Matthew Lester: Treasury reloads offshore amnesty – not legally bindingDate Released: Fri, 4 March 2016 09:29 +0200
By Matthew Lester*
Many tax commentators were surprised at the national budget speech announcement that there will be another offshore amnesty starting on 1 October 2016.
For starters this is not an amnesty. Rather a refinement of the voluntary disclosure deal contained in the Tax Administration Act. And the Reserve Bank has come in on the deal with a generous offer as well.
But at this stage we only have a media statement in place. It is not legally binding and the devil will be in thrashing out the detail between now and October. Judging by what happened last time around in 2003 this is no easy task.
Let's concentrate on some basics.
In the 2003/4 offshore amnesty package 42 000 South Africans came clean raising R2,9bn in levies with R48bn of the R69bn declared having been held offshore illegally. One would think that would have cleaned out the skeletons in the cupboard. But apparently it didn’t.
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In short, it would appear that most 2003 to 2004 applicants only disclosed their offshore stash if it was registered in their own names.
Many South Africans conceal their stashes in offshore discretionary trusts and other shady structures. Back in 2003, their foreign administrators promised South Africans that the true identity of the beneficial owner would remain secret, their identity being concealed in an undisclosed letter of wishes that was protected by client privilege.
For years the disclosed beneficiaries of these arrangements have been charities such as the ERII Corgi foundation. What a farce! These structures would not survive scrutiny if detected by SARS today.
On top of all this, there are a host of South Africans who have opened offshore bank accounts since 2004. Especially those expatriates working abroad but who remain SA resident taxpayers. Many are not disclosed. How much is out there is not known and that’s why nothing has even been estimated on this project so far. It may be billions.
The crucial point is that the foreign administrators are now threatening to pimp on their clients to their local tax authorities and this information will be shared through the international network of tax authorities.
Imagine that. The Swiss have taken 70 years to own up on some of their dealings with the Third Reich. Now they are suddenly going to pimp on tax evaders. Wow! The world has changed!
Read also: Investing offshore as a South African – Why, How & Where.
The situation became even more acute during the HSBC and FIFA debacles of 2015. And now some South Africans are swallowing Imodium, Valium and Prozac in vast quantities.
Despite the rumours, we probably won’t see SARS knocking down these structure during 2016. But by 2020 things will be very different.
The owners of the real big money left SA years ago. And it would seem that a lot more have joined this unhappy throng since Nenegate in December 2015.
But most South Africans want to see the end of the movie at home. And even if we don’t, we will find it difficult to leave because we are too damn old. Yes, Australia has two golden rules on immigrants: No Pets and No Pensioners!
Those who are still here don’t want to leave or need access to their cash. They need retirement funds, bail-out funds for their broke parents or children and even more to educate their grandchildren at private schools or university. Being patriarch or matriarch of an SA family today is somewhat similar to an upside-down piggy bank.
But they cannot bring the offshore stash back until they clean up the tax and exchange control transgressions.
Now comes the question I have been asked at least a hundred times since budget day. ‘I have a friend with an offshore stash, should he take the deal?’
Here is the answer: ‘Either take the deal or leave SA and join the stash!’
This is not a question of the extent of the penalties and back taxes. Just consider what happens if you don’t take the deal and get caught later.
Taxpayers just don’t understand the penalty provisions contained in the Tax Administration Act today. The usual such as ‘Please I was too old, tired, sick and stupid’ just don’t work anymore. Tax evasion carries a 100% penalty or even more. And then the interest charge on both the tax and penalty can double the final bill.
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And that’s not all, ladies and gentleman, that’s not all. Criminal prosecutions could follow. And I reckon SARS is yearning for the day they can nail a high profile taxpayer with a concealed offshore stash. I am quite sure they will throw the kitchen sink, the bath tub and the jacuzzi at it, not to mention the outside spa as well.
In short, the provisions of the Tax Administration Act are such that the tax evader can lose everything and go to jail with huge legal fees outstanding. This is not like monopoly where the get of ‘jail card’ will apply.
So now procrastination sets in. After all we have until October before applications open. Maybe not!
These applications are going to take a lot of careful consideration. Calculating the back taxes alone is no simple matter. Then everything must be verified. And after that one has to consider future tax and estate duty implications.
There is work to be done. And how. Now!
• Rhodes University Professor Matthew Lester was educated at St Johns College, Wits and Rhodes universities. He is a chartered accountant who has worked at Deloitte, SARS and BDO Spencer Steward. A member of the Davis Tax Committee investigating the structure of aspects of the RSA tax system, he is based in Grahamstown.