Navigating the Voluntary Disclosure Programme
17 January 2011
Posted by: Author: Ettiene Retief
Navigating the Voluntary Disclosure Programme
Taxes fund the activities of government, as well as the activities that are necessary and beneficial to society.The pool of contributing taxpayers is far smaller than the population base that demands security, education, healthcare, grants, transport, infrastructure, and public order from its government. So, it’s important that all pay their taxes when due.Oliver Wendell Holmes Jnr said it best: "Taxes are the price of civilization".South Africa has introduced a Voluntary Disclosure Programme (VDP), which will afford taxpayers the opportunity to regularise past transgressions of tax statutes and exchange control regulations.During August 2010 the Voluntary Disclosure Programme and Taxation Laws Second Amendment Bill, which details how the VDP will operate, was introduced to parliament. Also, the Exchange Control Department of the South African Reserve Bank has released its Exchange Control Voluntary Disclosure Programme and amendment to the Exchange Control Regulations of 1961 (included as Regulation 24).
This is not the first time South Africa has used an amnesty to allow taxpayers to come clean. It should be noted that the VDP is not an amnesty for taxes as the tax liability will remain payable.The intended relief is against prosecution, additional taxes, penalties, and interest. However, the VDP for exchange control appears to simulate an amnesty, since the applicant will not be prosecuted, assets will not be forfeited, and only a nominal levy will be payable.The VDP has a wide scope that also includes companies and not merely individuals, which applies to all taxes administered by the Commissioner (SARS). It is intended that the VDP will be available from 1 November 2010 to 31 October 2011. At the time of writing this article the required legislation had not yet been signed into law and published in the Government Gazette.
Generally, any person who has had a prior trans gression of the tax statutes or defaulted in their tax obligations may apply for the relief, except where that person is aware of a pending SARS audit or enforcement action against them, or an audit or investigation which had commenced but has not yet been concluded.However, SARS may entertain an application where the relevant default would most likely not otherwise have been detected during the audit or investigation conducted by SARS.
The requirements for a valid voluntary tax disclosure are as follows:
• There must be a voluntary, full and complete disclosure in all material respects.
• There must be a default, including: - The submission of incorrect information on a return; - Failure to submit information on a return; or - The adoption of an incorrect tax position; - Which resulted in there being an incorrectly assessed or amount of tax being paid, or an unjustified refund being made by SARS• A penalty or additional tax would have been imposed had SARS discovered the default.
• The disclosure cannot result in a refund due to SARS.
• The disclosure must be made during the prescribed VDP period.
• The default should have occurred prior to 17 February 2010.Full disclosure of the default must be made, which may be quite onerous. Failing which, SARS may set aside the VDP relief and pursue investigations, prosecution, additional taxes, interest and penalties. Provision has been made to allow a taxpayer to make a ‘no-name voluntary disclosure’ on the basis that the Commissioner could issue a non-binding private opinion to determine whether or not the taxpayer qualifies for relief in terms of the VDP. A valid disclosure will result in an exemption from criminal prosecution, waiver of relevant penalties, additional taxes, and relief from interest. The relief provided for in terms of the VDP must be evidenced by a written agreement between SARS and the taxpayer. Following the written agreement, SARS will issue an assessment to give effect to that agreement, which will not be subject to objection or appeal.
The VDP provisions, unlike the 2003 tax and exchange amnesty, fails to grant relief, amnesty, or confidentiality to facilitators, accountants, auditors, advisors, or consultants. It appears that legal privilege will be retained with regards to consultation with an attorney. Some tax advisors, such as auditors, may have reporting obligations in terms of the Financial Intelligence Centre Act. It’s very important that a prospective applicant seeks proper advice before pursuing an application and disclosing. In many scenarios the donations tax, capital gains tax, or estate duties that follow after the VDP may be considerable, especially considering the back-taxes and fees that will be due based on the VDP.
With regards to VDP for exchange control, natural persons and corporate entities who have contravened the provisions of the exchange regulations will be able, by disclosure to Exchange Control through an authorised dealer, to regularise the contravention(s). The relevant Regulation 24 provides that an affidavit or solemn declaration in regard the contravention will be required. All disclosures and applications must be made before 31 October 2011.
The VDP for exchange control allows for:
• Disclosures and declarations that will not attract a levy;
• Administrative relief for loop structures and donors to discretionary trusts;
• General administrative relief.The levy payable by qualifying residents, based on funds held abroad being remitted, is an amount of 10% of the market value of the unauthorised foreign asset, disclosed as at 28 February 2010. In the event that the qualifying resident does not have offshore funds available to pay the required levy, a local Rand payment will be allowed subject to an additional 2% levy. However, where a qualifying resident has exited their funds in contravention of the Regulations and therefore has no foreign assets, a levy of 12% on the amount exited in contravention will be due.
Tax consultants wishing to assist clients with their VDP applications should take great care in understanding the risks, disclosure requirements, and perform a proper review of the relevant taxing provisions and liabilities.The tax compliance requirements for the period after 17 February 2010 must considered as you don’t want to cause an audit or investigation to be initiated prior to filing application for VDP, based on disclosure and taxes paid after that date.
Source: By Ettiene Retief, Chairman of Tax Committee, SAIPA (Tax Professional)