International exchange of financial information is closing the net on tax-dodgers 

The amnesty that will start later this year may be your last chance to come clean about any assets that you hold offshore in contravention of the tax and foreign exchange regulations. 

The Panama Papers should sound the alarm for any South African residents who still think it’s possible to hide offshore investments from the authorities here. 

South Africans are free to invest offshore within the exchange-control limits but the days of using trusts or companies to hide these investments from the tax and exchange-control authorities are over. 

If you have undeclared offshore investments or trust, you should make use of the coming tax amnesty, the special voluntary disclosure programme (VDP) announced in the Budget. The special VDP is due to start on October 1 and will run for six months. 

The special VDP is likely to be your last opportunity to regularise your offshore assets. 

If you do not avail yourself of the amnesty, you should emigrate and join your money offshore, or be close to death, because the consequences of being caught are dire and include going to jail, he warned. 

Although 43 000 people applied for the 2004 “grey money” amnesty, it did not convince South Africans to regularise all their affairs. 

Many people applied for the amnesty in relation to personal assets held in their accounts, but, on the advice of the administrators of offshore trusts, they did not apply for amnesty for assets held in foreign trusts. 

The administrators assured people that the identity of the true owner of the assets (the person who controls them) would remain secret, because the letter of wishes was protected by client privilege. (The settlor or founder of a trust draws up a letter of wishes that is not binding on the trustees, but sets out how the settlor wants the assets in the trust to be used.) 

The 2004 amnesty was offered to residents who took money out of the country illegally or had offshore investments without declaring them. For tax purposes before the introduction of residence-based taxation. 

The rationale for the special VDP is that the Organisation for Economic Co-operation and Development has developed a common reporting standard for the exchange of financial information between tax jurisdictions. 

Almost 100 countries have agreed to adopt the standards, and South Africa will become a participant from September next year. 

The global drive towards transparency will make it virtually impossible to hide offshore assets. If you invest in a jurisdicti9on that might enable you to avoid disclosing your assets, this could be viewed by the South African Revenue Service (SARS) as a reason to investigate you for tax avoidance. Failure to disclose your assets would put you at risk of being prosecuted for a criminal offence. 

The implication for South African residents is that financial information held in any particular jurisdiction will eventually be brought to the attention of SARS. 

If circumstances warrant it, SARS will issue requests for further information and audit your affairs in order to bring the undisclosed funds into the South African tax net. 

The leaking of information about offshore accounts has become common. Last year, a network of journalists exposed 100 000 people and entities that had US$102 billion stashed in accounts at swish banking group HSBC. The records included the details of 585 South Africans with assets of $2.09 billion. After the Panama Papers were leaked this month, Finance Minister Pravin Gordhan issued a statement saying that SARS, the Financial Intelligence Centre and the South African Reserve Bank (SARB) will investigate South Africans who, according to the papers, have not complied with the law. 

It is not illegal to hold funds in an offshore bank, as long as you obtain approval to take the money offshore and disclose the income and capital gains to the authorities. 

The authorities have little sympathy for those who are caught transgressing the law. It is surprising that the government has been so generous in offering another amnesty. 

The consortium of journalists who shared the Panama Papers has threatened to release in May the names of people connected to offshore entities set up in Panama. If you know you are named in the papers, you should apply for the “permanent” VDP provided for in the Tax Administration Act, and not wait for applications to open for the special VDP. 

You do not qualify for the VDP once SARS or the SARB have started to investigate your affairs. 

The following developments have taken place since residence-based taxation was introduced in 2001: 

  • The Tax Administration Act provides that you can be held liable for unpaid tax for however long you have failed to declare it; you can be penalised up to 200% of any tax you have failed to declare; and you can face criminal charges for failing to pay tax.
  • Many South Africans who took money offshore because they expected to emigrate have not left the country. They are now too old or do not have the skills to get into other countries, or they no longer want to leave because their children have decided to stay here.
  • Many offshore trusts are administered by offshore companies, but, because they are effectively controlled by trustees resident in South Africa, their offshore status is questionable.
  • Many offshore trusts were set up as discretionary trusts, but the beneficiaries often have a clear right to the assets in the trusts, which makes their discretionary nature questionable. This might have tax implications for the beneficiaries.
  • The outcry over global equity means there is little sympathy for people who have built up wealth offshore without paying tax.
  • The threat of international terrorism has made it noble to hack into computer systems to expose people with secret bank accounts. 


Laura du Preez – Weekend Argus