By Robert Gad and Alexa Muller

During February National Treasury announced a Special Voluntary Disclosure Programme (the SVDP), which is to apply for a limited window period from 1 October 2016 to 31 March 2017 in order to provide an opportunity for qualifying non-compliant persons to regularise their tax and exchange control affairs as relates to offshore assets and income.

All SVDP applications are to be submitted after the commencement date of the SVDP (online via the South African Revenue Service (Sars) e-filing website or at any Sars branch) to the SVDP unit, which will be jointly operated by Sars and the Financial Surveillance Department of the South African Reserve Bank (the FSD).

The tax SVDP

In accordance with the most recent version of the draft tax legislation dated 19 July (the draft legislation) an application in terms of the tax SVDP must be made under and subject to the requirements of the permanent voluntary disclosure programme (the permanent tax VDP) as contemplated in the Tax Administration Act 28 of 2011 (the Act). A tax SVDP application may not be made by or on behalf of a trust, although a trust may qualify under the permanent tax VDP. (There are specific rules for trusts in the tax SVDP discussed below). In addition, no tax SVDP application may be made in respect of an asset that has been disclosed to Sars in terms of an international tax agreement, or in respect of applicants who are under actual or pending audit or investigation into these matters.

The SVDP is focussed on offshore assets held by a person during the period 1 March 2010 to 28 February 2015, which assets were wholly or partly derived from amounts not declared to Sars for income tax or estate duty purposes (undeclared assets).

The relief provided in the tax SVDP would be available to a successful applicant in addition to the voluntary disclosure relief currently available in terms of the permanent tax VDP. Accordingly, in terms of the draft legislation read with the Act, a successful tax SVDP applicant would be entitled to the following relief:

Should an applicant qualify for tax SVDP relief, there will be included in his or her taxable income for the first year of assessment ending on or after 1 March 2014, an amount equal to 50% of the highest market value in aggregate of all undeclared assets as at the end of each year of assessment ending between 1 March 2010 and 28 February 2015.

Applicants who have disposed of undeclared assets, may elect to be deemed to have held such assets during such period, but at the market value while the assets were actually held (or a reasonable estimate thereof).

The draft legislation provides that an applicant who is a donor (or deceased estate thereof) or beneficiary of an offshore discretionary trust may in certain circumstances elect that the assets, which such trust held during the period 1 March 2010 to 28 February 2015 be deemed to be held by the applicant for all tax purposes, in order for such assets to fall within the ambit of the tax SVDP, to overcome the exclusion of trusts from relief.

The exchange control SVDP (excon SVDP)

Information pertaining to the excon SVDP was released in terms of Exchange Control Circular No 6/2016 on 13 July 2016 (the circular) (www.resbank.co.za, accessed 27-7-2016). The circular indicates that the FSD would be entitled to grant administrative relief in terms of reg 24 of the Exchange Control Regulations of 1961 to successful applicants who submit excon SVDP applications in respect of unauthorised foreign assets in accordance with the specifications and requirements set out in the circular. Excon SVDP applications will not be entertained prior to the official commencement date of the SVDP (indicated as 1 October 2016) and any party involved in a matter currently under investigation by the FSD will not qualify for relief in terms of the SVDP.

The circular provides that a South African resident who is the donor in relation to a non-resident discretionary trust, may in certain circumstances elect that any foreign asset which was held by the discretionary trust on 29 February 2016 be deemed to be held by that resident for purposes of the SVDP. The relevant date on which the trust held the asset for purposes of exercising the election in terms of the excon SVDP (29 February 2016) differs from the date during which the trust should have held the assets in order for an applicant to exercise the election for purposes of the tax SVDP (1 March 2010 to 28 February 2015 – as indicated above).

An applicant who successfully applies for the regularisation of unauthorised offshore assets in terms of the excon SVDP will be required to pay a levy based on the market value of such assets as at 29 February 2016 as follows:

• A levy of 5% will be payable on the value of unauthorised foreign assets or the sale proceeds thereof if such assets are repatriated to South Africa. Such levy must be paid from foreign-sourced funds.
• A levy of 10% will be payable on the value of unauthorised assets if such assets are retained abroad. The 10% levy must be paid from foreign sourced funds, failing which the levy will be increased to 12%.

Applicants will not be allowed to deduct any exchange control allowance from any leviable amount and the levy may not be reduced by any fees or commissions (for example, fees incurred in order to sell the relevant asset and repatriate same to South Africa).

It will remain possible for persons to approach the FSD on a voluntary basis outside of the excon SVDP regime to regularise their affairs. A settlement amount ranging from 10% to 40% of the market value of the unauthorised assets may then be levied.

Should a person be in default as to their tax and/or exchange control affairs and not opt to regularise same in terms of the SVDP regime, the permanent tax VDP, or voluntary approach to the FSD outside of the excon SVDP,  the consequences could be severe. In addition to criminal prosecution, inter alia, understatement penalties of up to 200% of any tax default may be leviable in terms of the Act and exchange control levies of up to 100% of the market value of unauthorised offshore assets may be levied by the FSD.

At the time of writing this article, the draft legislation was open for public comment until 8 August.

• The 2016 Tax Indaba takes place on 5 to 9 September at Vodaworld Conference Centre in Johannesburg. Visit www.taxindaba.co.za for more.

Robert Gad BA LLB LLM (UCT) Post Grad Dip in Tax (UCT) and Alexa Muller BCom LLB (Stell) H Dip in Tax are attorneys at ENS Africa in Cape Town. Mr Gad is also the Chairperson of the LSSA Tax and Exchange Control Committee.

This article was first published in De Rebus in 2016 (Sept) DR 20.