Authored by: Jean du Toit, Head of Tax Technical at Tax Consulting SA
The days where SARS shuts its eyes to taxpayers’ offshore holdings are thing of the past. SARS is finally utilising the Automatic Exchange of Information regime to pin down taxpayers who have not disclosed their offshore interests and numerous taxpayers have already received some alarming notices to this effect.
The notice informs the taxpayer that SARS intends to initiate a review of their tax affairs, based on information it received from 87 foreign jurisdictions through the Automatic Exchange of Information, regarding the offshore holdings of South African taxpayers.
After recovering from the shock of the introductory words of the notice, SARS extends an olive branch and states that it wishes to engage with the taxpayer first, in the interests of administrative justice. The consolation is short-lived though because SARS then proceeds to direct a detailed and onerous information request at the taxpayer.
This starts off with a request to confirm that you have offshore holdings and then requires detailed information regarding the amount invested, the nature of the investment and the location thereof. The final question asks the taxpayer to explain why this was not disclosed on their tax return.
As if SARS knows your next move, the notice asks the taxpayer to inform them in the response if they intend to file an application under the SARS Voluntary Disclosure Programme (“VDP”).
The notice signs off by reminding the taxpayer that they have 21 working days to respond to this Gordian knot of a request and reminds you that a failure to do so constitutes a criminal offence.
What to do next
It is perplexing that SARS almost invites taxpayers to do a VDP, even after they have received this notice. It is critical to note that a VDP application must be “voluntary”, otherwise it does not meet the requirements of a valid VDP application under section 227 of the Tax Administration Act.
Technically, if the SARS notice prompts the taxpayer to come forth and file a VDP application, it may not be considered “voluntary”. It is not clear if SARS is making a concession on this aspect, but it would be very interesting to see if the VDP Unit will accept an application if it was filed pursuant to this notice.
In any event, it is important to note that the SARS notice does not give you the option to either respond or to file a VDP; it just asks you to confirm your intention. You are still very much obliged to respond to SARS’ queries. If you have received such a notice, you would be well-advised to speak to a professional, before you respond, especially if you have not disclosed your offshore interests to SARS.
If you have undisclosed offshore interests and you have not yet received this notice, then you have a small window to file a VDP application in the ordinary course. A timeous VDP application may avoid the unpleasant information gathering process initiated in terms of this SARS notice and provides you with amnesty from criminal prosecution and understatement penalties.
If you have an ounce of wisdom, this will be your immediate course of action. Be warned though, the VDP process may be the path of lesser resistance in this instance, but it should not be undertaken without the help of a professional. Ideally, you should speak to an attorney who offers legal professional privilege and who is well-versed in this process.
For those with undisclosed offshore holdings, this should serve as a wake-up call. SARS now has the means and the guile to uncover your interests and, with prevailing budget constraints, SARS has no choice but to turn to untapped pools of revenue. It is no longer a question of if SARS will come knocking, but when.