spotlight is currently focussed on the HSBC accountholders. It will, however, soon move to other banks, in Switzerland and further afield.

It is in the interest of all stakeholders that the South African “come clean” is optimised – yet there is a lot to be learned from international experience to make it a win-win for all concerned.

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