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Voluntary Disclosure Relief – update

Voluntary Disclosure Relief (‘VDP”)– Update 12 November 2010

 The second round of relief for those deliberately falling outside the South African tax and or Exchange Control net is now in full swing and started on 1 November 2010 and will close on the 31st of October next year.

 The South African Reserve Bank (“SARB”) promulgated Regulation 24 setting out their criteria, and more information appears on the SARB website – www.reservebank.co.za

 Likewise, the 2010 Second Taxation Laws Amendment Bill (“2TLAB”) was enacted on 5 November 2010 which gives effect to the SARS portion of the VDP. More information is also available on the SARS website – www.sars.gov.za.

 There are many similarities with the 2003/4 Income Tax and Exchange Control Amnesty offered to non compliant taxpayers and those who were in breach of the Exchange Control Regulations.

 One major distinguishing factor from the 2003/4 Amnesty, is the fact that SARB and SARS have now issued their respective legislation separately.

 The following table compares the proposed VDP to the 2003/4 Amnesty and attempts to highlight the apparent main differences:

  2010 VDP 2004 Amnesty
Applicants Voluntary application (whether personally or being represented) by natural persons/deceased estates, corporates, and trusts (i.e. all taxpayers) Companies can therefore now also apply. Voluntary application by natural persons/closed corporations/deceased estate/trusts and facilitators. Companies were excluded.
Apply to Contraventions before 28 February 2010 for Exchange Control contraventions and 17 February 2010 for taxation. 28 February 2003
Period available From 1 November 2010 to 31 October 2011 From 1 June 2003 to 30 November 2003 (extended to 29 February 2004
Aspects covered Taxation and/or Exchange Control Taxation and Exchange Control
Relief No tax relief is given, however interest and penalties are waived. A penalty for Exchange Control breaches will be levied, but no further Exchange Control action will be taken. Relief was given on all interest and Exchange control penalties applicable prior to 28 February 2003 and all taxes due prior to 1 March 2002.
Excon Levies 10% on market value of unauthorized offshore assets held abroad as at 28 February 2010, A person who has not fully utilized his R4million offshore allowance as at 28 February 2010 may apply this unused portion as a credit when determining the levy. NB: The levy must be introduced from assets held offshore. If levy can not be paid from abroad a 12% levy will be payable from local funds.

  • Loop Structures must be unwound within 180 days of application and 10% levy payable on
    • Transaction Funds,
    • Transaction Establishment funds, and
    • Transaction Growth Funds
  • 10% levy payable on donations made to foreign discretionary Trusts where election is made by donor that foreign assets are deemed to be held by the resident.
  • No levies applicable to Foreign inheritances prior to 1998 -03-17, or
  • Foreign earned income prior to 1997-07-01, or
  • Unauthorized foreign loans raised.

The 5% levy option as per the 2004 Amnesty is not available.
  • Funds retained abroad – Tax and Exchange control levy of 10%, plus 2 % domestic tax levy if funds were donated to offshore trust
  • Tax and Exchange Control Levy of 5% if funds were repatriated to SA. Any unused amount of the Foreign investment allowance at the time (R750,000) could be used as a credit when determining the levy due.
Qualifying Criteria Application:-

  • Must be voluntary, and
  • The taxpayer must “generally” be unaware of an audit or investigation (SARS and Treasury), but special rules will apply where one (SARS and/or Treasury) is in progress e.g. only 50% interest relief),
  • Must make full disclosure of default made within the relevant period,
  • SARS/Treasury must be unaware of the default, and
  • A penalty or additional tax would have been imposed as a result of the default.

 

 Applicant:-

  • Had to make full disclosure as per the Amnesty Act (within the relevant period) of market values of assets held as at 28 February 2003 which were in contravention of tax and Exchange Control,
  • was not subject to an audit or investigation as prior to the Amnesty application documents being submitted.

 
Domestic Tax Levy differences 2% additional payment if local funds are used to pay the applicable Levy. This differs vastly from the 2003/4 Amnesty provisions and as a result, donations tax will still be applicable where assets were donated to a foreign trust. It is important to note that the VDP does not absolve the taxpayer from previous taxes due and in such instances the taxpayer may have an additional liability of up to 20% in lieu of past donations tax due. Additional 2% Levy paid as a result of a donation made to a foreign trust. The result was that SA donations tax was not payable.
Non Binding View Taxpayers or their representatives may approach SARS/Treasury on a no name basis to obtain a non binding view on whether they would qualify for relief under the VDP. This option was not available in the 2004 Amnesty.