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Matthew Lester: Round 1 – Sanitising the offshore stash

The Panama Papers have open the door to what many people thought was a safe secret. The security of an offshore stash, and while some may have come to the cash illegally, many didn’t. But keeping it from the South African Revenue Service when the money is taken out of the country without anyone knowing changes the game.

And in good faith, SARS has implemented a voluntary disclosure programme, which they’ve now extended. But as tax guru Mattthew Lester says, don’t expect the same sympathy if you miss this deadline. Below he looks at the good and bad news with regards to the second offshore voluntary disclosure programme. – Stuart Lowman

By Matthew Lester*

The 2nd Offshore Amnesty (Oops Special Voluntary Disclosure Programme) starts on 1 October 2017 and will allow a throng of SA taxpayers to sanitise years of aggressive tax planning through the repayment of taxes going back to 2010 and paying tax on 50% of the seed capital of the offshore structure.

Thereafter exchange control levies of 5 or 10% will be levied by the Reserve bank.

First the good news

Generally the prospect of arrear tax liabilities and seed capital adjustment seems frightening. But the investment returns achieved on these funds has generally been miserable over the past 5 years. And capital gains are diminished by the low CGT inclusion rate applied to SA individual taxpayers.

Even the seed capital adjustment will probably be very acceptable to most applicants. Many of these structures were created years ago and the seed capital is a small proportion of the accumulated stash.

The exchange control levies of between 5 and 10% are generous in comparison to the wrath that could be inflicted by the reserve bank if the offshore stash is detected by the reserve bank as a result of a leak as experienced in the HSBC debacle of 2015 or the recent Panama Papers.

Now some bad news

Just collating the information going back to 2010 is, for most, a miserable experience.  And that’s only the start of the project. Then the income and seed capital must be determined and converted into ZARS at the appropriate exchange rate and in the correct year of assessment.

Thereafter the tax liability must be determined together with the arrear interest charges.

And finally the submission of the application has to be made to the SARS VDP unit through the E Filing portal.

The SARS VDP unit will then examine the application and formulate a settlement agreement. Once the agreement is concluded and payment is settled then exchange control levies must be determined and paid.

Read also: Offshore tax haven specialist David Marchant unpacks the headline grabbing #PanamaPapers

Only after all this is completed will the taxpayer be off the hook. An estimated time frame for the entire process is 3 months. Complicated applications will take longer. This is generally not the sort of assignment that can be concluded in the course of an afternoon. It will take many hours of careful analysis. A slapdash approach could result in expensive mistakes.

A further complication is that the offshore administrators are usually reluctant to get involved in the process beyond the point of providing the source documents. Anyway, they bill in foreign currency and that gets very expensive.

Anyway there can be very few offshore administrators who have the requisite knowledge of the E Filing system to submit the application.

Many applicants are going to procrastinate and we can confidently predict last minute chaos come come the deadline of 31 March 2017.

Inevitably there will be calls for the deadline to be extended. But given the Minister of Finance’s mood following the recent Panama Papers debacle one cannot bank on such an extension being granted.

Rhodes University Professor Matthew Lester was educated at St Johns College, Wits and Rhodes universities. He is a chartered accountant who has worked at Deloitte, SARS and BDO Spencer Steward. A member of the Davis Tax Committee investigating the structure of aspects of the RSA tax system, he is based in Grahamstown.

* For more in-depth business news, visit biznews.com or simply sign up for the daily newsletter.


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