Worldwide: Undeclared Offshore Investments Are Criminal

Why the South African investor should take note of the Common Reporting Standards

The release of the Panama Papers has once again shone the spotlight on the offshore finance industry and many have commented and criticised. While it appears that the firm in question was not applying international standards of transparency and due diligence, in terms of the Common Reporting Standards (CRS) regulations now being implemented by the Organisation for Economic Co-operation and Development (OECD), the exposure of this company's clients has simply been brought forward. The question now is: what do these CRS regulations mean for South African investors?

At the 2016 G20 Hangzhou Summit, the OECD said that Panama was back-tracking on its commitment to automatically exchange financial account information, and described it as "the last major holdout that continues to allow funds to be hidden offshore from tax and law enforcement authorities".

But, by the end of 2017, the OECD's CRS will have been introduced, and around 100 jurisdictions will start to exchange financial information. While the method of the exchange is still to be worked out, it will require all banks and offshore service providers to supply details of individuals and companies that do business with them – including those not resident in the jurisdictions in which the assets or investments are held.

Jacques Scherman, a Senior Consultant at Sovereign Trust South Africa, explains that the ramifications for SA citizens with undeclared offshore investments could be criminal: "We have always advised our clients with overseas assets to disclose them to the relevant tax authorities. While our experience leads us to believe that more South African assets being held offshore are legitimate and declared than not, it is a legal imperative that such assets are declared to SARS."

In his 2016 Budget Speech, Minister of Finance Pravin Gordhan announced a Special Voluntary Disclosure Programme (SVDP) – a final opportunity for non-compliant taxpayers with undisclosed assets abroad to voluntarily disclose and regularise their offshore assets and income. The SVDP allows for the regularisation of historical tax defaults as well as exchange control contraventions. Scherman comments that the SVDP also provides a mechanism to 'legalise' assets that were purchased with undisclosed income.

In terms of the SVDP, undeclared income that gave rise to assets will be exempt from income tax and estate duties. However, future income arising from these assets will be taxed in full. The calculation is as follows: 50% of the highest value of the aggregate of all assets held by a taxpayer outside SA's borders from 1 March 2010 to 28 February 2015 must be declared as taxable income.

While the SVDP legislation is still being prepared, the application window runs from 1 October 2016 to 31 March 2017.

Scherman points out that South Africans can still use offshore structures to reduce taxes and effect proper succession planning: "CRS does not mean that offshore structures will no longer be effective or useful. But we have been telling clients for years that if they cannot afford to have the details of their financial arrangements revealed to their tax authority, they should not be making these arrangements". Nevertheless, in circumstances where clients need help in regularising their affairs, we can be of assistance.


Controlled Foreign Company rules mean that, in most cases, offshore structures will not effectively reduce taxes unless the investors "forget" to declare the underlying income.

There is nothing illegal about a taxpayer setting up an offshore structure or commissioning an agent such as Mossack Fonseca (MF; the company implicated in the Panama Papers) to assist with this. But in fact MF rarely deals with the end-user client; it is a wholesaler that habitually provides companies to other financial intermediaries, particularly Swiss banks.

Historically, Swiss banks have had many clients who were not correctly declaring the income from these accounts. When the EU Savings Directive required the banks to reveal details of individual EU taxpayers who had accounts in Switzerland, the banks 'suggested' that these clients transfer their accounts into corporate names in order to avoid being reported.

(Later, the directive was expanded to catch all accounts by EU residents even if these accounts were held in the name of trusts or companies but many of the banks then suggested that their clients transfer their accounts to Singapore.)

It transpires from the Panama Papers that MF knew why Swiss banks were ordering large numbers of companies for their clients. But, MF was not advising these clients directly, nor was it was encouraging them to sign incorrect tax forms. It might be argued that the Swiss banks were complicit in tax evasion but, ultimately, all taxpayers are responsible for their own tax affairs and neither MF nor the Swiss banks had (or indeed, have) any duty to check that their clients are signing off correct and complete tax forms.

Another case could be made that both MF and the Swiss banks were complicit in a conspiracy to defraud foreign revenue authorities – although this is undoubtedly arguable and different levels of guilt could be attributed to both parties.

What is certain, subsequent to the Panama Papers, is that within about 18 months every tax authority in the world will have access to information that will ensure it is no longer possible for people to evade tax by failing to declare taxable income arising from offshore investments and assets.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions