Introduction Availability of SVDP Amounts payable under SVDP Procedural aspects and consequences of successful application Comment
The minister of finance announced the Special Voluntary Disclosure Programme (SVDP) in the 2016 Budget Speech. The legislation governing the SVDP finally came into effect on January 19 2017, when the Rates and Monetary Amounts and Amendment of Revenue Laws Act (13/2016) and the Rates and Monetary Amounts and Amendment of Revenue Laws (Administration) Act (14/2016) were published in the Government Gazette.
The new laws establish the rules of the tax SVDP. The rules applicable to the exchange control (Excon) SVDP are governed by two circulars issued by the Reserve Bank in July and October 2016, as well as a third circular issued on January 27 2017. This update focuses on the rules applicable to the tax SVDP, but refers to the Excon SVDP where applicable.(1)
The substantive provisions of the tax SVDP are contained in Sections 14 to 18 of the Rates and Monetary Amounts and Amendment of Revenue Laws Act. Under Section 15(2) of the act, the amount payable under the SVDP will be equal to the amount of the receipts and accruals not declared to the South African Revenue Service (SARS), as required by the Estate Duty Act (45/1955) or the Income Tax Act (58/1962), from which an asset – situated outside South Africa and held between March 1 2010 and February 28 2015 – was wholly or partly derived. Section 15(3) allows taxpayers which disposed of an asset that was wholly or partly derived from receipts and accruals not declared to SARS, as required by the Estate Duty Act or the Income Tax Act before March 1 2010 to make use of the SVDP, unless the asset was disposed of by way of a donation or disposal to a trust on loan account.
Section 18 of the act states that if a person is a beneficiary or donor in relation to a foreign discretionary trust, the person may also elect that any asset situated outside South Africa as contemplated in Section 18(2), which was held by the discretionary trust between March 1 2010 and February 28 2015, be deemed to have been held by that person for the purposes of all tax acts.
Section 16 of the Rates and Monetary Amounts and Amendment of Revenue Laws Act states that the amount subject to tax under the SVDP will be 40% of the highest value of the aggregate of all assets situated outside South Africa between March 1 2010 and February 28 2015 that were wholly or partly derived from receipts and accruals not declared to SARS as required by the Estate Duty Act or the Income Tax Act. In terms of Section 16(2), the value referred to in Section 16(1) is the market value of the asset in terms of the relevant foreign currency and translated to rand at the spot rate on the last business day in South Africa on or before the end of each assessment year. Thus, if an asset was held from March 1 2010 to February 28 2015, the market value in rand on the last day of each assessment year (ie, February 28 or 29) will apply. Under Section 16 of the Rates and Monetary Amounts and Amendment of Revenue Laws Act, the highest of these market values will be multiplied by 40%, and this amount will then be included in the first assessment year ending on or after March 1 2014, which – in the case of individuals – will be the 2015 assessment year.
If an asset was disposed of before March 1 2010, the tax payable will be calculated in a similar manner with the only difference being that the asset will be deemed to have been held between March 1 2010 and February 28 2015 for the purposes of Section 15 and Section 16. Where the value of such an asset cannot be determined, SARS may accept a reasonable estimate of the asset's value.
Under Section 17 of the Rates and Monetary Amounts and Amendment of Revenue Laws Act, an asset referred to in Section 15 that was held and not disposed of on the last day of the assessment year on or before February 28 2015 must be deemed to have been acquired on that day at a cost equal to the value of the asset under Section 16 in the relevant foreign currency. In other words, the asset declared under the SVDP will have a new base cost which, for capital gains tax purposes, will apply when the asset is later disposed of. This provision was not included in previous draft versions of the legislation.
Procedural aspects and consequences of successful application
The SVDP process is governed by the Rates and Monetary Amounts and Amendment of Revenue Laws (Administration) Act. Section 2 of the act states that a SVDP application must be made under Chapter 16(B) of the Tax Administration Act (28/2011), which means that the process will be the same as that which applies to normal voluntary disclosure programme applications. Section 2 further states that an application cannot be made:
- by or on behalf of a trust; or
- in respect of receipts and accruals from which an asset that has been disclosed to SARS under an international tax agreement was wholly or partly derived.
Persons cannot apply for the SVDP if they are aware of a pending audit or investigation in respect of foreign assets or if such an audit or investigation has commenced, unless the scope of the audit or investigation concerns other assets (ie, non-foreign assets or non-foreign taxes, such as pay-as-you-earn tax).
Whereas the draft legislation stated that SVDP applications could be submitted until June 30 2017, under the programme they can now be submitted until August 31 2017. If a SVDP application is successful, no understatement penalties will be levied and SARS will not pursue criminal prosecution for a tax offence. Taxpayers should be aware that future income, including income received in the 2016 assessment year, will be fully taxed and not subject to the SVDP. It is also possible that successful applicants will have to pay interest on the outstanding tax from the due date of their tax return for the 2015 assessment year.
According to the National Treasury's media statement of September 30 2016, SARS and the Reserve Bank have established a joint application process. Applications for tax relief under the SVDP can be made in the new SVDP section of Form VDP01, which has been available on SARS's eFiling website as of October 1 2016. According to the media statement, applications for Excon relief can be made on the new Form SVDP01, also hosted on the eFiling website.
Taxpayers should be aware that the SVDP process does not affect the availability of the normal voluntary disclosure programme process which applies in terms of the Tax Administration Act. However, from September 1 2017 taxpayers will no longer be able to receive tax relief under the SVDP. With regard to Excon relief, the Reserve Bank released Exchange Control Circular 4/2017 on January 27 2017, which states that the Excon SVDP will now also be available until August 31 2017. The rules of the Excon SVDP are contained in Exchange Control Circular 6/2016 (for further information please see "Exchange control circular issued in respect of Special Voluntary Disclosure Programme") and Exchange Control Circular 8/2016.
For further information on this topic please contact Louis Botha at Cliffe Dekker Hofmeyr by telephone (+27 115 621 000) or email ([email protected]). The Cliffe Dekker Hofmeyr website can be accessed at www.cliffedekkerhofmeyr.com.
Endnotes
(1) Further information regarding the previous draft versions of the SVDP legislation is available here and here.
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