Tax authorities across the globe are working aggressively to collect taxes which they believe are collectable in their respective jurisdictions. States are entering into bilateral and multilateral agreements aimed at assisting each other in the collection of information and taxes. South Africa has actively taken part and in some respects been a regional leader in issues relating to the gathering of information and sharing thereof with other states to ensure that taxes are paid where they should rightfully be paid. The most noticeable of these types of agreement is the United States of America ("USA") Foreign Account Tax Compliance Act ("FATCA") Agreement. The South African and US governments signed the FATCA Agreement on 9 June 2014 and it is still to be ratified and passed by Parliament.
This article will discuss some of the developments relating to the gathering and exchange of information from a South African perspective including the powers of the South African Revenue Service ("SARS") incorporated in the Tax Administration Act, 2011 ("TAA") which came into effect on 1 October 2012. It will outline the various agreements which South Africa has entered into relating the exchange of information and finally a United Kingdom ("UK") Court of Appeal judgment delivered in 2013 dealing with Article 25A of the South Africa/UK double tax treaty on assistance in the collection of taxes.
SARS has been entrusted with powers under Chapter 5 the TAA to gather relevant material from taxpayers for purposes of proper administration of tax laws by way of inspection, verification or audit. If at any time before or during the course of an audit it appears that a taxpayer has committed a serious tax offence, the matter may be referred for criminal investigation. SARS' powers to gather information extend beyond the specific taxpayer who is being investigated, audited or whose affairs are being verified. SARS may require a third party to submit relevant material that SARS requires regarding a taxpayer.
In addition to the abovementioned powers, Chapter 11 of the TAA empowers SARS to collect a tax debt owed by a taxpayer from a third party who holds or owes or will hold or owe any money, including pension, salary, wage or other remuneration to a taxpayer and if the third party fails to do so, such person may be held personally liable for the money. Part E of Chapter 11 of the TAA empowers SARS to –
- apply for a preservation order in relation to any assets of a taxpayer where a foreign state has requested a conservancy of an amount alleged to be due to the foreign state by the taxpayer under the tax laws of the foreign state where there is a risk of dissipation or concealment of assets; and
- collect an outstanding tax debt by applying to a court for an order compelling the taxpayer to repatriate assets located outside South Africa in order to satisfy a tax debt.
Based on the above, SARS has extensive powers to collect information and tax debts not only owing to itself but to the tax authorities of foreign states.
It should therefore not come as a surprise that SARS has entered into various bilateral and multilateral agreements with other states for the purpose of obtaining and exchanging information and the collection of taxes owed to SARS from assets situated in other states.
SARS has entered into the following agreements with other states
- The USA FATCA Agreement whereby the two states can exchange information automatically under the provisions of the double taxation agreement concluded between them. This agreement requires South Africa's Foreign Financial Institutions to collect and report on certain information to SARS with effect from 1 July 2014. Institutions that must report under FATCA include South African banks and custodians, brokers, asset managers and private equity funds. Information reported to SARS will then be exchanged with the US Treasury through a process of Automatic Exchange of Information under the legal framework provided by the double taxation agreement that exists between South Africa and the US. The US will reciprocate and provide similar information to South Africa in relation to South African taxpayers. The aim of the FATCA Agreement is to combat tax evasion and improve international tax compliance.
- Multilateral Mutual Administrative Assistance Conventions / Agreements. These are agreements between two or more states to enable them to exchange tax information on request automatically, as well as to provide assistance in the collection of taxes. South Africa has signed the Multilateral African Tax Administration Forum Agreement on Mutual Assistance in Tax Matters and the Multilateral Southern African Development Community Agreement on Assistance in Tax Matters. In addition to the above, South Africa has signed and ratified the Multilateral Convention on Mutual Administrative Assistance on Tax Matters as amended by the Protocol which came into effect on 1 March 2014. Other states which have entered into the aforementioned convention include India, Netherlands and the United Kingdom and many others.
- Bilateral Tax Information Exchange agreements between two states to enable them to exchange tax information upon request. South Africa has entered into these agreements with states such as Bermuda, Guernsey and the Cayman Islands.
In the 2013 appeal case of Ben Nevis (Holdings) v Commissioners for HM Revenue & Customs  EWCA civ 578, the England and Wales Court of Appeal (Civil Division) dismissed the appeal brought by the Appellant, a company incorporated in the British Virgin Islands and held that the Respondent (HM Revenue & Customs) was entitled in terms of Article 25A of the South Africa/UK double tax treaty, to collect tax debts owing by the company to SARS.
Based on the above domestic legislation, international agreements and case law, it is clear that tax authorities worldwide are seeking to know the tax affairs of their taxpayers not only in their local jurisdictions but in offshore jurisdictions too. Tax authorities are keen on co-operating with each other towards a common goal – ensuring that taxpayers are paying taxes where they should be paying taxes.
The gap for secrecy provisions and regimes is accordingly slowly closing in on non-compliant taxpayers as tax authorities co-operate more and more with each to protect their respective tax bases and to assist each other collect taxes owing to them.
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.