Dire consequences for non-disclosure of offshore income, assets

Cape Town - The Treasury’s recent announcement of a simplified process for taxpayers to disclose offshore income and capital gains serves as a stark reminder of the offshore special voluntary disclosure programme (SVDP) taking effect this year, says Bernard Sacks, a partner at Mazars.

Relevant taxpayers who do not disclose information will not only face severe financial consequences, but could face criminal prosecution.

Sacks explains that the Common Reporting Standard (CRS) was designed for international collaboration with tax matters and will see tax authorities of more than 50 countries exchange account holder information in 2017.

Essentially, the SVDP grants SA taxpayers a "grace period" to come clean ahead of the information exchange and thereby mitigate the implications of outstanding tax somewhat.

“This will result in 50% of the highest aggregate value of all assets held outside the Republic during the period 01 March 2010 to 28 February 2015 being subjected to income tax,” he adds.

The legislation encompasses all income or capital gains that have not been disclosed to the SA Revenue Service (Sars) as required in terms of either the Income Tax Act or the Estate Duty Act.

“In order to disclose this information, an application must be lodged on the prescribed form – which is not yet available - during the period 1 October 2016 to 31 March 2017. The process must be completed with the SVDP Unit via the Sars e-filing portal,” he explains.

Taxpayers who do not utilise this opportunity to come clean risk being taxed on the full amount that has not been taxed before, with no limitation on how far back Sars can raise assessments, he warns.

In addition, Sars would likely impose understatement penalties of 150% or 200% of the tax payable, together with interest, in Sacks' view.

“From an exchange control perspective the authorities are mandated to, where appropriate, recover the full amount of the contravention. A contravention of the exchange control regulations can lead to criminal prosecution,” he warns.

There are several elements that must be considered in this process.

For example, the concept of seed capital has recently been removed from the draft legislation and replaced with a simpler basis of calculating the amount subject to tax.

"As this is an ideal opportunity for potential applicants to regularise their offshore assets, it is recommended for taxpayers to approach a reputable tax partner in order to discuss their options and ensure that it is done correctly,” says Sacks.

“This type of opportunity is not likely to arise again and taxpayers who do not comply face dire consequences if discovered.”