Talking Point – News Flash March 2016

A succinct discussion of selected topical, legal matters

Dear Friends and Colleagues

I take great pleasure in submitting this News Flash edition of Talking Point to you.

The income tax created more criminals than any other single act of government.”

Barry Goldwater (politician)

The devil appears in many forms, but the most nefarious of all are tax forms.”

Jarod Kintz (author)

You don’t pay taxes – they take taxes.”

Chris Rock (actor/comedian)

Walkers assisted many clients through previous tax/exchange control amnesties.  In this issue we bring you up to date on the proposed 2016 tax/exchange control amnesty.  For the record, in this context, the term “amnesty” is an exaggeration, and “mitigation” may be more accurate, as an affected person will pay dearly for admitting guilt.

As always, I would greatly appreciate your feedback on Talking Point. Please email me at


Charl Theron

Jerome 2by Jerome Veldsman

South African Revenue Service (SARS) administers a voluntary disclosure programme under the Tax Administration Act for (only) tax non-compliance.  South African Reserve Bank (SARB) has a less formal voluntary disclosure programme for (only) exchange control contravention.  These two programmes are not coordinated, and the composite relief that will be granted to a voluntary discloser of substantial undisclosed amounts offshore is not particularly generous or predictable.  The general view is that (until now) many have preferred to remain ‘under the radar’.

South Africa and 93 other jurisdictions are signatories to the Convention on Mutual Administrative Assistance in Tax Matters, a convention that regulates information exchange between signatories regarding tax matters.  SARS is committed to commence exchange of information automatically on a wider front from 2017.  The general view (on which we express no opinion in this article) is that persons ‘under the radar’ may well have reason for concern.

On 24 February 2016, during the 2016 Budget Speech, the Minister of Finance announced: “Though not introduced today, we publish on our website the draft bill on the special voluntary disclosure programme.”  On the same day, both National Treasury and SARS published the same concomitant media statement on their respective websites.

Contrary to popular belief, utterances by the Minister of Finance during a Budget Speech do not constitute law, and are merely statements of intention.  The Minster seems to have been misinformed regarding publication of the draft bill.  According to the media statement: “Provisions regarding tax relief under the Special Voluntary Disclosure Programme will be made available in the Rates and Monetary Amounts and Amendment of Revenue Laws Bill, 2016, the Rates and Monetary Amounts and Amendment of Revenue Laws (Administration Bill), 2016 and under the Exchange Control Regulation 24 of 1961.”

As such Bills are not at present available to the public, and still have to pass the Parliamentary process, there is some way to go before we’ll have certainty about the actual rules that will apply to the 2016 tax/exchange control amnesty (the “Amnesty“).

Who will qualify for the Amnesty?  According to the media statement:

– Persons already ‘above the radar’ and trusts will not be allowed to apply.

– Others will be allowed to submit applications, from 1 October 2016 until 31 March 2017; and settlors, donors, deceased estates, and beneficiaries of foreign discretionary trusts may apply, provided they elect to have the trust’s offshore assets and income deemed (for tax purposes) to be held by them personally.

The media statement is cryptic regarding income tax relief, and has in several respects been misunderstood in the media.  Our impression is that the relief will be designed overall roughly to approximate what would have been payable as tax but for the tax non-compliance and trust structures, with –

– investment returns prior to 1 March 2010 to be exempt;

– interest to be levied from 1 March 2010 on 50% of previously undeclared ‘seed money’ for the offshore investment; and.

– a (percentagewise) modest add-on (depending on the specific facts).

At least, SARS will ‘waive’ understatement penalties and criminal prosecution.

The media statement is clear regarding the exchange control ‘charge’:

– 5% of market value if the cash is repatriated to South Africa; and 10% if it is not.

– The ‘charge’ must be paid from foreign-sourced funds; alternatively there will be a 2% of market value add-on ‘charge’.

The media statement seems contradictory regarding the processing of applications, and we hope the upcoming legislation will provide for practical processing.

Do not be fooled.  The question of whether (or not) to apply for the Amnesty is not primarily about tax or money.  It is about personal risk.  Anyone who should apply, and does not, or someone who applies and fails to achieve amnesty, may find mere financial impoverishment to be the lesser concern.  There may be the real risk of criminal prosecution.

The decision of whether (or not) to apply for the Amnesty, and the actual application, will require some delicacy.  Inevitably, a potential applicant (and his or her advisors) will have to ‘repatriate’ to South Africa and deal with some sensitive information.  Under the common law rule of legal advice privilege, communications (including exchanges of documents) between legal practitioners and their clients are protected from disclosure, provided that certain requirements are met.  A 2015 amendment of the Tax Administration Act endeavoured to erode the legal advice privilege in tax matters, but not by much.  A potential applicant for the Amnesty will be well advised to consult with a duly experienced and qualified legal practitioner.