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Deadline for banks to submit third-party data to SARS has come and gone

Monday, 05 June 2017   (0 Comments)
Posted by: Author: Amanda Visser
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Author: Amanda Visser

The deadline for financial institutions to submit third-party data to the South African Revenue Service (SARS) has come and gone.

This is an international requirement that could ultimately affect the fees South African consumers of financial products pay.

Banks, long-term insurers, asset managers and others had to exchange financial account information in terms of the common reporting standard (CRS) for the first time in 2017. The deadline to do so was May 31.

The common reporting standard was developed by the Organisation for Economic Co-Operation and Development (OECD) and endorsed by the Group of 20 (G-20) finance ministers.

It is the global standard for the automatic exchange of financial account information. The intention is to facilitate greater tax transparency, help tax authorities tackle base erosion, profit shifting (mainly by multinational companies) and tax evasion, and improve tax compliance.

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Anne Casey, chair of the international tax committee of the South African Institute of Tax Professionals (Sait), says agreements for the automatic exchange of information between revenue authorities enable them to better manage or improve the flow of information between jurisdictions.

She says SARS indicated that it had committed to signing exchange of information agreements with revenue authorities of more than 50 jurisdictions by September 2017.

This number could increase to 100 by September 2018.

"As the network of exchange of information agreements widens, there would be an increased risk of exposure for companies and individuals with aggressively structured transactions to shift profits or enter into transactions which lack substance," says Casey, who is also an international tax director at Deloitte.

"Inevitably we believe this will encourage companies and executive management to change their behaviour around compliance in cross-border transactions," she says.

Casey says revenue authorities are also introducing additional information requirements in various areas.

SARS is already requesting additional information under the transfer pricing provisions. This was introduced during the course of 2016.

The newly introduced common reporting standard is broader than the existing reporting requirements in terms of the US Foreign Account Tax Compliance Act (FATCA).

"The common reporting standard requires financial institutions to report on their foreign customer base, not limited to US customers as was the case with FATCA."

But Casey says the reporting requirements are broadly similar and in future financial institutions will have to submit to SARS one combined file for the Foreign Account Tax Compliance Act and the common reporting standard each year.

"Financial institutions must therefore have the information and system capability to identify nonresident customers, and not just US customers, in order to comply with CRS," says Casey.

Marelize Loftie-Eaton, head of external tax reporting at FirstRand Bank, earlier noted that major South African banks would report on at least 500,000 clients for the US tax compliance act and the common reporting standard.

Loftie-Eaton says implementation challenges relating to the new reporting standard include the higher volumes of financial accounts that have to be reported.

"You have the complexity that not all countries issue a taxpayer identification number, and the bulk of the clients do not understand what tax residency means."

She says most of SA’s neighbours do not issue taxpayer identification numbers, despite the fact that many people banking in SA are actually tax resident in our neighbouring countries. "This has an impact on migrant workers who have South African bank accounts."

Banks already have to implement the "know your customer" process of a business, identifying and verifying the identity of its clients. The due-diligence requirements of the US act and the common reporting standard are more detailed, especially for companies, she says.

SAIT CEO Keith Engel says that although the various tax and financial regulatory standards on banks and financial institutions are well intended, these compliance requirements are becoming burdensome.

"These companies are spending increasing amounts on electronic systems and personnel just to comply. Small differences in country rules — such as address and other identification validations — create further problems," says Engel.

With each new account there must be a valid "self-certification", from March 1 2016. A self-certification is a declaration by the client of their tax residency.

According to Loftie-Eaton, there are system and process changes that affect all channels in the bank — from frontline training to process changes.

These changes are time consuming, resource intensive and costly.

"It is also not a one-off exercise as due diligence must be done whenever there is a change in a customer’s status or for opening all additional accounts," she says.

Engel says these costs will ultimately result in higher financial fees for consumers.

Unfortunately for SA, the small size of the economy requires our institutions to be trend followers rather than trend setters, he says.

This article first appeared on



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