The Foreign Accounts Tax Compliance Act ("FATCA") had
a very controversial reception by the global financial services
community, and saw a robust lobbying effort against its more
onerous obligations. It is now, however, a reality and is set to
impose itself on South Africa's regulatory framework. It will
have a substantial impact on the operations of all affected
financial institutions, regardless of where these are situated.
South African financial institutions are no different, and it will
definitely be necessary for them to assess the impact, and where
necessary to take the required steps to comply with the FATCA
Although FATCA has become common parlance in some circles, it
remains shrouded in mystery in others. In order to combat
FATCA's many misunderstandings and interpretational challenges,
it is necessary that South African financial institutions educate
themselves on FATCA and its imperatives as well as the steps that
will be taken to incorporate these into South African law.
FATCA is a piece of United States ("U.S") legislation
that introduces onerous identification and reporting obligations on
foreign financial institutions in an effort to curb tax abuses by
US citizens in foreign jurisdictions or those with offshore
investments. A failure to comply with FATCA may result in a
punitive withholding tax of 30% on U.S source income payable to
non-compliant foreign financial institutions. The FATCA obligations
are detailed in the FATCA Regulations.
The implementation of FATCA raised a number of concerns, with
the foremost amongst these being that in certain jurisdictions
local data privacy laws created local legal impediments to
complying with FATCA, specifically, financial institutions in
certain jurisdictions are prevented by their local data privacy
laws from reporting on client confidential information directly to
the US, as required by the FATCA Regulations. To their credit the
US Department of Treasury recognized these concerns and developed
an alternative means to complying with FATCA. They were of the view
that an intergovernmental agreement approach would facilitate a
more effective implementation of FATCA in a manner intended to
address the domestic legal impediments to FATCA compliance. To this
end, the U.S made the decision to draft two model intergovernmental
agreements (being model 1 and model 2).
Intergovernmental Agreement Approach
National Treasury and the South African Revenue Service
("SARS") have expressed their intention to sign an
intergovernmental agreement with the U.S and are currently in
negotiations with the U.S Internal Revenue Service
("IRS") with a view to concluding a proposed South
African Intergovernmental Agreement ("SA IGA"). The SA
IGA is a treaty entered into between the governments of South
Africa and the U.S and after its conclusion the SA IGA will be
given force and effect by local South African enabling legislation
("the local FATCA laws"). This means that FATCA will be
directly incorporated into South African law. The local FATCA laws
will be phased in from June 2014, in order to comply with the
timelines set out in the SA IGA.
While the SA IGA is not yet signed and accordingly that South
Africa is not yet an IGA jurisdiction, considering the commitment
made by SARS and National Treasury to sign the SA IGA, we consider
it reasonable at this stage to focus only on the SA IGA obligations
rather than also on the FATCA Regulations, on the basis that South
Africa will become a IGA jurisdiction in due course.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Effective collaboration amongst government agencies, automation of processes and capacity building by tax authorities have always been identified by stakeholders as strategies for achieving an efficient tax system.
In response to information provided by FIRS, NSE has sent letters to publicly listed companies, who were purportedly identified by FIRS as non-compliant.
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