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B. FOREIGN ASSETS AMNESTY
1. Why a VDP?
A Memo issued by Treasury stated that “in line with greater international co-operation over bank secrecy and enhanced measures to prevent money laundering, the VDP will also enable taxpayers with unreported banking accounts overseas to fully disclose such untaxed revenue…” In addition, there will be a shift from Exchange Controls to a system of prudential regulation by “replacing unnecessarily administrative controls with improved surveillance and prudential limits and foreign exposure risks”. The objectives are therefore twofold, to uncover sources of untaxed revenue, and presumably to prepare the groundwork for the abolition of Exchange Control for natural persons.
2. What funds are affected?
Any unauthorised foreign assets, albeit not defined, but presumably meaning the same as in the 2004 Amnesty (“the previous Amnesty”), namely “any funds or assets which were accumulated outside the Republic or were transferred from the Republic in contravention of Exchange Control Regulations” up and until 28th February 2010.
3. Who can apply?
Any resident of the Republic for Exchange Control purposes, including natural persons, Companies and Trusts.
4. Who to apply to?
Any authorised dealer or the Financial Surveillance (“FS”) Department (previously Exchange Control) directly.
5. Who is a resident?
Any person who is “ordinarily resident” in the Republic and including South African residents temporarily abroad i.e. persons who have not emigrated as such. For Companies and Trusts, they will be resident if formed in South Africa, or otherwise if their place of effective management is in South Africa.
6. When to apply?
From 1st November 2010 to 31st October 2011.
7. What forms will be applicable?
Prescribed forms are available on the Reserve Bank website. They are similar to those used for the previous Amnesty.
8. What type of offenses can be regularised?
There are three categories: A: technical offenses that only need a Declaration to be made; B: specified contraventions, being the use of loop structures and the donation of monies/assets to offshore Trusts; and, C: any other contravention, including the unauthorised sale of intellectual property, the failure to repatriate unused travel allowances, the acquisition of foreign assets, the retention abroad of export proceeds, over and under invoicing, unauthorised spending on credit cards. Both the categories B and C require a full disclosure programme and completion of an Affidavit.
A: 8.1 Declaration for natural persons
A Declaration similar to the previous Amnesty Circular D405 Declaration must be signed by a resident and furnished to an authorised dealer (a Bank), which will regularise monies and/or assets in the following circumstances. There is no form for this on the website, however.
8.1.1 Where a resident immigrating prior to 28th February 2010 to South Africa failed to disclose that they were possessed of foreign assets; or
8.1.2 Where a resident failed to disclose a foreign inheritance inherited prior to 17th March 1998; or
8.1.3 Where a resident failed to disclose income earned offshore prior to 1st July 1997; and
8.1.4 Finally, where a resident raised unauthorised foreign loans without permission prior to 28th February 2010 i.e. a Mortgage Bond – previous Amnesty allowed a nett situation – not specifically done now.
Under 8.1.1, the Declaration will confirm the holding of such foreign assets and include an undertaking that they will not be disposed of to any resident. The extent of the identification of the foreign assets is not disclosed. Under the previous Amnesty, it was only necessary to declare that the resident in question as an immigrant “possessed foreign assets” and no more.
8.2 Declaration for Corporate Entities
A Declaration would relate to the following technical contraventions, namely:
8.2.1 Approved foreign investments: where the resident Company failed to comply, for instance, by not submitting financial statements, not lodging Share Certificates, or not repatriating dividends prior to 26th October 2004.
8.2.2 Unauthorised foreign loans: where the resident raised loan monies offshore prior to 28th February 2010.
8.2.3 Unauthorised foreign investments: Where the resident acquired any such foreign investment prior to 28th February 2010.
The details under 8.2.2 and 8.2.3 must be reported with full details and provided the transaction accords with present Financial Surveillance policies, will be fully authorised. If not, a levy may be payable i.e. for instance on dividends not repatriated.
8.3 Is a levy applicable to Declarations?
No levy is applicable in regard to natural persons making a Declaration. For Corporate Entities where the FS policies have not been followed, a levy may be applied of up to 12%.
B: 9. Contraventions:
9.1 What is a loop structure?
A loop structure is any transaction, which facilitates exporting capital directly or indirectly from South Africa. Generally this is achieved by forming an offshore structure, which then re-invests into South Africa and exports capital via dividend distributions.
Residents must:
9.1.1 dismantle such holding within a period of 180 days; and
9.1.2 pay a 10/12% levy on the funds originally used to establish the investment, as well as on the value of any offshore growth thereon.
9.2 Trusts
A similar procedure is adopted to the previous Amnesty, namely that any assets donated to a Trust must be identified and will be deemed to be held by that resident. A levy of 10% of the value of the foreign asset disclosed will be payable. The market value will be as at 28th February 2010.
C: 10. General Category of Contraventions
This relates to any contravention of Exchange Control where unauthorised foreign assets are acquired at any time prior to 28th February 2010. A person may apply whether for themselves or in a representative capacity i.e. a Company Director, or Trustee, or presumably a Beneficiary of a Trust.
The contraventions include:
10.1 the unauthorised sale of Intellectual Property;
10.2 the creation of a foreign liability where South African assets are used as collateral; or
10.3 the acquisition of a direct or indirect interest in a foreign asset (including foreign cash balances) resulting from the retention of funds abroad, which should have been repatriated to Republic i.e. travel allowances.
11. How much is the levy?
A discretionary levy of up to 10% is provided for. 10% if paid from offshore funds, or if not available then 12% from local funds.
12. When must levy be paid?
By no later than three months after notification of approval of the application.
13. What must the Affidavit disclose?
The Application must:
13.1 disclose the market value of that foreign asset in the foreign currency of the country in which the foreign asset is situated;
13.2 include a description of the identifying characteristics and location of that foreign asset;
13.3 submit, in respect of the market value, in the foreign currency of that foreign asset, as at 28 February 2010 –
(a) a valuation certificate by a valuator of the country where that foreign asset is located;
(b) if it is a financial instrument, then a statement of account indicating the balance or market value;
13.4 if a Trust is involved, furnish the founding document (including any amendments, codicils and addendums) as at 28 February 2010.
14. Who cannot apply?
An application may not be made:
14.1 in respect of a Bearer Instrument. Under the previous Amnesty, this meant a Financial Instrument where the identity of the beneficial owner cannot be determined from the document, but did not include an instrument where the beneficial owner could prove that the funds involved were derived from his own money and held by him for at least 18 months prior to the acquisition of the bearer instrument!
14.2 by a person in respect of whom there is a pending investigation. However if it can be shown that the contravention disclosed in the application would not have otherwise been detected, or where it is otherwise in the interests of the administration of the Treasury, the FS may nevertheless agree to an Amnesty. Provision is also made for the issue of a non-binding opinion as to whether or not such relief would be given.
15. Can an application be refused?
Provided compliance is made insofar as the contents of the Affidavit to be submitted contain the information required, an application must be granted and in addition, FS may waive the levy and also grant a credit in respect of any unutilized portion of the Foreign Investment Allowance of such person. On an application being granted, FS will not be entitled to pursue any criminal prosecution against such person and any such contravention shall “be deemed not to have been a contravention of the regulations”.
16. Objections if application refused
An objection can be made within 30 days of the date of a notice refusing an application for relief or of non-binding opinion. The review panel will consist of three persons, two of whom will be Senior Managers from FS.
17. How does this Amnesty differ from the previous one?
Under the previous Amnesty:
17.1 There was no discretion as to whether or not the levy would apply or the extent thereof – now discretionary and the extent up to 10%;
17.2 The full Foreign Allowance then applicable was automatically deducted from the value of the unauthorised assets in determining the levy – now discretionary;
17.3 The levy was 5% if the foreign assets were repatriated, and 10% if not;
17.4 It included relief for any person who assisted a resident in accumulating foreign assets, or in transferring assets from the Republic.
17.5 It allowed an application to be made by Beneficiaries of a Trust as well. Now the applicant has to be the Donor in respect of the foreign asset held by the Trust, or otherwise derived from such foreign asset.
17.6 It dealt with a Tax Amnesty simultaneously so that taxable income not previously disclosed was subject to a 2% levy up to the period ending 28th February 2002.
17.7 An Applicant knew exactly what he/she had to disclose. Regulation 24(2)(d) provides that the Applicant in his/her Affidavit must “provide such additional information relating to such contravention as may be prescribed”. An Applicant cannot therefore be sure from the outset what type of information will be required; the goal posts can be changed. Will he/she have to disclose whether the assets were acquired from unutilised travel allowances or other sources. Certainty is a crucial factor in attracting compliance.
Links:
Links to the Voluntary Disclosure Programme (VDP): www.reservebank.co.za
Memorandum on the objects of the Voluntary Disclosure Programme: www.reservebank.co.za
Guide to Tax and Exchange Control Voluntary Disclosure Programme 2010: www.reservebank.co.za
Application form VDP Guide: www.reservebank.co.za
Application form VDP IT: www.reservebank.co.za
Applicationform VDP CE: http://www.reservebank.co.za/
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