South Africa: Final Changes To The Special Voluntary Disclosure Programme

Last Updated: 6 February 2017
Article by Beric Croome

Most Read Contributor in South Africa, July 2017

On 26 October 2016, the South African Minister of Finance tabled the Rates and Monetary Amounts and Amendment of Revenue Laws Bill, Bill 19 of 2016, in Parliament when he introduced the so-called "Mini Budget". This Bill contains the legislation regulating the Special Voluntary Disclosure Programme ("SVDP"), which commenced on 1 October 2016 and was to end on 30 June 2017. The Bill, as tabled, confirms that the SVDP will run for nine months as opposed to the originally announced period of six months. Subsequently, on 24 November 2016, the Standing Committee on Finance extended the deadline to 31 August 2017.

Under the SVDP, qualifying applicants must include, in their 2015 tax income, an amount equal to 40% of the highest amount of the rand value of the unauthorised foreign assets at the end of each year of assessment ending on or after 1 March 2010, but not ending on or after 1 March 2015. Thus, the Bill gives effect to the Treasury's announcement in September 2016 that the inclusion rate has been reduced from 50% to 40%.

In addition, the Bill contains a provision whereby the base cost of the unauthorised foreign assets for which an application is lodged under the SVDP will be deemed to have been acquired on 28 February 2015 at a cost equal to the highest market value, in foreign currency, of that asset as determined under clause 16 of the Bill. Clause 16 refers to the manner in which the amount to be included in the applicant's taxable income in 2015 is to be determined. This is based on the market value of the unauthorised foreign assets in the relevant foreign currency and translated into rands at the spot rate on the last business day in South Africa at the end of each year of assessment in question, namely, 28 February 2011, 29 February 2012, 28 February 2013, 28 February 2014 and 28 February 2015. This is a concession to taxpayers in that the base cost of the foreign assets is effectively increased when determining the capital gain that will be liable to tax when the foreign assets are ultimately disposed of. Instead of relying on the historic cost of the foreign assets, taxpayers will be entitled to rely on the market value used to determine the tax payable on those foreign assets under clause 16 of the Bill.

It must be noted that if the proceeds received on the sale of the foreign assets is less than the adjusted base cost, the cost will be limited to the proceeds received. Thus, no capital loss will be allowed to be carried forward to a future year in such cases.

Furthermore, the SVDP legislation makes it clear that where any amounts exempt from tax under the SVDP legislation were received or accrued by way of an inheritance or donation, that inheritance or donation must be exempt from estate duty under the Estate Duty Act, 1955 or donations tax under the Income Tax Act, 1962 in the hands of the estate or the donor. Where, for example an applicant seeks relief under the SVDP in respect of unauthorised foreign assets held by a deceased relative on which estate duty was not paid, the estate duty that should have been paid by the deceased effectively falls away. Similarly, where an applicant donated assets to a foreign trust on which donations tax should have been paid, that donations tax is effectively waived where the donor makes the election available under the SVDP legislation to treat the assets owned by the foreign trust as belonging to them for income tax and estate duty purposes.

The SVDP legislation also deals with controlled foreign companies subject to the provisions of section 9D of the Income Tax Act. Where, for example, an applicant transferred funds from South Africa and invested them in a controlled foreign company and that company is located in a low tax jurisdiction, the income derived by the controlled foreign company should have been declared as part of the income of the applicant. In such a case, the income that should have been attributed in favour of the applicant will not be liable to tax but the applicant can apply for SVDP relief on the basis that 40% of the highest market value of the controlled foreign company at the end of 2011-2015 tax years must be included in the applicant's income in the 2015 year of assessment.

The SVDP legislation was promulgated in the government gazette on 19 January 2017. Prospective applicants must collate the information required to apply for SVDP relief and start submitting applications to the South African Revenue Service ("SARS") and the South African Reserve Bank on the basis that applications for SVDP relief must be submitted via the SARS e-filing system, both for tax and exchange control purposes.

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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