South African Tax Man’s Message To HSBC Account Holders

The South African Revenue Service (SARS) has announced an amnesty of sort – a threat and upfront warnings: we do know about you, best you come forward before we make the tax audit into your affairs known.

On July 9th, 2015, SARS issued a press release, which can be read in more detail on: – – – South-Africans-with-accounts-and-investments-in-foreign-tax-jurisdictions.aspx

The International Consortium of Investigative Journalists (ICIJ), based information obtained by French newspaper Le Monde, ranked South Africa number 31 among the countries with the largest amount of dollars ($2.3blion) in the so-called leaked Swiss files. According to ICIJ, based on information compiled by former HSBC employee Hervé Falciani, some 1 787 of the leaked Swiss bank accounts, were held by South African clients.

According to Falciani and or Le Monde, a high-ranking arms consultant and special adviser to a former defence minister Joe Modise held one of the leaked Swiss accounts. The name of Expat South African Jean-Yves Ollivier, who was a hostage negotiator and played a major role in securing Nelson Mandela’s release from prison nearly three decades ago, was also mentioned yet it is known that he left South Africa as long back as 1994.

It is, therefore, clear that SARS inadvertently may target others who has left South Africa. Most of the expats are probably no longer tax resident in South Africa, and it would be interesting to see if SARS intends to overturn their tax emigration clearance certificates.

• The ICIJ page has the following disclaimer: “According to Falciani, a few of these HSBC clients tried to evade tax.” It must, therefore, be assumed most of the South Africans names, held legitimate and tax transparent bank accounts. The writer is aware of certain of the listed South African passports holders included in the press articles, obtained tax and exchange control amnesty in 2005/6. At the time of the leak, and at the time of last week’s press releases, the said South African passport holders already enjoyed tax and Excon amnesty. The cricket players listed earned their income abroad, and they may enjoy tax exemption in terms of Interpretation Note 16, as they were spending more +183 years abroad.

Nevertheless, not all can so easily explain away the undisclosed accounts or the existence of the foreign currency. For them, SARS provided a last opportunity to come clean before 12 August 2015.

SARS needs to collect more money!

The tax pool is shrinking as 8000 of the top 47 000 taxpayers already packed up and left. It is estimated that only 63,000 South Africans, being part of the 1% wealthiest part of society, pays some 90% of the SA tax bill. It is often asked:

“In a country of 51 million people, how can 3.3 million pay 99% of all income tax? It’s a policy that can only lead to a financial crash.”

Initially politics caused the exodus of the dollar millionaires, but more recently, the South African government’s Greek tendencies have several worried about the ever declining if not plummeting South African Rand (ZAR).

VDP is a cash cow

SARS therefore favours a voluntary disclosure program (VDP) or offshore amnesty like process, as it brings in immediate cash, secures future compliance and saves them legal and infrastructure costs, to chase the small number of sitting ducks with undisclosed accounts.

Earlier in in 2015, at the time of the South Africa’s annual budget speech, by the then new Minister of Finance, Nhlanhla Nene, the new tax rules were little overshadowed by the HSBC bank accounts leaked to South African Revenue Service (SARS). Not only high net worth individuals (HNWI) but also major South African banks and large multinationals were somewhat embarrassed because of their apparent cosy link with HSBC and alleged tax scams going around.

Nene, in his maiden budget, did not play the HSBC card, yet Judge Dennis David and SARS officials continually suggested there is an enormous camp down looming or on the go. Judge Dennis Davis is known to have publically supported another offshore tax amnesty, for two critical reasons.

Leading up to the budget announcements, Nene had to deal with an unfolding PR disaster.

The first is the quicker tax collection (not to mention the saving in legal costs) and the second being the apparent mess the SA National Prosecuting Authority (NPA) finds itself. Obviously, the rogue unit bomb, disclosure, resignations and labour disputes (within SARS) left the South African tax institution a little embarrassed, if not somewhat lame. Not only was SARS prosecution but also NPA capacity doubtful. The public spat between SARS, its past Commissioner Pravin Gordhan and past spokesperson, harmed the institution’s image, credibility and left the taxpayer community extremely frustrated yet another government agency is falling apart.

Automatic Exchange of Information (AEOI) and IGA’s

In March 2015, SARS confirmed that the first reporting period in terms of the inter-governmental agreement (IGA), forced South African financial institutions to submit the taxpayer’s February 2015 information SARS by 30 June 2015.

SARS, in turn, will exchange the “FATCA” and CRS information with the U.S. Treasury and other OECD members by 30 September 2015. Equally, SARS (but not SARB) will receive the offshore bank info from other tax jurisdictions.

On February 26th, soon after the 2015 budget speech and as South Africans prepared for the tax year-end (yes in SA tax year is not a calendar year, but ends on the last day of February) and interesting article appeared, in which Dan Forster was quoted as saying (now prophetic) words:

“Sars’ reach is also becoming increasingly global, thanks to a rapid move towards the exchange of information between national tax authorities.

“Cross-border avoidance of tax is Sars’ biggest focus area,” says Dan Foster, tax director at Webber Wentzel. It is an area in which SA already ranks among the top 50 countries in terms of mutual assistance on tax issues, he says.

The noose is getting tighter. Foster foresees automatic exchange of information globally becoming a reality as soon as 2017.

“There will be no more secret bank accounts,” he says. [Read also Moneyweb’s later comment: Game Over in response to a CRS/FATCA update chaired by the author, Hugo van Zyl]

“The pace at which the international clampdown on HNW tax evaders is proceeding, Foster says, is vividly illustrated by the storm of controversy UK bank HSBC has found itself in.

• At the centre of the storm is a disclosure that HSBC’s Swiss private bank aided hundreds of clients in evading tax authorities in their home countries.

“The revelation came thanks to a list of names extracted from secret files released by the International Consortium of Investigative Journalists in February. “There are a few South African names on the list,” says Foster.

“Cross-border tax avoidance is far from a pursuit confined to HNW individuals. Multi-national companies also play the avoidance game through profit shifting to the most beneficial tax jurisdictions, with the resultant loss of tax income (base erosion) by countries where they earn the profit.”

SARS needs additional tax and cash inflows

The tax elite can no longer fund the masses. In South Africa the most popular speed date question is: Do you file a tax return? Your answer could place you in the top 5% of income earners as only those earning R250 000 (U$D 20 000) or more, needs to tax file.

Post 2015 budget the nation thought SARS and Nene had forgotten about the HSBC windfall, the AEOI data and the promised tax onslaught.

Yes, it went all quiet, or so we all thought, yet at a June 2015 STEP Cape Town update by Judge Dennis Davis, chair of the Davis Tax Committee (DTC) once again (following his March 2015 statements) hinted at the tax collection benefits of another, last and final offshore tax amnesty. No detail was given yet he left one with the suggestion that the 2015 final amnesty should closely follow the 2003 tax and exchange control amnesty’s rules.

“We said if you take the R23bn deposited in those accounts and take a return of 6% or 6,5% and then multiply that by 40%, which is the amount they would have been obliged to pay in tax, you have about R400m. That means R400m of lost tax per year” if there was nondisclosure across the board. “But if you take that over a five-year period, that’s R2bn,” says Davis

STEP Cape Town attendees welcomed his support and reasons for yet another amnesty, yet writer alerted the Judge during question and answer session, there is may be a slow take up, unless SA Reserve Bank (SARB) and the Financial Intelligence Centre (FICA) came to the party, were part of the process. Delinquent taxpayers would only come forward if all three institutions aligned their processes and rules. Due to then pending Constitutional Court (ConCourt) decision on the SARB appeal against the Shuttleworth Case, the said Judge Davis was not prepared to comment.

Shuttleworth ConCourt Case – Excon restrictions re-confirmed

Subsequently, the ConCourt judgement went against Mark Shuttleworth, squarely placing SARB back in control and presumably restoring the integrity of South African Exchange Control (Excon) measures, duly managed by Department Financial Surveillance (FinSurv) with SARB.

In June 2015, the ConCourt rules in favour of government and as early as 11 June 2015, ex SARB Excon employees and the financial press suggested that that:

“THE HSBC files have introduced a new layer of wealth into SA society: a significant number of high net worth individuals who until now have managed to avoid every rich list.

“Van Staden’s view is that it no longer makes sense to contravene the exchange control regulations anyhow, considering that an individual’s foreign capital allowance is now R10m per calendar year since April, up from R4m a year”

Was the outcome of the ConCourt ruling leaked?

Who knows, but on June 18th, just a week later the ConCourt held that Exchange Control is constitutionally acceptable. South Africans all over, sat up and took notice of the fact that SARB and Excon penalties on non-compliant South Africans is a continued reality.

On June 30th, SARB issued circular 23 of 2015, and we quote:

“… the Constitutional Court has upheld the constitutional validity of the section of the Currency and Exchanges Act, 1933 (Act No. 9 of 1933) that enables the making of Regulations and the provision in the Regulations prohibiting the export of capital without authorisation under certain conditions”

Pressure was on government to again consider an amnesty
It was evident that commenters like Van Staden and Judge Davis quoted elsewhere, and cross-border advisers (author included) suggested now was the time for delinquent clients to come forward.

If SARB, SARS and the FIC agreed to cooperate with each other, and allow for once central point to report the contraventions, the fiscus was to benefit substantially from the additional taxes to be collected, immediately and in the next few years.

On July 9th, 2015, SARS in a media statement announced “an update on the progress made by SARS on work done on foreign bank accounts held by South African residents” yet to date, SARB has yet to show their commitment to an amnesty of sort.

Without the Financial Intelligence Centre (FIC) coming to the party, the delinquent clients may not speak to their trusted accountants, financial advisers or bankers. Their trusted advisers are their biggest enemy, as they need to report the “suspicion” immediately, there is no leniency.

Only a practising lawyer can provide the delinquent clients with the necessary attorney-client-protections.

Sadly, the SARS announcement was, unlike in 2013, not followed by a press release by Treasury, not to mention a matching SARB undertaking to either reduce or create certainty as to the Excon penalties one faces if caught having illegal or undisclosed foreign assets.

SARS, but not SARB, publically encouraged tax residents opportunity to approach VDP Unit (within SARS) to regularise their tax and tax residency affairs. The SARS VDP page is on, and it includes a link to the said press / media statement on 9 July 2015.

SARS is now manipulating the offshore bank data received

SARS confirmed, in the said press statement, that they completed the initial phase of matching presumably Swiss / HSBC Exchange of Information (EOI, as the AEOI is only about to commence) data with the tax compliance by the identified taxpayers.

“This matching confirms that some accountholders may have used their accounts to evade South African tax liabilities. “

#GameOver Money Web wrote in response to the recent Global Tax Transparency Conference hosted by Maitland and The Fiduciary Institute of South Africa (FISA).

Then, on 9 July 2015. SARS, most generously invited tax residents to submit their “amnesty” applications to the SARS VDP unit on or before 12 August 2015. HSBC audit letter confirming a tax investigation will commence on 13 August 2015.

About one month to source foreign tax information and to initiate the VDP process, but alas SARB is not part of the deal.

There is no reference to the Excon or SARB process to follow.

As long ago as June 2012, SAICA in Integritax published a law firm’s summary on the apparent lack of Excon and SARB’s commitment to introduce a permanent voluntary disclosure program. SARB deals with disclosures on a case-by-case basis. The article went so far as to say:

“SARB’s Financial Surveillance … allow for the administrative regularisation … SARB’s guideline at the moment is a penalty of between 20 – 40% of the Excon contravention amount. No set-off of the unutilised portion of the R4 million Foreign Investment Allowance is, however, allowed.”

Ironically, the very same law firm having written the SAICA article, was also representing HSBC in their attempt to gag the South African Sunday Time, as they were about to publish the full list of leaked bank account names. Going full out to share the remedies with their clients, yet not prepared to allow their client’s client names being published? The Sunday Times then also commented and alerted the South African readers on the contrast between HSBC in the UK and HSBC in dealing with SARS in South Africa.

“HSBC’s heavy-handed response in South Africa contrasts with a more accommodating approach in the UK when approached for comment by the investigative journalists’ body.”

As we approach the July 18th, one month since the Shuttleworth ruling in the ConCourt, SARB has yet to provide more clarity on their penalty regime or perhaps their stand on a second tax amnesty.

Can it be argued that FIC (attorney-client-privilege) and SARB FinSurv (Excon) are now causing clients not to take up the SARS option on or before 12 August?

It is argued by some that the SARS media release on July 9th, may be addressed to a very narrow list of “HSBC” clients yet one must not forget the CRS information coming available to SARS on or about 30 September 2015.

Surely SARS, in committing the country and their resources to our IGA obligations, has ensure that IRS (i.r.o. FATCA reporting) and other competent tax authorities (i.r.o. CRS reports) will live up to the expectation to spill the beans on SA clients banking in their countries, be it legally or somewhat below the radar?

Once again, we have to read the media articles around budget time, February 2015. Other more sensational rouge unit coverage may have overshadowed the SARS official’s comments: SARS is about to launch a massive clampdown on tax evasion.

It may be opportune to repeat the earlier Dan Foster quote:

“Cross-border avoidance of tax is Sars’ biggest focus area,” says Dan Foster, tax director at Webber Wentzel. It is an area in which SA already ranks among the top 50 countries in terms of mutual assistance on tax issues, he says.

SARS threatened that they were to commence issuing audit notification letters from 13 August 2015. Would that be too late to avail to the VDP process?

The relevant SARS guide suggest that SARS:

“may permit a person who would otherwise be excluded as a result of the audit or pending audit rule, to apply for VDP relief where SARS believes that the default would not otherwise have been detected during the audit or investigation; and the application would be in the interest of good management of the tax system and the best use of SARS’ resources.”

Far too little comfort, the writer suggest. Approach SARS before they approach you!

A taxpayer that is aware of a pending audit or investigation or should the tax audit or tax investigation have commenced; one cannot apply for VDP. SARS has, however, indicated, that “verification” or “inspection” procedure that was “not preceded by the commencement of an audit or by a notice of an impending audit” is not an “audit” for purposes of the VDP process.

In short, should a standard audit or tax filing verification letter leave you feeling uncomfortable, it may be the last opportunity you have to contact the VDP unit or to apply for VDP via your online eFiling profile.

EOI, AEOI, and CRS. What exactly is this new SARS tool or source of information you refer too? Is often the question tax practitioners are asked. Is this all because of America and their FATCA rules?

Yes, SARS has a new tool! Big Brother is watching!

South Africa is one of the “early adopters” to the Organization for Economic Co-operation and Development’s (OECD) Common Reporting Standards (CRS), although there are structural and technical differences between FATCA and CRS, the most important similarity is BIG BROTHER is watching.

Early and late adopters the OECD’s CRS will in future, automatically exchange information between each other. FATCA is based on an IGA, an agreement between SA and another specific government, whereas subscribers to the OECD’s CRS program effectively agree to al share with all the OECD members and signatory countries. Despite SA not being a full OECD member, SA was an early signature to the CRS agreement. More recently, we even saw India signing up. The significantly absent signatory remains to be the USA.

Unlike the HSBC EOI, following foreign or cross-border whistle blowing at a Swiss Bank, there is now AEOI (Automatic Exchange of Information) about to take place.

Internationally, banks have to report your banking and monetary value info to their own regulating tax authorities!

By the end of September 2015, all the already participating tax offices worldwide will commence the automatic exchange of info!

We left South Africa some time back

Many expats South Africans, as well as immigrants to South Africa, do not know they remain tax reportable to SARS!

Equally, immigrants to South Africa, assume they can secretly keep their foreign bank accounts from the SARS vaults.

Not that easy, writer suggests. Not living in SA or being in SA for a short period only, does not protect you from the SARS audit.

Immigrants may indeed already be tax resident on arrival or very soon after that.

Not all immigrants can rely on the physical presence test or days rules, assuming they have six years before they report worldwide income to SARS.

Expats aka as #Saffas or @Wegkaner, is not necessarily tax non-resident and whilst they may reside and work outside South Africa, they may remain tax resident in South Africa, duly obliged to report foreign account and foreign investment to SARS.

Yes, SARS will tax non-SA income!

It is SARS’ right to tax you on worldwide income, yet is your right to claim tax exemption. Expats are often obliged first to report and then claim the tax exemption with SARS. In so doing, SARS wants to know the exact amount you claim to be taxable in another country, and not taxable in South Africa.

To claim this exemption you may need to re-activate your SA tax number or avail to the VDP route to update and come clean at SARS!

Having used your formal tax allowance one is presumably safe. No, it is not, it leaves you Excon compliant but not necessarily, tax compliant at SARS wants know why the subsequent income earned was not taxed in South Africa.

Having availed to the allowance, the question is then: how did you report the consequential info?

If you reside outside South Africa, your challenge may appear to be insignificant. Yet one has to remember not all SA expats residing outside SA is tax non-resident.

Equally, if you created the offshore account before you left, and the said asset or consequential asset base is not part of the balance sheet declared on tax emigration, SARS are able to withdraw the tax emigration certificate.

On leaving SA, it is true that SARB FinSurv, for Excon purposes, only requires a South African in situ balance sheet. For SARS purposes, you have to declare your worldwide assets and pay the capital gains (CGT) and other exit taxes, on your worldwide balance sheet.


Hugo is a Chartered Accountant (South Africa) registered with The SA Institute of Tax Practitioners and SARS as a Master Tax Practitioner. He is in daily contact with expat South Africans (aka SAFFAS or Wegkaners) where ever they live and has lectured from LA to London and although many clients now reside in Australasia, Hugo has never visited either Australia nor NZ. Bucket List I hear you say. Hugo is also a Trust and Estate Practitioner (STEP). Cross border taxation and Exchange Control are both high on his priority, be it for emigrants, immigrants or multi-nationals.

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