South Africa – the voluntary disclosure programme
It is a common pre-immigration planning technique for an individual moving from one country to another to set up a trust arrangement prior to their arrival in the target jurisdiction. Many British and German citizens (who comprise the largest number of non-African emigres) will have created such structures before relocating to South Africa, often more than 20 years ago. These structures are now being brought to the attention of SARS as a result of the CRS (see above). Those individuals who are the settlor (economic or otherwise) of offshore trust / foundation arrangements and who have not previously disclosed their interest may receive enquiry letters. It may be the terms of the trust are such the settlor can’t benefit or that no taxable benefits have been taken (in which case there may be no issue). However, if there is any doubt that tax is payable on income and gains arising to the trust, or benefits have been received but not reported, then doing nothing isn’t an option.
Penalties range from 10% for understatement to 150% for intentional tax evasion. Lesser penalties are 100% for gross negligence, 50% for there being no reasonable grounds for the tax position taken, and 25% for reasonable care not being taken in the preparation of the tax return.
In many instances, as alluded to above, structures will have been established long before the CRS was a twinkle in the OECD’s eye. The question then is whether there is a statute of limitations the taxpayer can rely upon. The statute of limitations and understatement penalties are both covered by the Tax Administration Act No. 28 of 2011 (TAA) and whilst it came into force on 1 October 2012, can apply to tax matters going back to 1997. As regards the statute of limitations, s.99(1)(a) of the TAA provides that SARS may not raise a new assessment more than three years after the date of the assessment in relation to the relevant tax return. However, this can be ignored if SARS can prove that the failure to tax any amount was due to fraud, misrepresentation or non-disclosure of material facts. In many cases, this will mean that the statute of limitations is not applicable.
The Voluntary Disclosure Programme (VDP) is contained in ss.225 to 233 of the TAA. The benefits are not insignificant, namely that taxpayers who “come clean” avoid:
- understatement and other administrative penalties; and
Tax and interest cannot be avoided, but in the great scheme of things the above benefits are significant.