We are now officially into the into the 2016/17 amnesty application period, or the Special Voluntary Disclosure Program (SVDP) as the authorities prefer to name it. This SVDP is open to South African resident individuals and companies. Settlors, donors and beneficiaries of foreign discretionary trusts may elect to apply in their individual capacities. The South African Revenue Service (SARS) and the South African Reserve Bank (SARB) have established a joint application process utilizing SARS’s eFiling website. The time period for applying for the SVDP has been lengthened to 30 June 2017, and the tax penalty inclusion rate has been reduced from 50% to 40%.
There has been clarity in respect of the exchange control aspects of the amnesty for some time now. If applicants wish to retain the assets offshore, a penalty of 10% on the value of the assets as at 29 February 2016 will apply. If applicants elect to remit the assets back to South Africa, a penalty of only 5% is payable. These penalties must be paid out of the offshore funds, if lack of liquidity makes this a problem, then a further 2% penalty is payable. Excon regulations are complex and defining whether or not one is in contravention of these regulations can be a tricky affair. All South African banks act as agents of the SARB and are responsible for implementing Excon regulations. If you are uncertain as to whether or not you are in contravention of these Excon regulations, rather be safe than sorry, and approach your bank for some clarity on the matter.
There has been anything but clarity in respect the tax side of the SVDP. The tax regulations around the SVDP have still not as yet been promulgated as law and all tax applications made will be held on ice by the tax SVDP unit. To apply for the tax SVDP one must obtain details of the capital value of the assets that are in contravention of the Income Tax Act. These values need to be obtained for the 5-year period, March 2010 through to February 2015. The “high-water” mark, i.e. the highest value of these assets over this period, is then determined and 40% of this “high-water” mark value will be added to a taxpayer’s taxable income in respect of the 2015 tax year. The manner and method of determining this tax exposure is made more complex with foreign currencies and varying exchange rates. Once again, potential applicants are urged to take advice from professionals. It goes without saying that the income and capital gains resulting from these SVDP assets would then be declared in future tax years.
The SVDP effects are best illustrated by way of an example, assuming the “high-water” mark value is R1m, then R400,000 will be added to an individual’s taxable income and taxed at 40% in the 2015 assessment. This would result in tax of R160,000 being paid, or an effective tax SVDP penalty of 16%. One assumes that the applicant would be on the highest tax bracket. Let’s take our example one step further and assume that the assets in our above example were also in contravention of Excon regulations and that the offender wished to retain the assets offshore, and that the asset value on 29 February 2016 was also R1m. Then an Econ SVDP penalty of 10% would be paid in addition to the effective tax penalty of 16%. This would result on total SVDP penalties of R260,000 or 26% being paid. Internationally penalties in respect of these types amnesties of between 20% and 25%, have traditionally been the norm. This current SVDP offering is therefore at the top end of the scale.
However, transgressors are caught between a rock and a hard place. With the impending world-wide implementation of the automatic exchange of information between governments, details of offshore assets are going to become freely known to both SARS and SARB. Should offenders then be caught, the penalties levied would be far more onerous and there is also the option of criminal prosecution. This is literally the last chance saloon for offenders to get their affairs in order.