Voluntary Disclosure Programme
1895. Voluntary disclosure relief
November 2010 - Issue 135
Introduction
The Minister of Finance announced in the 2010 Budget, presented to Parliament on 17 February 2010, that legislation would be introduced to encourage taxpayers to regularise prior transgressions of the tax statutes in South Africa and the Exchange Control Regulations. The 2010 Budget Review indicated that voluntary disclosure relief would encourage individuals, with unreported foreign bank accounts, to fully disclose those accounts to the South African Revenue Service (SARS). South Africa has concluded a large number of agreements for the avoidance of double taxation with various countries and those agreements allow for the exchange of information between SARS and foreign revenue authorities. In addition thereto, SARS is in the process of concluding various tax information exchange agreements with a number of other countries which, traditionally, would have been regarded as tax havens. The voluntary disclosure programme (VDP) has, therefore, been introduced to encourage taxpayers to go forward to SARS and regularise prior violations of the various tax statutes. Details of the voluntary disclosure relief are contained in the Voluntary Disclosure Programme and Taxation Laws Second Amendment Act, 8 of 2010 (VDP & TLSAA). It must be pointed out that the voluntary disclosure relief does not constitute an amnesty in that any tax that should have been paid and was not paid over to SARS, will always remain payable.
Qualifying persons
The voluntary disclosure relief is available to any taxpayer liable to pay any tax to SARS. The VDP & TLSAA defines "tax" as including any tax, duty, levy, penalty and additional tax imposed in terms of any legislation administered by the Commissioner. Therefore, any taxpayer, be it a natural person, company, trust or close corporation, or other taxpayer is entitled to apply for the relief so long as they comply with the requirements contained in the legislation.
In order to qualify for the relief, the taxpayer must be in default insofar as their tax affairs are concerned and this means that they must have submitted inaccurate or incomplete information to SARS, with the result that the taxpayer was not assessed for the correct amount of tax due or, alternatively, that an incorrect tax refund was made by SARS to the taxpayer.
It must be noted that persons facing a tax audit or investigation do not, generally, qualify for the relief under the programme. SARS may, in certain circumstances, allow for a person who is under audit or investigation to apply for the relief. Under the legislation, the Commissioner is empowered to direct that a person, who is under audit or investigation, may apply for voluntary disclosure relief where the Commissioner is of the opinion that the default in respect of which the person wishes to apply for the relief, would not otherwise have been detected during the audit or investigation and, furthermore, that the application would be in the interest of good management of the tax system and the best use of the CommissionerÙs resources.
The VDP & TLSAA indicates that a person is deemed to be aware of a pending tax audit or investigation or that the tax audit or investigation has commenced where a representative of the taxpayer, an officer or shareholder or member of the person, where that person is a company, a partner in partnership with that person, a trustee or beneficiary of the taxpayer, if the person is a trust, or a person acting for or on behalf of or as an agent or fiduciary of the taxpayer, has become aware of the pending audit or investigation, or that tax audit or investigation has commenced.
Requirements for a valid voluntary disclosure
For a taxpayer to successfully qualify for the relief available under the programme, it is necessary that the disclosure is voluntary and must involve a default of the taxpayerÙs obligations to SARS. It is essential that the taxpayer makes full and proper disclosure of the default and that the default involves the potential application of a penalty or additional tax. The taxpayer is required to apply for the relief in the prescribed form.
A taxpayer may not apply for the relief where the disclosure will result in a refund due by SARS.
The Memorandum on the objects of the legislation indicates that the application for the relief must be submitted during the period 1 November 2010 to 31 October 2011.
It is important to note that the default or violation of the taxing statutes must have occurred prior to 17 February 2010.
Advantages for applying for the relief
Where a taxpayer successfully applies for the relief, they are assured of no criminal prosecution for the violation of the taxing statutes of the country.
In addition, the taxpayer will receive 100% relief for penalties and additional tax, other than the administrative penalties leviable under section 75B of the Income Tax Act, No. 58 of 1962, as amended (the Act).
In addition, qualifying taxpayers will receive 100% relief in respect of interest that would otherwise have been payable to SARS. Where, however, the taxpayer is subject to an audit or investigation and it has been decided by SARS that the person may still apply for the relief, only 50% of the interest, that would otherwise have been leviable, will be imposed.
In all cases, the underlying tax remains payable to SARS, regardless of the nature of the tax. It is for this reason that it cannot be said that the voluntary disclosure relief constitutes an amnesty.
Confirmation of eligibility
The legislation contains an innovative provision whereby the Commissioner is authorised to issue a non-binding private opinion as to whether a person qualifies for the relief, so long as the person provides sufficient information for SARS to reach a decision, which information need not include the identity of any party to the default. Thus, it would appear that tax practitioners may seek guidance from SARS as to whether a particular taxpayer qualifies for the relief.
Agreement to be concluded by a taxpayer and SARS
The legislation requires that the Commissioner and the qualifying taxpayer must conclude an agreement regarding the voluntary disclosure. The agreement must disclose details of the material facts of the default on which the voluntary disclosure relief application is based. In addition, the agreement must reflect the amount payable by the taxpayer, which amount must separately reflect the tax and interest amount due by the taxpayer, as well as the arrangement and dates of payment. The voluntary disclosure agreement is also required to deal with the treatment of the tax issue in future years or periods and must contain details of the undertakings by the parties to the agreement.
Withdrawal of relief
Where the taxpayer fails to disclose material information, the relief granted under the legislation may be withdrawn and any amount paid under the voluntary disclosureagreement, will be treated as part-payment in respect of any outstanding tax in respect of the relevant default. In addition, SARS may, in such cases, institute criminal proceedings against the taxpayer for any statutory offence under a taxing statute or related common law offence. Any decision made by the Commissioner to withdraw thevoluntary disclosure relief is subject to objection and appeal or internal review.
SARS to issue a tax assessment
The legislation requires that SARS must issue an assessment to the taxpayer reflecting the agreement concluded under the voluntary disclosure relief programme. Clearly, any such assessment issued is not subject to an objection or appeal in that the assessment will be based on disclosures made by the taxpayer to SARS under the VDP.
Reporting of information
The Commissioner is required to submit certain information to the Auditor-General and to the Minister of Finance regarding all applications received for voluntary disclosure relief. It is important to note that such information must be disclosed in such a manner that the privacy of the taxpayer is assured and does not disclose the identity of any qualifying taxpayer. The Commissioner must disclose the number of voluntary disclosure agreements concluded by taxpayers and SARS, the amount of tax and interest assessed and the relief granted under the legislation.
Exchange control
The voluntary disclosure relief programme will not work unless defaulting taxpayers may also regularise their position with the Exchange Control Department of the South African Reserve Bank (SARB). As a result, SARB will allow for the regularisation of prior transgressions of the Exchange Control Regulations.
SARB requires a levy of 10% to be paid on the value of unauthorised foreign assets as at 28 February 2010. The taxpayer will be required to introduce the levy from funds located abroad, or where no foreign funds are available to pay the levy, the levy is 12%.
Thus, where a person stands possessed of foreign funds in contravention of the Exchange Control Regulations, they may regularise those funds with the Exchange Control Department by following the processes announced by SARB and to pay the levies as indicated above.
Editorial comment: See article 1879 for further details.
Reportable irregularities and the Independent Regulatory Board for Auditors
It must be noted that the legislation which contains the voluntary disclosure relief does not override the provisions of section 45 of the Auditing Profession Act No. 26 of 2005 (Auditing Profession Act). The Independent Regulatory Board for Auditors (IRBA) published a document on 8 November 2010 dealing with reportable irregularities and the VDP. A registered auditor (RA) is required to determine whether the disclosure to be made by the client or the detection thereof by a RA, constitutes a reportable irregularity in terms of the Auditing Profession Act.
Where the client requests the RAÙs assistance in applying for relief under the VDP, the RA must submit a report to IRBA, clearly marking the first page with the term "VoluntaryDisclosure Programme". In the case of a relatively simple VDP application and the proper application for voluntary disclosure relief is submitted to either SARB or SARS within 30 days, the RA may conclude, as a consequence of the submission of the application, that the prospective reportable irregularity has been appropriately dealt with. As a result, IRBA has no obligation to notify either SARB or SARS of the reportable irregularity.
Where the application is more complex and the work on the application may still be on-going, at the time that the RA is required to submit a second reportable irregularity report to IRBA, that is, within 30 days of the first report, the RA cannot confirm that the reportable irregularity is no longer taking place. As a result, the RA must set out the work that has been undertaken in preparing the application to the authorities under the VDP and endorse the first page of the second reportable irregularity report with the term "VoluntaryDisclosure Programme". IRBA will then forward the second reportable irregularity report to the VDP arms of SARB and/or SARS.
SARB and SARS have confirmed that their VDP arms will retain the reportable irregularity report for up to six months in anticipation of receiving the properly completely VDP application form. If, however, the authorities do not receive a VDP application form within the specified period, the second reportable irregularity report from IRBA will be forwarded by the VDP arms of SARB and SARS to their respective enforcement arms for further action. Thus, RAs need to comply with the rules governing reportable irregularities in dealing with VDP application forms submitted by their clients to either SARB and/or SARS.
Financial Intelligence Centre Act obligations and VDP
The Financial Intelligence Centre (FIC) issued Public Compliance Communication No. 04 (PCC 04) on 2 November 2010, to clarify the consequences facing professional advisors assisting clients in submitting applications to SARB and SARS under the VDP. The FIC has confirmed that accountable institutions assisting clients in making use of the VDP will incur obligations relating to establishing and verifying of clientsÙ identities and retaining of records in accordance with the FIC Act No. 38 of 2001. The FIC has confirmed that the obligation to report suspicious or unusual transactions does not arise where professional advisors assist clients in regularising their affairs by making use of the VDP in connection with income and/or foreign assets which were derived from legitimate sources. Clearly, where a professional advisor becomes aware that the income and/or foreign assets were derived from illegitimate sources, the duty to report such information to the FIC remains intact.
Conclusion
Those taxpayers that have failed to comply with the tax laws and/or Exchange Control Regulations should avail themselves of the voluntary disclosure relief which took effect on 1 November 2010. It is clear that the relief is available to all taxpayers and not merely particular classes of taxpayer. Thus, where, for example, a company has failed to comply with its employeesÙ tax obligations or its VAT obligations, it is entitled to seek the relief under the provisions contained in the legislation. In addition, those taxpayers who have removed funds from South Africa in contravention of Exchange Control Regulations and did not apply for amnesty under the Exchange Control Amnesty and Amendment of Taxation Laws Act No. 12 of 2003, may now seek the relief available under the provisions contained in the legislation. It must be noted that the relief will only be available in respect of applications lodged with the authorities from 1 November 2010 to 31 October 2011.
Those taxpayers who qualify for relief will benefit under the programme in that no additional tax, penalties or interest will be imposed and, furthermore, SARS will not institute criminal prosecution.
Edward Nathan Sonnenbergs
Voluntary Disclosure Programme and Taxation Laws Second Amendment Act, No. 8 of 2010
South African Reserve Bank Exchange Control Regulations
