By Sibusiso Thungo: SAIPA Tax Specialist
This opportunity permits South African taxpayers to disclose information relating to their offshore assets to the South African revenue and financial authorities before such information becomes known to the South African authorities via the international exchange of information, thereby benefitting from the tax relief offered by the Special Voluntary Disclosure Programme (SVDP).
Failure to promptly disclose foreign-held assets could result in colossal penalties since any asset held abroad and for which information was obtained via the international exchange of information will not be a candidate for the SVDP.
Both SARS and the South African Reserve Bank (SARB) who will jointly evaluate SVDP applications.
This SVDP operates simultaneously with the existing permanent Voluntary Disclosure Programme (VDP) of SARS which does not only refer to offshore assets and offshore income.
Who can apply for SVDP?
The following taxpayers may apply for the SVDP:
- Individuals and companies:
- Settlors, donors, deceased estates or beneficiaries of foreign discretionary trusts may participate if they elect to have the trust’s offshore assets and income deemed to be held by and accrued to them.
- Taxpayers who disposed of any foreign assets prior to March 2010 may also apply for relief under the SVDP. Special deeming provisions will apply in this regard.
The following taxpayers may not apply for the SVDP:
- Persons who have been given notice of the commencement of an audit or criminal investigation in respect of foreign assets or foreign taxes may not apply.
- Where SARS has obtained the information under the terms of any international exchange of information procedure.
- Disclosure where it is argued that all or part of the seed money/subsequent deposits/funding of foreign assets are not taxable in South Africa or have already been taxed in South Africa. The normal VDP channel remains open for disclosures of this nature
As the SVDP operates in conjunction with the South African Reserve Bank and SARS, no subsequent disclosures would require to be made to the Reserve Bank if the disclosure has been made via SVDP to SARS. In addition it must be understood that any Regularisation outside the SVDP channel will still be available for its use.
A qualifying taxpayers that needs to apply only for tax relief, must complete the VDP application form (VDP01).
For exchange control relief, A SVDP01 form must be completed. In an event the application is for both tax relief and exchange control relief, then both forms must be completed. Both forms are available on SARS e-filling.
In addition section 227 of the Tax administration Act provides requirements that must be met in order for the SVDP application to be considered valid.
The disclosure must:
- Be voluntary
- Involve a default which has not occurred within five of the disclosure of a similar default by the applicant
- Must be full and complete in all material respects
- Taxpayer must have behaved in a manner classified as `substantially understated income, `took no reasonable care in completing a return, `grossly negligent’ or `intentionally evaded tax’
- Shall not result in a refund due by SARS
- Be made in the prescribed form and manner
Each application must be accompanied by relevant supporting documents in order to enable SARS to determine the correct Tax amount.
- Values of the asset(s) must be completed in a table format and submitted together with the VDP01 application form. Where the applicant is unable to establish the amount with certainty, SARS may agree to accept a reasonable estimate of that value from the taxpayer.
- Documentation in evidence of the existence of the foreign asset (e.g. bank account details, property registration papers);
- Confirmation of the date on which the asset was acquired (e.g. letter from the bank in case of a bank account, shareholder certificates, and property registration papers);
- Nature of the applicant’s connection to the asset (e.g. owner, director, shareholder, beneficiary);
- A description of the structure that was utilised to establish or acquire the foreign asset;
- Power of attorney in an event the application is submitted by someone on behalf of the defaulter.
What tax relief is offered if the SVDP application is successful?
- The undeclared income that originally gave rise to the foreign asset will be exempt from income tax, donations tax and estate duty liabilities arising in the past.
- Only 40% of the highest value of the aggregate of all assets situated outside South Africa between (or deemed to be between) 1 March 2010 and 28 February 2015 that were derived from undeclared income will be included in taxable income and subject to tax in South Africa in the 2015 tax period.
- Investment earnings & other taxable events prior to 1 March 2015 will be exempt from tax
- Interest on tax debts arising from the disclosure only commence from the 2015 year of assessment
- No understatement penalties will be levied
- 100% relief of an administrative non-compliance penalty that was/may be imposed excluding a penalty imposed for the late submission of a return.
- SARS will not pursue criminal charges for the tax offence arising from the disclosure.
For additional information, please click on the following link!
Lately SAIPA TAX department has been receiving a number of queries relating to SVDP from various tax practitioners. Please find some of the frequent asked questions.
1. What happens when an amount that is exempt for tax purposes under SVDP laws is received or accrued as inherence or donation?
SAIPA Answer: The SVDP legislation is very clear when it comes to exempt income received as donation or inheritance. Such amounts must be exempted from estate duty (if received as inheritance) and also must be exempted for donation tax (if received as donation) in the hands of the estate or the donor. This simply mean in an event the relief application is based on the offshore assets held by a deceased representative on which the estate duty was not paid , the liable estate duty that should have been paid will fall away.
2. What happens in an event of an asset donated to a foreign trust and the respective Donation Tax was not paid and the donor elected to treat the assets that belong to foreign trust as his?
The applicable donations tax will effectively be waived in an event the donor makes use of the election available under the SVDP legislation to treat the assets that belong to the foreign trust as belonging to them for income tax and estate duty purposes.
3. My client has shares that were given as donation by Foreign entities to the value of $ 2000 000, these were never declared to any authority in South Africa. Can we apply for SVDP?
Yes your client may apply for SVDP, your client failed to notify the reserve bank of the shares held or received as donation from the foreign entity. Thus it can be concluded that these shares are held illegally.
4. What will happen to application submitted prior to 1 October 2016 and to applications submit after 31 August 2017?
Applications submitted prior to 1 October 2016 or after 31 August 2017 will be processed under the normal VDP rules, thus the SVDP rules cannot be applied.