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Hugo van Zyl: cross border tax exchange control
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With more than 20 years of experience in accounting and auditing, today Hugo is an international tax, cross-border trade and financial migration adviser, focusing not only on individual migrants but also corporate clients whilst he also assists small and medium-sized tax accountants (where ever in the world) with tax treaty issues, capital gains tax on emigration and their tax advise tot heir expat South African clients.

 

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Has Uncle Sam Gone Mad? FATCA, BRS, AEOI And Other Strange Words Pouring Into South Africa

Posted By Hugo van Zyl, Wednesday, 28 May 2014
Updated: Wednesday, 28 May 2014

First published on: http://taxconnections.com/taxblog/author/hugo-van-zyl/

Has Uncle Sam Gone Mad? FATCA, BRS, AEOI And Other Strange Words Pouring Into South Africa

In South Africa, the South African Revenue Service (SARS the local equivalent of the IRS) has just issued a draft public notice for comment and it refers to strange new terminology, not always correctly understood by the non-American resident.

Most US expats and failed SA expats returning from the USA with a green card in the back pocket, are all facing being caught red handed. Yes, for many years SARS was not the best of gossip queen in the OECD. The cam the Krok case and SARS received some interesting info from the ATO. Not only did SARS wake up to the word FOUNDATION they also saw the benefit of acting in “cohort” with another tax authority.

Suddenly the effort to make FATCA happen for FFI’s in South Africa, became an interesting source gathering exercise. Someone whispered in their ear that a green card holder probably has a USA and other bank accounts he did not report on his return to SARS!

Forced FATCA compliance could lead to a win-win situation for SARS and it’s tax treaty partners.

Suddenly, despite FATCA delays in the USA we see FATCA speed race to compliance. On the SARS new issue page they promise a full seven-day period to publicly comment, but for FATCA they published a draft today (27th of May) for comment no later than 30 May 2014. Three days no equals a week?

Note: SARS read the original blog: Today the SARS web was updated to read: Note that the time for comments is extended to 6 June 2014

Now for any informed SA tax adviser the last business day of May is a nightmare, as all payroll tax reconciliations needs to be filed as the employee’s tax filing season will start mid June early July. It also the day most VAT vendors needs to report their two monthly VATable sales using the brand new PAN form bounced in us on May the 24th!

Did SARS really expect meaningful replies? Oh, I see! Perhaps they did this to slip through the record keeping standards without most of us noticing?

Not really! See SARS has run the BRS (Modernised 3rd Party Reporting Platform) for some time now and most if not all the FATCA requirements, were already contained in the local requirements.

All this said and done, before one can read and try to understand all the new jargon and rules, there is a need for a cheat sheet listing the real meaning of the unknown acronym.

The latest buzz word that entered SA tax law is BRS:AEOI which is supposed to mean?

There is so many new tax acronyms, one can’t be blamed for not always knowing the full phrase behind the tax acronym.

To guide you, we add a few new once, all from an SA perspective yet they are all well-known international acronyms or abbreviations. Below is a short list some of the more widely used acronyms relevant to FATCA reporting from South Africa. Yes, probably a boring read for a US tax adviser!

Here they are, but it is not an exhaustive list:

AEOI – Automatic Exchange of Information aka AEFAI as per SARS press release on BRS

AEFAI – Automatic Exchange of Financial Account Information

ATO – Australian Tax Office www.ato.gov.au

BRS – Business Requirement Specification or Direct Data Flow Channel Guide aka SARS Modernised 3rd Party Reporting platform, used to report inter alia PAYE, VAT, Investment Income (IT3′s).

CRA – Canadian Revenue Authority – http://www.cra-arc.gc.ca/menu-eng.html

eFile - the South African online tax filing portal www.sarsefiling.co.za

Excon – Exchange Control aka FinSurv- SA monetary laws administered by SARB

FATCA – Foreign Account Tax Compliance Act – FFI and other tax offices dotted over the word reports on you to the IRS. An USA Act see http://www.irs.gov/Businesses/Corporations/Foreign-Account-Tax-Compliance-Act-FATCA

FBAR – Report on Foreign Bank Account reporting – you tell IRS

FFI – foreign (non-US) financial institutions – FATCA terminology compare with USFI or FI that is USA based

FinSurv – Financial Surveillance, previously known as Control or SARB’s Exchange Control watchdog

HMRC – Her Majesty’s Revenue & Customs – UK tax office http://www.hmrc.gov.uk

IGA – Model 1 and Model 2 intergovernmental agreements (IGA) or FATCA agreement between IRS and SA on the AEOI process using the BRS designed and implemented in the various IGA jurisdictions

IRD – Inland Revenue – New Zealand aka Māori as Te Tari Taake

IRS – Inland Revenue Services in the USA www.irs.gov

MTP (SA) – Master Tax Practitioner in SA – the Who’s Who in SA tax environment

PAN - no, this one was born in Africa! An old fashioned remittance advice adapted to cater for EFT’s transferred to SARS as well as cash over the counter payments.

PR – Tax practitioner registered with SARS

SARB – South African Reserve Bank, equal to the Central Bank in international terms www.resbank.co.za

SARS – South African Revenue Service – www.sars.gov.za

TAA Tax Administration Act - South African Act dealing with C:SARS rights to administer tax acts

USFI – U.S. financial institutions the internal US hold Co aka as lead FI reporting for all FFI’s in the FI Group

Can one call the list a complete list of tax acronyms? Most certainly not, South Africa has only commenced the FATCA journey.

This list is work in progress, dictated by Uncle Sam’s need to monitor delinquent taxpayer, now clearly supported by SARS and other IGA’s.

In closing, IGA’s is such a loaded term. In our home language when child plays in the sand pit and tries to pick up a spider, the instruction given to indicate bad, be careful associate with pain is “ga-gas”, a very guttural g followed by another. Said quickly IGA’s reminds one of your mother pointing a finger, shaking her head from left to right, saying “ga-gas” or in English, drop it, danger, not what you think it is, it can bite and sting.

The bite and the sting and all the other painful consequences will not be fully understood nor appreciated for some time.

How long before we see the true benefits? My USA tax adviser answered: How long is a piece of string will be known the day the Republicans and the Democrats agree and publish a mutually acceptable target tax rate now that all and sundry is paying all their taxes to the same IRS.

I was tempted to ask him if there is any hope the USA will one day be governed by a political party known as the Taxpayer Party. Then I realised, FATCA is not to be mistaken as an invite to a tea party delivered at the IRS HQ!

In accordance with Circular 230 Disclosure

Hugo is a Chartered Accountant (South Africa) registered with The SA Institute of Tax Practitioners and SARS as a Master Tax Practitioner. He is in daily contact with expat South Africans (aka SAFFAS or Wegkaners) where ever they live and has lectured from LA to London and although many clients now reside in Australasia, Hugo has never visited either Australia nor NZ. Bucket List I hear you say. Hugo is also a Trust and Estate Practitioner (STEP). Cross border taxation and Exchange Control are both high on his priority, be it for emigrants, immigrants or multi-nationals.

Tags:  ATO  Australia  BSR  Expats  FATCA  FBAR  IRS  non-residents  SARS. AEOI 

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SA Expats suddenly awakens to lost opportunity - transfer property out of trust

Posted By Hugo van Zyl, Monday, 03 December 2012

Why is the current concession to transfer residential properties from trusts to natural persons so critically important to tax non-resident expats living in Australia?

Should the trust be dissolved and the asset be vested or sold to a third party, the CGT gain will be taxed at 26.6% in the trust as no CGT attribution to tax non-resident passport holders will be allowed. Yes there is a long debate as to the validity of Para 80(1) taking into account the anti-discriminatory clauses in the double tax treaty.

Fact is SARS will not allow us to vest and conduit either the CGT on the property vested or the gain vested, where the taxpayer is resident in another country.

The concession to transfer residential property having been used as residential property i.e. holiday home may be transferred to tax non-resident and the CGT Base Cost roll over and the deferral of the CGT event is not limited to SA tax residents.

There is little time left but herewith the extract from the SARS Comprehensive CGT Guide issue 4

No Attribution To Non-Resident Beneficiaries

If a trustee vests an asset in a non-resident beneficiary, any resulting capital gain will remain in the trust, unless attributed to a resident donor under Paras 68 to 72. Paragraph 80(1) provides no mechanism for attributing a capital gain to a non-resident beneficiary (see 14.11.4).

However, once vesting of the asset has taken place any further gain or loss arising on disposal of the vested asset must be accounted for by the beneficiary, whether resident or non-resident. In the case of non-resident beneficiaries, capital gains and losses will not arise after vesting unless the asset is immovable property in South Africa or an asset of a PE in South Africa [para 2(1)(b)].

The latter clause as quoted above is critically important as the non-resident owner may now face CGT withholding taxes where the market value is in excess of R2m. Considering the flat 26.6% CGT charge in the trust vs. the ultimate 18% CGT in Australia (18% on the gain since tax immigration to Australia reduced by the 13.3% on SA defined post 2001 CGT growth, which equated to near 9% CGT saving) it not difficult to understand why Australians are suddenly waking up to a near lost opportunity.

Need more guidance? Feel free to make contact hugovz@iafrica.com

Tags:  ATO  Australia  CGT  concession  non-residents  residential property  rollover  roll-over  SARS  trust 

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