The window period for South African residents to regularise their unauthorised foreign assets under the Special Voluntary Disclosure Programme (“SVDP”) closes on 31 August 2017. The current SVDP is the latest in a series of such opportunities offered by the Financial Surveillance Department of the South African Reserve Bank (“SARB”), beginning with the 2003 exchange control amnesty.
It is worth considering the SVDP in the context of both the current era of financial transparency and the increased political will to prosecute “illicit financial flows”. To some extent, transparency is being driven by standards targeting money laundering and terrorist financing. In a tax context, however, the instrument likely to have the biggest impact on transparency is the Common Reporting Standard for Automatic Exchange of Information in Tax Matters (“CRS”), which requires jurisdictions to obtain information from their financial institutions and automatically exchange that information with other jurisdictions on an annual basis. Currently, 112 jurisdictions have signed the multilateral convention which implements the CRS (Multilateral Convention on Mutual Administrative Assistance in Tax Matters (“MCAA”)). Through the exertion of significant diplomatic pressure, the participation of many jurisdictions has been achieved. In Panama, for example, the MCAA entered into force on 1 July 2017, and in Switzerland, it has been in force since 1 January 2017.
The South African Revenue Service (“SARS”), as South Africa’s competent authority under the MCAA, will acquire financial account information from other participating jurisdictions. Such information should constitute “taxpayer information” which SARS is generally prohibited from disclosing in terms of section 69 of the Tax Administration Act, 2011 (“TAA”). However, in terms of section 70(3) of the TAA, SARS may, inter alia, disclose to the SARB such taxpayer information as may be required to perform a function or duty under the Exchange Control Regulations, 1961. The SARB will therefore have access to information regarding the existence and location of foreign assets held by or for the benefit of South African residents.
The SVDP has been presented by the SARB and SARS as a final opportunity to regularise unauthorised foreign assets before they are exposed through the automatic exchange of information. Once the SVDP window has closed, it will still be possible to approach the SARB and make a voluntary disclosure in terms of regulation 24. Such disclosures are, however, potentially subject to a “settlement” of between 10% to 40% of the market value of the unauthorised foreign assets. The SVDP, on the other hand, provides for a potential “levy” of between 5% and 10% of the market value of unauthorised assets depending on whether the assets or the proceeds thereof are repatriated or retained offshore. In terms of a media statement by National Treasury at the initiation of the SVDP, residents whose unauthorised foreign assets have not been voluntarily disclosed, in terms of the SVDP or otherwise, may face criminal sanction and the forfeiture of the full amount of the contravention.
In addition to the global climate of increased transparency, there is currently significant political pressure on authorities to prosecute unlawful cross-border financial transactions. Locally, in this regard, we have seen the increasing use by politicians of the catch-all term “illicit financial flows”. From an exchange control perspective, it is noteworthy that Business Day reported, on 1 August 2017, that Parliament’s Finance Standing Committee has called for the formation of an interministerial committee, led by the Minister of Finance, to address the perceived lack of prosecution of exchange control contraventions.
Given the increased exchange of financial account information and the apparent political will to pursue “illicit financial flows”, potential applicants should therefore evaluate the context of the SVDP carefully before deciding to pass on the latest “last chance”.