Missed the special voluntary disclosure deadline?
Normal regularisation progress could still be an option.
The special voluntary disclosure programme (SVDP) has come and gone. The SVDP afforded taxpayers a ‘final’ opportunity to regularise their offshore assets – prior to Sars being made aware of these assets via the International Automatic Exchange of Information under the OECD Common Reporting Standard (CRS).
Read more on the SVDP: Changes to special voluntary disclosure programme proposed
The SVDP was designed as a one-shoe-fits-all programme, and the penalty was based on the market value of the asset. It made no distinction between ‘pre-tax’ and ‘post-tax’ funds, and was capped at a whopping 16% of the highest value of the assets, regardless of the source.
The SVDP triggered the South African Reserve Bank (Sarb) similarly to offer South African residents the opportunity to regularise the exchange control position of their offshore assets.
Both opportunities were ‘one-offs’, available from October 1 2016 until August 31 2017, which raises the question, “if you missed this opportunity, should you start packing?”
Fortunately for South Africans, the SVDP is not the only route of regularisation. The ‘normal’ Voluntary Disclosure Programme (VDP) is an open-ended programme, unlike the SVDP, and has been operational since 2010. It was established to encourage taxpayers to approach Sars on a voluntary basis.
Under the VDP, Sars allows taxpayers, essentially, to update their tax affairs retrospectively. The VDP is available to regularise tax defaults on both local and offshore assets. The SVDP was limited to offshore assets only i.e. no locally situated assets could be regularised under the SVDP.
Under the VDP taxpayers are required to re-open their tax returns and include the income and capital gains previously omitted. There is no ‘market value’ penalty, as was the case with the SVDP. Generally the penalties associated with non-compliance are waived and once the VDP application has been submitted, applicants are shielded from criminal prosecution. Sars does charge interest on the outstanding tax.
As one can see, the two programmes were significantly different from each other, and led to drastically different bottomline liability outcomes.
Our experience has found that in 60 to 70% of the cases that cross our desks, the VDP results in a significantly lower bottom-line liability compared to the SVDP, and is the route of regularisation best followed.
Similarly, the Sarb also provides a ‘normal’ route of disclosure that SA residents can ‘walk through’ in order to regularise the exchange control position of their assets abroad, should they wish so to do.
These ‘normal’ applications are submitted via an authorised dealer, directly to the Sarb. South Africans are required to make a full, frank and verifiable declaration to the Sarb. Standard penalties range from 0% to 40% on the market value of the assets situated abroad.
From our dealings with the Sarb, we have found that these applications are dealt with, with neither uniformity nor consistency. The Sarb have, on occasion, been penile and draconian when determining penalties. However, there have been instances where they have waived all penalties.
The Sarb has warned that should they become aware of illegitimately held assets, they may recover the full amount of the contravention, where appropriate, and South African residents may face the full force of the law. Similarly, it is essential that taxpayers approach the VDP unit before receiving notice from Sars of a pending audit, as once notice has been issued, they are precluded from ‘walking though the VDP door’.
Given that the first wave of reporting to Sars, under the CRS, started on September 1 2017, we urge taxpayers who missed the SVDP deadline to seek expert advice as soon as possible rather than dusting down their suitcases.
A visitor from Holland was chatting to his American friend and jokingly explained the significance of the colours red, white and blue in the Netherlands flag.
“Our flag symbolises taxes,” he said, “We see red when we discuss them, go white when we see them, and feel blue after we have paid them.”
“That’s the same with us,” answered the American, “only we see stars, too.“
Fortunately, we reside neither in America nor the Netherlands, and taxes, however unpleasant paying them may be, need not make us see stars.
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