Most Read Contributor in South Africa, September 2016
The Panama Papers represent a leak of some 11.5 million files
from a Panamanian based advisory firm, Mossack Fonseca. The leak
provided information on offshore bank accounts and offshore trusts
based in Panama, the British Virgin Islands and the Seychelles,
among other jurisdictions. Many politicians and celebrities have
been named, including the British Prime Minister, David Cameron,
who is perhaps the highest profile individual named in this leak.
He has subsequently admitted that he benefited from an offshore
trust fund based in the Bahamas, which was set up by his late
However, while numerous reports on the controversial Panama
Papers point out that a number of these structures are entirely
legal, they do not provide any clear guidance on which structures
are legal and which are not. Perhaps a reason for this is that the
question needs to be posed with reference to the laws of the
From a South African perspective, offshore structures are quite
common. If, for example, you have a pension fund or have invested
in offshore funds, chances are that you have investments in a tax
haven. You may therefore, either directly or through your pension
fund, hold units or shares in a company or some other offshore
vehicle located in some or other tax haven. This vehicle will then
hold the underlying shares and other assets that make up your
investment portfolio. The reason for setting up these investment
vehicles in a tax haven is precisely to avoid paying multiple
levels of tax on your underlying investments. These are examples of
If South African resident individuals establish their own
offshore trust or some other offshore investment vehicle in a tax
haven, and the vehicle acquires various offshore assets, the
individuals will be required to make disclosures to the exchange
control authorities at the South African Reserve Bank and the
South African Revenue Service. Provided that these disclosures have
been made, that approvals are obtained, and that the relevant tax
returns have been correctly completed on an annual basis, these
also constitute examples of legal offshore structures.
South Africa's tax law caters for exactly these types of
structures. In fact, there are tax provisions that detail the
circumstances in which such structures will be subject to South
African tax. These rules also set out the circumstances in which
the distributions made from income earned, in terms of these
structures, are to be taxed in the hands of any South African
beneficiaries or founders.
The Davis Tax Committee is in the process of making
recommendations on how to adapt and amend South Africa's tax
law regarding offshore trust structures. Provided that there is
compliance with South Africa's existing tax law and exchange
control rules, these structures are also legitimate.
Illegitimate offshore structures are, for example, ones where
individuals set up offshore trusts without making the necessary
disclosures and obtaining the necessary approval either from the
exchange control authorities or the South African Revenue Service.
An offshore structure is also illegitimate when there is no ongoing
compliance with the relevant tax laws, such as instances where the
relevant tax returns are not correctly and timeously submitted by
the relevant parties.
It is interesting that a six-month tax and exchange control
amnesty is proposed from October 2016. For any South Africans with
illegal offshore structures, given the increasing likelihood of
these structures coming to light (either through leaks such as the
Panama Papers or due to the increasing information sharing between
international revenue authorities), this may be their last chance
to avoid being named and shamed.
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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