South African Tax Advisers Get No Protection for Reporting on Wealthy

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By Edwin Naidu

Aug. 5 — South African tax advisers are worried that draft proposals that oblige them to make reports on wealthy individuals with unauthorized offshore assets offer no protection to tax professionals.

The proposals—for which the consultation period closed Aug. 8—are among revisions to the country's Special Voluntary Disclosure Program, which gives “non-compliant” taxpayers a chance to make full disclosure of their offshore assets and income.

The rules are intended to provide the window of opportunity to come clean ahead of 2017, when the new global standard for automatic exchange of information between tax authorities takes effect (94 TMIN, 5/16/16).

Client Privilege

Tax professionals in accounting and financial services are obliged to report on cases involving taxpayers netted by the proposed rules, to the Financial Intelligence Centre.

But KPMG's head of tax dispute resolution, Johan van der Walt—previously a tax lawyer for the South African Revenue Service during the 2003-04 amnesty, when he helped establish an earlier Voluntary Disclosure Program in 2010-11—said the wording of the current draft legislation doesn't offer protection for professionals legally obligated to make the reports.

“Tax advisers were exempted from reporting obligations during the 2003-04 amnesty, as well as during the 2010-2011 VDP and it was expected that a similar arrangement would be legislated for the upcoming SVDP,” he said.

Interviewed Aug. 3, Van der Walt told Bloomberg BNA that professionals were protected by law from making disclosures on their suspicious and unusual transactions, amid concerns over money-laundering to the Financial Intelligence Centre in respect of the amnesty provided for in the Exchange Control Amnesty and Amendment of Taxation Laws Act.

“Unless, there is a safe harbour, we cannot see people coming forward with disclosures because there is a trust relationship with financial advisors,” Van der Walt said.

“Without the idea of a safe harbour, it will erode the number of applications because people would not feel comfortable talking to advisors,” he said. The privilege between a lawyer and client, however, remains sacrosanct, Van der Walt said.

Unless the special provision is made, failure by professionals to report suspicious or unusual transactions in terms of the 2001 Financial Intelligence Centre Act carries a maximum 15-year prison sentence or a fine of up to 10 million rands (730,000).

Durban-based PKF accountant Paul Gering told Bloomberg BNA the draft regulations, published July 20, were simpler than the previous amnesty in 2003 and the 2010 VDP initiative, but the latest proposals are not “where it ought to be”.

“The accounting profession cannot be expected to promote these regulations, as in the past, without a protection mechanism,” he said.

National Treasury didn't respond to several media queries on aspects of the draft bill.

“The bill is in its draft phase. I don’t think that it was left out on purpose, so as consultations close Aug. 8, I expect National Treasury along with the South African Reserve Bank to take on board concerns related to this, and in fact, it is something that has already been raised,” Van der Walt said.

Disclosure in Operation

The proposals for the 2017 special voluntary disclosure program seek to operate as follows:

  •  Unlike before, instead of calculating two different amounts—seed capital and investment returns—included as taxable income, the calculation will be made up of one amount equal to 50 percent of the highest value of all assets outside South Africa between March 1, 2010, and Feb. 28, 2015, that were derived from undeclared income, which will be included in taxable income and subject to tax in South Africa.
  •  The value referred to above is the market-value determined in the relevant foreign currency translated to South African rand at the spot rate at the end of the tax period in which the highest value fell.
  •  The undeclared income that originally gave rise to the assets mentioned above will be exempt from income tax, donations tax and estate duty liabilities arising in the past. However, future income will be fully taxed and assets declared will remain liable for donations tax and estate duty in the future, should the applicant donate these assets or pass away while holding them.
  •  Taxpayers who disposed of any foreign-held assets prior to March 1, 2010, may also apply for relief under the SVDP. But special provisions will apply.
  •  SARS will not pursue criminal prosecution for a tax offence when an application under the SVDP is successful.

Impact on Treasury Coffers

SARS banked 2.9 billion rands during its 2003 amnesty to voluntarily disclose offshore assets where individuals had committed contraventions, and another 8 billion rands during the 2010–2011 voluntary disclosure programme.

In effect, the draft Exchange Control law will ensure that applicants could pay a levy based on market value as of February 2016. The levy is 5 percent of the leviable amount if the proceeds, or assets, are repatriated to South Africa or 10 percent if retained offshore.

Chance to Come Clean

Van der Walt said the draft proposals would be of benefit to taxpayers who are South African residents, as well as those governed by money movement rules. Individuals in this category would therefore need to get their tax and asset movement affairs regularized, given the changing global financial landscape, common reporting standards on the horizon and the enhanced information sharing by global tax authorities which is set to become effective in 2017.

Carwyn Rhode, a senior tax expert with Standard Bank, told Bloomberg BNA this would be the final opportunity for individuals with offshore interests to regularize their affairs and come clean before tax authorities around the world begin sharing information with each other.

“There would be no place to hide money offshore, as tax authorities would be obliged to report on individuals to their country of origin. In turn, one would expect authorities, such as the National Treasury, to show no mercy to people who have not taken the opportunity to come clean,” he said.

Rhode said penalties would range from 5 percent, 10 percent and 12 percent of the offshore assets and income, while in 2010 it was only 10 percent and 12 percent.

Ide Louw, director of international tax services at EY in Johannesburg, said in a statement Aug. 2 that following the increased global focus on transparency and reporting, it is not surprising that the new measures are being introduced.

“The advantage of a new exchange control and tax amnesty is two-fold: the framework affords certainty to taxpayers insofar as regularizing their affairs are concerned, and government earns additional revenue in respect of the payment of late taxes,” she said.

The proposed Special Voluntary Disclosure Program is due to take effect on Oct. 1.

To contact the reporter on this story: Edwin Naidu in Johannesburg at

To contact the editor responsible for this story: Penny Sukhraj at

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