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HSBC: The fury mounts

20 August 2015   (0 Comments)
Posted by: Author: Fiona Forde
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Author: Fiona Forde (Financial Mail)

Those accused of illicitly stashing their wealth with HSBC’s Swiss arm at the expense of the SA Revenue Service (SARS) began receiving letters of demand this week.

SARS is one of the last tax agencies globally to begin hunting down possible tax evaders named in the infamous Swiss accounts leak over the past few years. The leak exposed the identity of more than 100 000 of the bank’s clients dating back to 2008. The local tax agency came into possession of the data only at the beginning of this year through what it says was the "international exchange of information” — years after its counterparts elsewhere.

More than 2000 South Africans held accounts with the Swiss arm of HSBC in 2008, the date at which the information was stolen by an erstwhile banker, Hervé Falciani. Between them, the South Africans held a collective R23bn at the time.

Falciani claimed many of the account holders were embroiled in a sophisticated tax evasion scam — aided by HSBC. He subsequently handed the information over to the French authorities in what was to become the biggest banking leak of all time.

Though it appears that many of the South Africans were entitled to have these accounts, and there’s no suggestion they did anything wrong, there appear to have been several cases where people used these secretive accounts to hide money from SARS.

SARS issued a statement in July, giving account holders until August 12 to contact them and come clean — or face a costly audit.

Just how many South Africans were guilty of evading tax is not clear, though the Financial Mail understands from earlier correspondence with the revenue collector that the majority of those named on the lists were not tax compliant.

Based on the 2008 HSBC figures and current tax and bank interest rates, if all of the account holders were filing their returns, SARS ought to have been better off by about R400m/year.

If most of them were not, then that’s a considerable sum yet to be raked in.

But as one wit put it, "SARS’ experience in relation to HSBC may well be like UK [tax collection] experience — namely that many of the accounts can be construed with virtue rather than vice.”

There are many South Africans on the HSBC lists who were domiciled overseas and not beholden to SARS. Others may have since died, closed their accounts or become compliant.

However, some tax experts are furious at the way SARS has handled the HSBC matter.

When it first got the files in January, SARS cross-checked them against its own database of registered taxpayers to see who might have been flouting the rules. Then in July, SARS issued a statement alerting possible offenders that its HSBC investigation was drawing to a close and said that anyone who hadn’t paid any outstanding taxes had until August 12 to contact the voluntary disclosure programme and do the right thing.

It all seemed very reasonable. That programme allows offenders to settle their tax bills without paying understatement or administrative penalties (which can range up to a prohibitive rate of 200%) or facing possible prosecution.

Still, those tax experts believe SARS was using scare tactics.

"It created the impression that it was all people with offshore accounts, and not just those on the HSBC list, who were being targeted by the August 12 deadline,” says Rupert Worsdale, a tax lawyer with the Maitland law firm.

"That was not the proper thing to do. It was an unfortunate attempt at scaremongering, made worse by an impossible deadline,” he says.

Worsdale says the ambiguous wording led others to believe the disclosure programme would be shutting its doors entirely — which is evidently not the case as it is open-ended by law and guided by legislation that cannot be overridden with a press statement. "It created a panic of sorts in the market,” adds Johan van der Walt, a tax expert at KPMG.

"And I would argue unnecessarily so. I’ve had many people contact me in the past few weeks frantic to sort out their affairs, and the time frame given was not sufficient for many of those people, and not all of them were HSBC account holders,” he says.

Van der Walt says he has also received calls from various Swiss banks wanting to know who is in the firing line.

Yet the SARS statement appears to have been clear that this related to the HSBC files only. When contacted by the Financial Mail to clarify this, SARS again confirmed that this was so.

However, some lawyers told the Financial Mail that when they contacted SARS for clarification, they were told in "emphatic” terms that the July statement was directed at "all” foreign account holders.

It is unclear how many South Africans have approached SARS to clear the slate. SARS says only that it has received many requests.

Worsdale and Van der Walt have also taken on several new clients as a result of the move.

But even if the impression was created that all offending offshore account holders were about to be targeted, is that such a bad thing if it meant those who were noncompliant would be forced to pay their dues?

Van der Walt believes it is.

He says citizens have to trust the system, and trust that they can approach the voluntary disclosure unit to declare their assets and negotiate a settlement. In fact it was Van der Walt who first came up with this idea when he worked at SARS, before joining the private sector.

"People, for a multitude of reasons, don’t trust the taxman. And it is common all over the world. Trust in the system is a pivotal element for any voluntary disclosure dispensation seeking to maximise uptake — this is evident from international experience,” he says.

Where SARS can withhold relief under that disclosure programme, or it requires people to repatriate offshore assets, or if people don’t trust that their information will be kept confidential, then people become reluctant to come clean. Then they start considering emigration, or other ways to put their assets firmly out of reach.

Van der Walt says this is why SARS communication should be unambiguous and transparent, "thereby instilling faith in potential applicants that they would be treated fairly”. In his view, SARS’ warning in July stopped short of this.

The fallout from the HSBC Swiss leaks has rippled across the world.

Stuart Gulliver, the CEO of HSBC, which is headquartered in London, has issued embarrassing apologies, admitting that "the standards to which we operate today were not universally in place in our Swiss operations eight years ago”.

In June, HSBC agreed to pay €38m to Geneva authorities — the largest sum prosecutors have ever seized.

HSBC is still facing more than 10 inquiries across the globe, and several legal challenges. SARS hasn’t ruled out taking similar action.

It is also unclear whether SARS co-ordinated its efforts with the exchange control division at the Reserve Bank or shared the information with it, which would make any of the offending bank account holders liable for even greater penalties.

The Bank has refused to comment in detail on the matter and offered its standard response: "Where the Reserve Bank becomes aware of possible contraventions, it is followed up in accordance with established policy based on existing legislation.”

• This work was supported by a Taco Kuiper Grant from the Valley Trust, administered by Wits Journalism

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Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.


The Act requires that a minimum academic and practical requirments be set to register with a controlling body. Click here for the minimum requirements of SAIT.

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