AVDP now in full swing

On 30 September this year, National Treasury issued a statement noting that the additional voluntary disclosure programme (AVDP – previously referred to as the special voluntary disclosure programme) would come into operation on 1 October, even though the applicable tax legislation had not yet been finalised.

The AVDP is aimed at providing South African residents with undisclosed foreign assets and income a final chance to regularise their tax affairs.

The Rates and Monetary Amounts and Amendment of Revenue Laws Bill (the Bill) containing the relevant AVDP legislation was finally tabled on 26 October when Finance Minister Pravin Gordhan delivered his Medium Term Budget Policy Statement. Although it has yet to become law, all indications are that the Bill will be enacted in its current form.

TAX RELIEF

Here’s what you need to know about the tax relief measures contained in the Bill:

40% of the highest value of all assets (determined in ZAR at the end of each tax year) situated outside SA between 1 March 2010 and 28 February 2015 that was derived from undeclared income, whether partially or in full, will have to be included in taxable income and become subject to tax.
The above amount must be included in taxable income in the first year of assessment ending on or after 1 March 2014, that is, in the 2015 tax year, and this will broadly result in the assets being taxed at an effective rate of 16%.
The undeclared income that originally gave rise to the assets included above will be exempt from income tax, donations tax and estate duty that would have been payable on it in the past.
Future income or gains (from 1 March 2015) will, however, be subject to all taxes as per normal.
The value of the 40% amount to be included in taxable income is the market value of the foreign asset determined in South African rands at the end of each year of assessment from the 2011 to 2015 tax years. The conversion rate is the spot rate on 28 February of each respective tax year.
Taxpayers who may have had undeclared foreign assets that were extinguished due to, for example, losses before 1 March 2010, may also apply under the AVDP. This could apply, for instance, where an SA taxpayer invested in a foreign business that went bankrupt. In such cases the asset would be deemed to have been held between 1 March 2010 and 28 February 2015. The highest value of the asset must then be determined on the same basis as above and 40% thereof must be included in the 2015 tax year.
A foreign trust may not apply for the AVDP, but the donor, deceased estate of the donor or a beneficiary may apply by electing that the assets held in the trust be deemed to be the assets of the person applying for the AVDP.
New: The base cost of assets declared in terms of the AVDP that were held and not disposed of on 28 February 2015 will be reset to the market value (in foreign currency) as at 28 February 2015 (for companies, the base cost will be reset on the last day of the year of assessment ending on or before 28 February 2015).

The above-mentioned new provision added to the Bill is to be welcomed, as it provides clarity regarding future capital gains tax liabilities arising from assets disclosed in terms of the AVDP. (This will now only be limited to gains made since 28 February 2015 for individuals, and for companies, since the last day of assessment ending on or before 28 February 2015.)

The legislation unfortunately provides no clear direction on when the AVDP or when the normal statutory voluntary disclosure programme (VDP) should be used – this will unfortunately have to be determined on a case-by-case basis.

Taxpayers who hold undeclared foreign assets and who are considering making use of the AVDP should obtain the following information and substantiating documentation:

FOREIGN ASSETS HELD PERSONALLY

A description of the source of the undeclared income that gave rise to the foreign asset.
Documentation in evidence of the foreign asset, for example, bank account details, property registration papers, or valuations of assets that were extinguished before 1 March 2010. If this is not available, SARS may agree to accept a reasonable estimate of the value.
The nature of the relationship of the applicant with respect to the asset, for example, owner or shareholder.
Power of attorney where relevant.

FOREIGN ASSETS DONATED AND HELD IN A FOREIGN TRUST

Trust documentation such as the trust deed.
A description of the structure used to create the asset or to hold the asset.
Documentary evidence of the date on which the asset was acquired and the existence of the foreign asset, for example, bank account details, property registration papers and valuation statements of all the foreign assets derived from the undeclared assets as at the end of each of the tax years from 2011 to 2015.
Valuation statements of the trust assets derived from the undeclared assets as at the end of each of the tax years from 2011 to 2015.
The nature of the applicant’s connection to the asset, for example, donor or beneficiary.

EXCHANGE CONTROL RELIEF

There have been no changes to exchange control measures. It seems relatively straightforward – the market value of assets in contravention of the Exchange Control Regulations as at 29 February 2016 must be disclosed.

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Documentary evidence to be supplied for the exchange control AVDP:

A duly signed and completed sworn statement or solemn declaration
An identity document (ID) or passport of the applicant (ie natural persons and/or the authorised directors/members of legal entities)
Proof of authority to act by representatives
Letters of executorship, death certificate and ID or passport of the executor applying on behalf of a deceased estate
A trust deed, including any amendments, and the latest audited financial statements in respect of any foreign trust
An organisational diagram / family tree containing full details of the structure and the funding thereof (including any cash flows into and out of South Africa) in respect of loop structures
The relevant supporting documentation of the foreign assets declared as at 29 February 2016

The indicative maximum ‘costs’ of the combined AVDP (tax and exchange control) would therefore be as follows:

If assets are retained abroad and exchange control levy paid from SA funds 28%
If assets are retained abroad and exchange control levy paid from abroad 26%
If assets are repatriated to SA 21%

As mentioned above, it is unlikely that the Bill will not be enacted in its current form, so taxpayers who want to make use of the AVDP are encouraged to obtain the required information as soon as possible to ensure they have enough time to submit their application before the window period ends on 30 June 2017.

If you have undisclosed assets we recommend that you contact a Sanlam Private Wealth Fiduciary and Tax specialist for professional advice and to assist you with the application process.