National Treasury examining Panama papers

National Treasury has weighed in on the Panama Papers announcing that its relevant agencies, specifically SA Revenue Service, the Financial Intelligence Centre and the SA Reserve Bank, will investigate the reports without fear or favour.

A year ago some 11.5 million files from the database of Panamanian law firm, Mossack Fonseca were leaked to a German newspaper which passed them on to the International Consortium of Investigative Journalists (ICIJ). The ICIJ then shared them with a large network of international media partners.

Stories about how the rich use secretive offshore tax regimes to stash their billions began circulating last week. So far at least 143 politicians, among them 12 country heads have been named as clients of the firm – or more specifically as clients of its clients – the middlemen accountants, lawyers, trusts, banks and front companies that handle money on individuals’ behalf.

In South Africa, the nephew of president Jacob Zuma, Khulubuse Zuma, has been linked to a company called Caprikat that is mentioned in the leaked papers.

Treasury points out that holding funds in an offshore bank is by itself not illegal, as long as the necessary approvals and disclosures have been made to the relevant authorities. Funds in an offshore account may contravene exchange control regulations and tax laws if the source of the funds has not been disclosed to the appropriate authorities.

The world is becoming smaller for those who wish to hide their offshore assets and avoid paying their taxes due to the South African fiscus. Last year a trove of almost 60 000 leaked files provided details on over 100 000 HSBC clients and their bank accounts. Treasury notes that this type of information provides the basis for authorities to act against those who illegally move funds out of SA.

Tightening up in a number of ways

South Africa is already working with countries across the globe to share information that may be relevant to the tax authorities. The country has participated in the work of the Global Forum on Transparency and Exchange of Information for Tax Purposes. This makes it possible for a tax authority in one jurisdiction to request information from another jurisdiction in respect of a specific taxpayer or group of taxpayers.

More worryingly for those trying to hide their cash, a tax authority in one jurisdiction will automatically provide financial account information to other jurisdictions in respect of the other jurisdictions’ taxpayers.

The Standard for Automatic Exchange of Financial Account Information in Tax Matters or simply the Common Reporting Standard (CRS) was endorsed by the G20 in 2014.

Some 96 countries/jurisdictions have committed to implementing the CRS by 2018. South Africa is a member of the early adopters’ group of 55 jurisdictions. This means that from 2016, Sars will be collecting information and automatically exchange it on an annual basis from 2017.

A window

Because the net is closing, and digital leaks seem increasingly likely, it may make sense to pay attention to the special voluntary disclosure programme (VDP) that was proposed in the 2016 Budget to make it easier for non-compliant individuals and firms to disclose assets held and income earned offshore.

As was noted in the 2016 Budget Review: “With a new OECD global standard for the automatic exchange of financial information between tax authorities coming into effect from 2017, time is running out for taxpayers who still have undisclosed assets abroad”.

In terms of this proposal, if adopted by Parliament and enacted, both the Sarb and Sars will relax the existing VDP rules from October 1 2016 to March 31 2017.

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