Exchange Control Amnesty and Taxation Laws Amendment Bill: hearing

Meeting report

FINANCE PORTFOLIO COMMITTEE
7 April 2003
EXCHANGE CONTROL AMNESTY AND TAXATION LAWS AMENDMENT BILL: HEARING

Acting Chairperson: Mr K Moloto (ANC)

Relevant documents
Exchange Control Amnesty and Amendment of Taxation Laws Bill [as at 2 April 2003]
Law Society of South Africa submission
Price Waterhouse Coopers Powerpoint Presentation
Price Waterhouse Coopers submission
Exchange Control Amnesty and Amendment of Taxation Laws Bill Cabinet approved
Exchange Control Amnesty and Amendment of Taxation Laws Bill Draft version 7 April

Ms L Mabe (ANC) asked if PWC's proposal that the information of unsuccessful amnesty applicants be destroyed would not discriminate against the successful applicants.

Mr Lermer (PWC) replied that the particular circumstances of the case has to be considered. It is to the benefit of the successful applicant that all this information is traced to SARS, so that it knows that the person has been granted amnesty and that there is no need for an inquiry. This is the benefit of volunteering the information. If the applicant volunteers all this information and is denied amnesty and that information similarly goes through to SARS, that applicant would be prejudiced against someone who did not voluntarily come forward and seek the amnesty. In these circumstances and following the precedent set in other jurisdictions, that information should be destroyed and should not be handed over to either SARS or SARB. If SARS or SARB is given that information, it would contradict the principle expressed repeatedly at this meeting that the amnesty process is a relieving measure, and not a witch hunt.

Ms Mabe was not fully convinced by the argument that the information should be destroyed. Should the applicant appeal against the refusal of amnesty, the High Court would have to consider all that information in any event.

Mr Lermer responded that this could be resolved by reformulating the provision to read that the documentation has to be destroyed once the hearing has been completed and there is no further ground for appeal. He hopes that the Bill will clearly state that documentation cannot pass to other government authorities while the process is underway.

Ms Taljaard asked SARS to respond to the contention that the amnesty machinery would not be complete without dealing with South African sourced income. What was the position in those jurisdictions that implemented a similar system, such as Italy?

Mr Louw replied that this is a SARS policy decision that he cannot really comment on. Mr Martin Grote, National Treasury Chief Director: Tax Policy, added that he had explained last week how the Italian government dealt with it. They had other concerns with the tax compliance scale, and they took a very different route to South Africa's proposed model. Italy is quite radical in the sense that it hives off the revenue service to a large extent, as foreign assets returning to the country are channelled through the banks. The banks take the 2.5% cut and then report the case to their revenue authority. The Italian system also provides that individuals could either pay the once-off levy or they could buy Treasury bonds that would subsidise the mid-market related interest rate, which would probably have the same net effect for the individual.

The Italian approach was aimed at ensuring that those individuals that were fearful of the revenue authority did not break the direct link. The uptake of the register of the taxpayer, with regard to foreign assets, was effected. The problem in South Africa is that this cannot be drilled out in detail in the legislation, because an English version of that legislation cannot be found.

Ms Taljaard stated that Mr Grote's response seems to indicate that the Italian government has not made that distinction as to where the income was derived from. It merely focuses on the fact that it had been offshore. She accepts that a comparison cannot easily be made between the two tax systems, but her main concern is whether other jurisdictions have in principle drawn a distinction as to where the income was derived from.

Mr Grote replied that according to his understanding there was no attempt by the Italian system to establish how the income was "schlepped" offshore. There was however a higher level of compliance in reporting by both companies and individuals, whereas the South African model targets individuals.

Prof Keith Engel, National Treasury Director: Legislative Oversight and Policy Co-ordination, added that Treasury has limited the amnesty to foreign income. The intention is to get the applicant to give a "current snapshot of the foreign assets that Treasury has never seen before", the value of the asset and the amount of income it generated that year. Once this information is provided, the applicant will automatically receive an exemption for anything that asset did in prior years as well as all other foreign assets that no longer exist. If you are trying to extend this now to domestic amnesty, to the extent that you are saying that domestic income was shipped offshore, it becomes a much more complex matter. Because now you are looking at a person's domestic income, and you can't let it become a permanent shelter and say well every time he has a violation "oh I took it offshore and therefore I get the exemption". The question is what kind of proof does the taxpayer submit in that case in order to get this domestic amnesty, since there seems to be a move for this, either of civil penalties in interests. How can we as enforcers distinguish between domestic income that went offshore versus not? What is it that we need to do that would be realistic?

Mr Lermer agreed with Prof Engel that there is not an immediately clear answer. The point PWC is trying to make is that if nothing is done about this aspect there is a real concern that it would essentially result in a "travel allowance amnesty". This is not the purpose of the amnesty, because it aims to hit much bigger amounts of assets that are offshore. A balance sheet would however have to be objectively submitted by the applicant, and will indicate the South African assets that should be used as a first port of call to exempt items with a South African source. The onus should then be put on the individual to come forward, but the South African source element must not to be too strict or complicated that it prevents the vast amounts of people that would come forward from doing so.

I think it would be interesting to note what the statistics are on the last amnesty we had, because clearly that was a completely different amnesty. The question is now, and I think everyone recognises, that the South Africa of today is a completely different South Africa of yesteryear, and I believe the uptake and the fear factor is such that today, with those sort of reliefs, you'll going to get a much better success rate and benefit.

Ms B Hogan (ANC) resumed the Chair from Acting Chair, Mr Moloto. She agreed with Dr Woods that there are a number of issues that need further reflection. She proposed that the Committee hold over any further deliberations on the Bill for this week at least until Treasury, SARS and SARB can give a considered response to these fairly substantive issues. It seems unlikely that the Bill will be tabled on Wednesday 9 April, as the State Law Advisor still has to approve the legislation.

Ms Taljaard requested that Treasury, SARS and SARB provide a very specific response to the constitutional issues raised by the Law Society submission, especially the matter of administrative discretion.

The Chair thanked Treasury, SARS and SARB for the effort they have put into drafting the legislation. It was in everyone's interest that this amnesty mechanism be up and running as soon as possible.
and seen to be fair.

The meeting was adjourned.

Appendix 1:
Banking Council OF South Africa submission
DRAFT EXCHANGE CONTROL AMNESTY & AMENDMENT OF TAXATION LAWS BILL

Introduction
Thank you for the opportunity to comment on the draft Exchange Control Amnesty and Amendment of Taxation Laws Bill ("the Bill"). I shall address Chapter 1 and Chapter 2 separately.

Chapter 1
With regard to Chapter 1, which deals exclusively with the "Exchange Control Amnesty and Accompanying Tax Measures", we welcome these proposals to the extent that they facilitate the normalisation of the financial affairs of people holding foreign assets in contravention of the law. We would also encourage the Amnesty Unit to assist individuals in a constructive manner when approached with financially innovative structures which are not strictly within the ambit of the Bill.

Financial Intelligence Centre Act
It would appear, however, that the Bill might create certain unintended consequences for an accountable institution under the Financial Intelligence Centre Act, 2001 ("the FICA").

Under the FICA, section 29(1)(b)(iv) imposes a duty on accountable institutions to report certain information relating to an investigation of an evasion or attempted evasion of tax. It would therefore seem that any individual who approaches an accountable institution for advice on the proposed amnesty, or who requests the accountable institution to facilitate the application for amnesty, would trigger a reporting requirement on the accountable institution concerned. In the context of the process of propagating information about the amnesty, advising affected individuals that they should apply, and facilitating the application, any suspicious transaction-reporting requirement would be counter-productive to the amnesty process, as well as creating unnecessary reports in certain circumstances.

It would therefore be preferable for the reporting requirement under section 29(1)(b)(iv) of the FICA, specifically relating to queries, advice or assistance about the amnesty to be suspended, by the Bill under discussion, until the end of the amnesty period (31 October 2003).

Section 1
Part A covers the definitions for the interpretation of the Bill. The definition "market value" requires a currency conversion rate for the Rand at "the closing spot rate on the 28 February 2003".
Given the diversity of location and resources available to people seeking amnesty under the Bill, we would suggest that the applicable spot rates be made available for a selection of major currencies and included as Schedule 3 to the Bill, or alternatively be made available on an appropriate web site with appropriate references.

The inclusion of a definition of "historical cost" as referred to in paragraph 6.(1) may be useful given the possible accumulation of foreign assets over a period of time.

The inclusion of a definition of "sanitised" as referred to in paragraph 7.(1)(a) and 7.(2)(a) would simplify the explanations required for amnesty from advisors and physical facilitators.

Section 3
Section 3.(1)(a) and (b) limits the amnesty to natural persons. By broadening the category to include private companies and close corporations, the net may be widened allowing individuals who have structured their affairs using these vehicles, to complete their amnesty applications in totality.

Given the stated objective of the amnesty campaign, to increase tax receipts and widen the tax base, it makes sense to include legal entities in the amnesty.

Section 5
Section 5.(1)(d)(i) refers to the required "..valuation certificate by a valuator of the country where that foreign asset is located;". By implication Section 5(1)(d)(ii) requires a further valuation by a "..sphere of government..".

We would suggest that the word "or" should be inserted at the end of section 5.(1)(d)(i) to provide a total of three options to ascertain the market value in foreign currency of the foreign asset in question.

Section 9
Amnesty may be withheld should the applicant be notified "..before the submission of the application.." that the applicant is "..subject to an audit, investigation or other enforcement action..".

We believe that in the spirit of the proposed amnesty, all actions of notification by either the General Manager or the Commissioner should be suspended to allow individuals to normalise their affairs since the announcement of the Minister of his intention to implement this amnesty.

The reporting obligations of the FICA in Section 1 above may also create an impediment in this regard, as individuals merely have to be notified, to be excluded from the amnesty arrangement. This proposal should in no way preclude notifications based on prima facie evidence prior to the Ministers announcement of the intended amnesty arrangement.

Section 10
This section refers to the amnesty levy which is calculated by deduction from the foreign assets disclosed "..the amount that the applicant would have been legally entitled to transfer….in terms of Regulation 10 of the Exchange Control Regulations."

The Exchange Control Regulations, 1961 Section 10.(1)(c) states, "No person shall, except with permission granted by the Treasury and in accordance with such conditions as the Treasury may impose, enter into any transaction whereby capital or the right to capital is directly or indirectly exported from the Republic".

The effect of this reference is that there is no deduction, unless it is linked to Section B.5 of the Exchange Control Rulings issued by the South African Reserve Bank which specifically deals with the ZAR750,000 transfer.

In this way the amnesty allows the normalisation of foreign assets up to ZAR750,000 and penalises the repatriation of amounts in excess of ZAR750,000 at 5% and any amount retained in excess of ZAR750,000 at 10%.

Furthermore we would suggest greater clarity of the term "amount disclosed" in relation to Section 5.(1)(b) and its reference to "..what extent the market value of that foreign asset represents or has been derived from any unauthorised assets;". Losses sustained on legitimate foreign assets may have been subsidised by unauthorised assets creating the impression that the amnesty process is unnecessary as the overall net position is still "legal".

Section 11
Section 11(1)(a) refers to the liquidation and repatriation of foreign assets. The "amount disclosed" under Section 10 would be a projected value of the foreign asset, and once realised after transaction costs or market movements, may differ significantly from the projected value. The Bill does not address reconciling errors between the amount repatriated and the amount disclosed, for the purposes of calculating the leviable amount on which the 5% amnesty levy is due and payable.

Section 12
The payment of the amnesty levy is required from liquidated foreign assets repatriated under the amnesty, within the set time frame. However there are likely to be circumstances where amnesty applicants do not have sufficient disposable funds, or are unable to pledge assets to raise foreign funds to comply with the amnesty time frame. Property transaction and fixed period investments may fall within this category.

To facilitate this process we would suggest a change to paragraph 3(1)(b) to provide for a penalty payment of an additional 2.5% on the leviable amount over and above the amnesty levy anticipated under Section 11.(1) payable in Rand. In this way the total obligation or pro rata shortfall may be paid in Rand at the discretion of the Chairperson of the amnesty unit.

Chapter 2
Section 45
The Minister of Finance in the Budget Speech on 26 February 2003 stated that stamp duty on fixed deposit receipts was to be abolished with effect from 1 April 2003. Banks issue negotiable certificates of deposit ("NCD's"), which are broadly speaking, fixed deposit receipts that are negotiable in the secondary market. The stamp duty on fixed deposit receipts is levied in terms of Item 13 of Schedule 1 to the Stamp Duties Act, No. 77 of 1968.

The definition of 'marketable security' in section 1 contains a wide definition of what constitutes a 'marketable security'. The definition is sufficiently wide to also include NCD's. Stamp duty on marketable securities is levied in terms of Item 15.

In order to ensure that stamp duty is not levied twice on NCD's, both under Item 13 and Item 15, there is an exemption in Item 15(2)(b) which exempts from duty under Item 15(1) and (2): 'The issue of any negotiable certificate in respect of any deposit made with any banking institution registered under the Bank's Act, 1965 (Act No 23 of 1965), if such certificate is subject to duty under Item 13.'

If Item 13 is repealed as proposed in clause 45, by the deletion of the definition of fixed deposit, and an instrument is not stamped in accordance with Item 13, this would imply that it will not be exempt under Item 15(2)(b), and stamp duty is then payable in terms of Item 15.

It is suggested that Item 15(2)(b) of the Stamp Duties Act be retained to exempt the issuance of negotiable certificates of deposit and that the phrase 'if such certificate is subject to duty under Item 13' be deleted. In this way fixed deposits accepted in the form of NCD's will be exempt from the Stamp Duties Act.

Conclusion
I hope that the points raised above are helpful, and may assist you with your deliberations of the Bill.
We do not think that it is necessary to ask you for an opportunity to address the Portfolio Committee, but we would like to thank you for offering us that opportunity.
Yours faithfully

Mark Brits
General Manager Financial Markets

Appendix 2:
KPMG Submission to Portfolio Committee on Finance in respect of the Draft Exchange Control Amnesty and Amendment of Taxation Laws Bill
The following four points are, in our view, fundamental flaws in the current draft provisions in that would be these points which may result in the objective of the amnesty not being achieved.

Broad issues for consideration:
Unlawful Activities
Clause 5(1)(f) of the Bill requires an amnesty applicant to disclose whether a foreign asset in respect of which an amnesty application is made, represents the proceeds of "any unlawful activities". In addition, clause 17(3) provides for the withdrawal of amnesty approval and the forfeiture of any levy paid, where it comes to light that the foreign asset, in respect of which amnesty was granted, represents or has been derived from the proceeds of "unlawful activities".

For purposes of the Bill, "unlawful activities" are unlawful activities as defined in the Prevention of Organised Crime Act, but excluding any exchange control contravention or failure to comply with any revenue Act in respect of which amnesty is being applied for. The Prevention of Organised Crime Act defines "unlawful activity" as any conduct which constitutes a crime or which contravenes any law, whether such conduct occurred in South Africa or elsewhere.

Notwithstanding the exclusion of exchange control contravention and the violation of revenue Acts from the definition of "unlawful activity", the term is so widely defined that it encompasses "less serious" crimes (e.g. petty theft or a company law contravention) both in-and outside South Africa. Such a broad definition of "unlawful activities" may accordingly result in many potential amnesty applicants falling outside the ambit of the relief.

Contravention of other laws
Clause 14 of the Bill provides that amnesty will be granted in respect of income tax in respect of the year of assessment ending on or before 28 February 2002 relating to, inter alia, any foreign asset. The amnesty does not therefore extend to South African sourced income which may have been applied towards transferring local into foreign assets. It is likely that, together with exchange control regulations, local revenue Acts may have been breached in acquiring those foreign assets.

The result would be that, although a taxpayer may obtain amnesty in respect of foreign assets, the risk remains that SARS may seek to take action against him/ her in respect of non-compliance with South African tax legislation, for example Customs and Excise, PAYE, VAT and donations tax going back in time in perpetuity (due to original non-disclosure). Should this be the case, potential amnesty applicants would in all likelihood be reluctant to do so.

In order to encourage applications, all violations of local revenue Acts, which were integral in transferring funds offshore, should ideally qualify for amnesty. However, and bearing the discriminatory nature of an amnesty in mind, a more equitable solution may be to provide for a Statute of Limitation in terms of which SARS may only investigate amnesty applicants for a period of say, three tax years, i.e. 2001, 2002 , 2003 following amnesty approval. These taxpayers would then be liable for the tax, but not interest and penalties in respect of the contravention of local revenue Acts for that period.

Provisions of the Financial Information Centre Act
In order for the provisions of the proposed Amnesty legislation to be implemented, individuals will often wish to seek advice from professional advisors as to how the provisions work, and how the applicant must go about applying for the amnesty. However, the Financial Information Centre Act (FICA) currently requires professionals to report illegal financial acts to the Financial Information Centre. Consequently, many potential applicants may be reluctant to approach their professional advisors for advice on this issue. Furthermore, advisors discourage their client base from seeking their advice on this issue. It is therefore, imperative to the potential success of the amnesty that the FICA rules be suspended for purposes of potential applicants discussing their options with their advisors.

Advisors and physical facilitators
We understand that, due to the vagueness of the definitions of 'advisors' and 'physical facilitators (are they professionals/banks, or the public in general who have discussed the removal of funds in social situations over the years?), and furthermore the fact that such 'advisors' and 'physical facilitators' do not own the applicants funds offshore which could fall within the amnesty, it has been decided that the provisions relating to these categories of persons must be removed from the draft legislation.

However, we also understand that it is not Treasury/the Reserve Bank or SARS' intention to go on a 'witch hunt' to seek out the methods whereby funds were removed, or by whom, or advised by whom, but simply to bring the funds within the net of the SARS' and Reserve Bank's knowledge, so that, in future, tax may be levied on income arising from the investment of the funds, and SA residents may freely repatriate such funds, to the benefit of the SA economy.
We, therefore concur with the discussions recently held in terms of which a provision should be inserted into the legislation, which prohibits any authority or person from requesting the applicant to provide details as to how his/her funds were remitted, on whose advice certain structures were put in place, and who facilitated the removal.

Technical aspects of the draft legislation
Definition of Exchange Control Regulations
The term 'Exchange Control Regulations' is defined to mean the regulations as they currently stand i.e. as amended.

Definition of unauthorised assets
The term 'unauthorised assets' is defined as funds accumulated or transferred outside the Republic in contravention of the Exchange Control Regulations. If it is the intention that the 'unauthorised assets' are those which have been transferred or accumulated in contravention of the exchange control regulations as they stood at the time of the accumulation or transfer, the draft legislation needs to be changed to clearly reflect this.

Trusts
Beneficiaries
The draft section 3(2) contemplates either a donor of unauthorised assets to a discretionary trust , or a beneficiary of a discretionary trust, electing to treat the assets of the trust as that person's personal assets. Firstly, this may result in more than one person electing to be treated as the holder of such assets. Secondly, the beneficiary has no rights in respect of those assets, in any event, until such time as they are declared out by the trustees. Hence it would be wrong for such beneficiary to pay tax on assets he/she may never receive or accumulate. Thirdly, unless that beneficiary is also the donor, that beneficiary will never have contravened any exchange control regulation-he/she is merely the recipient of a spes ie hope of future assets/income which he/she may not even know about. We suggest that any reference to beneficiary is therefore removed from the draft provisions. If a donor has passed away already, the authorities have no-one at this stage to prosecute for the contravention. The funds would have been completely alienated and can not, in our view, be recovered by the authorities. Hence the reference to beneficiary in this instance is, in any event, irrelevant.

Donor
The draft section 3(2) may also result in double taxation of the donor, going forward, on the basis that, for purposes of the amnesty, the donor agrees to treat the assets as held personally when, in fact, they are held by a trust. Thus, SARS could still seek to impose donations tax on the original donation, and also attempt to apply section 7(5) or 7(8) of the Income Tax Act for the past (the draft section 14(1)(b) appears to support this, since it states that exemption will not apply to any asset no longer 'held as a result of a donation by that applicant'). There appears to be nothing to prohibit this. Clarity needs to be reflected in the provisions.

Miscellaneous
The draft section 9(3) should say 'in terms of this section' to reinforce the fact that the amnesty unit may only deny an application in terms of the provisions of s 9.

The draft section 11(1)(a) should be followed by 'and' and not 'or' in order for it to comply with the intention of the Minister.

The draft section 10 needs to clarify that the amount that might legally have been taken out amounts to R1.5mn for a husband and wife, even if all was remitted by one party.

Appendix 3:
South African Chamber of Business (SACOB) submission
7 April 2003

SACOB Submission to Portfolio and Select Committees on Finance Hearing
Re Draft Exchange Control Amnesty and Amendment of Taxation Laws Bill

Introduction
While SACOB has understanding for the rationale for the granting of an amnesty in relation to undeclared offshore funds belonging to residents, the organisation is concerned about the impact that such an amnesty will have on general taxpayer compliance and morality. An amnesty is by its very nature discriminatory as regards those who have met their fiscal obligations.

SACOB would also like to take this opportunity to thank National Treasury/SARS/SARB for the opportunity afforded to discuss the application of the amnesty and the constructive manner in which these discussions took place.

Source taxation
Whilst the amnesty provides for relief in respect of income tax on income derived from so-called "foreign assets" in respect of which an applicant has made disclosure, no such relief is provided in respect any income tax that may have been payable when the income was originally earned. It may be, and it would seem that this is the reality, that a substantial portion of the funds transferred offshore were not declared to the revenue authorities at the time it was earned in South Africa. The failure to provide relief in respect of the tax payable when the income was first earned may discourage taxpayers from declaring their offshore assets, the goal of the amnesty.

It is accepted that extending the amnesty to cover the original transgression would amount to a total amnesty for the relevant wrongdoers, and it is accordingly suggested that perhaps this element of the amnesty should be restricted to interest and penalties only.

Other taxes
The proposed amnesty only makes provision for relief in respect of income tax. However, other taxes, such as donations tax, RSC levies and VAT may also be payable in respect of the income derived from the undisclosed offshore assets. It would seem that to be effective the amnesty should provide relief from all fiscal imposts that were payable in respect of the undisclosed foreign assets.

Advisors/Facilitators
While the draft Bill provides for amnesty for advisors/facilitators, it is understood that it has been decided to withdraw this relief. The major reasons advanced by the authorities would seem to be that:

-They are not beneficial owners of the undisclosed foreign assets;
- Concerns regarding the possible application of the Financial Intelligence Centre Act (FICA) will be addressed;
- Higher standards of professionalism in these financial advisory services is maintained;
- As disclosure requirements are minimal, the perceived danger of advisors/facilitators discouraging individuals to come forward falls away.

With respect, it appears advisable that the proposed amnesty for advisors/facilitators should be maintained. The fact is that there will always be a concern that by disclosing any information relating to the taxpayer's offshore funds the identity of the advisor/facilitator will somehow be disclosed. While the FICA concern will be addressed, the advisor/facilitator will still be subject to possible prosecution under the Income Tax Act. It is an offence in terms of section 104 of the Income Tax Act to assist any person to evade any tax. As regards professionalism, this aspect would not address the large number of financial advisors who are not connected in any way to a professional body.

Foreign assets derived from "unlawful activities"
It is apparent that the amnesty will not extend to foreign assets derived from so-called "unlawful activities" as defined in the Prevention of Organised Crime Act, 1998, other than any exchange control contravention or a failure to comply with any revenue Act in respect of which amnesty is being applied for. Whilst recognising the difficulty of distinguishing between serious and less serious crime, it would seem that a failure to provide for amnesty in respect of certain criminal activities (such as perhaps contraventions of the Companies Act), could hinder the success of the amnesty.

In addition, the exclusion of foreign assets derived from "unlawful activities" does not appear to be very clear. While the applicant must state whether the foreign asset has been derived fr0m unlawful activities (clause (1)(f)), and the amnesty unit may withdraw approval if it at any time it is found that approval has been granted in respect of foreign assets derived from unlawful activities (clause 17(3a)), it seems that this aspect also needs to be dealt with in clause 9 (circumstances where amnesty unit may not grant approval).

Information sharing
It would seem that the identity of the applicant and the specific information required to be disclosed to the amnesty unit will not be made available to the Reserve Bank nor SARS. However, this will be necessary as it may be that the applicant will some day in the future be required to account for the relevant assets/income to the Reserve Bank or SARS. This is particularly so in the case of SARS as the applicant is required to disclose the previously undisclosed foreign assets in his/her tax return. A mechanism needs to be found for such disclosure to be made available to the two institutions in a manner that will ensure that it does not unduly prejudice the applicant.

Financial Intelligence Centre Act
The possible granting of an exemption from the reporting requirements of the Act for advisors would seem to be necessary to ensure the success of the amnesty. Potential applicants would we assume require the assistance of other persons with the application, who would be less than willing to assist given the reporting requirements of the Act.

Calculation of Levy
While it would appear that an applicant will be entitled to deduct the current legal amount that may be transferred abroad (R750 000 per individual or R1,5 million per family) in arriving at the amount subject to the amnesty levy, uncertainty may arise were the foreign assets are held in the name of only one spouse, whereas the foreign assets may belong to both. It would seem that the R1,5 million deduction should apply to any one single applicant where it can be shown that the assets arose in respect of income that should have been disclosed by both spouses.

Appendix 4:
Association of Trust Companies in South Africa submission
4 April 2003

1. It is submitted that the executors of the estates of deceased persons, where those estates are in the process of being wound up be included amongst the class of persons who may apply for amnesty in terms of Section 3 of the draft legislation. It is further submitted that this be extended to the executors of the estates of persons who died on or before the 31^st October 2003 where the estate had not been finalised by the 31^st October 2003. In the case of executors the time period for submitting the application could be extended for a period of a month or two after the date of the issuing of letters of executorship.

2. Section 14 of the draft legislation only gives relief in respect of income tax. Assets may well be held offshore in breach of exchange control regulations that have been inherited where such assets were held in breach of exchange control regulations. It is highly unlikely that these assets would have been reported for estate duty purposes and would therefore have not attracted the estate duty that they should have. It is submitted that estate duty be included under the taxes granted relief under the proposed section 14.

3. Persons who have foreign assets in breach of exchange control regulations may well have transferred ownership of those assets to some other entity. Invariably such transfer would have taken place by way of a donation that would not have been declared for donations tax purposes. It is submitted that under such circumstances the relief granted in terms of section 14 of the draft legislation be extended to donations tax.

4. The non-recognition of structures contained in section 3 (2) could also serve as a disincentive to apply for amnesty relief and it is suggested that those be recognised and that the normal legal and fiscal consequences follow.

Your sincerely

J D RAUBENREIMER
CONVENOR: TAXATION MATTERS