Exchange Control Amnesty and Amendment of Taxation Laws Bill: adoption

The Bill was agreed to with the Democratic Alliance abstaining.

MINUTES
Briefing by National Treasury on changes to the Bill
Mr Martin Grote, National Treasury Chief Director: Tax Policy, stated that the policy has been narrowed down. In the last week several technical changes have been effected, which will be outlined by Prof Keith Engel, Treasury Consultant.

Prof Engel stated that the changes are very small and are mostly "lawyer changes". The Explanatory Memorandum on the Bill would be finalised by Treasury that morning. The basic policy remains the same, but some of the small changes are in the following areas of the Bill:

Clause 1: Definitions
"deliver"
If one receives notice or delivery of an investigation, one would not be eligible for the amnesty. This standard court procedure is now spelt out in the definition of this term.

"resident"
Many submissions received on the Bill contended that this definition is not large enough, and they wanted the definition of "amnesty" to be extended to include non-residents. Treasury has refused because it is concerned that - if it is not really able to control who these people are - it could be an issue for money laundering. The decision has thus been taken to limit it to residents alone. It has to be stated that the definition of "resident" is so broad that even those who leave South Africa temporarily and then return, do fall within the definition of "resident" and will qualify for the amnesty. Treasury thus feels very comfortable with this decision.

"unlawful activity"
Part (b) of the definition provides that a person will not qualify for the amnesty if s/he is engaged in unlawful activity for foreign assets. Any criminal activity of fraud stemming from misrepresentation or non-disclosure has been excluded. Treasury felt that the previous definition was too narrow, because only crimes of fraud would be excluded from amnesty. The reality of the matter is that in many of these transactions the misrepresentation not only triggered fraud, but also other criminal activity such as embezzlement. Treasury will thus only be able to grant amnesty for tax violations. Should the person in question in fact have other violations that are exposed by this disclosure, those would not be covered by the amnesty. Of course, the disclosure of such incriminating evidence will not go anywhere else.

Clause 3: Persons who may apply for exchange control of tax relief in terms of amnesty
In Sub clauses 1(a) and (b) the estate duty issue was clarified. The amnesty is now extended to include estate duty violations.

In Sub clause 1(c) the "facilitators" also fall within the amnesty. These are persons who physically ship assets offshore and commit fraud on their own books. The Bill clarifies the fact that a person would not be a facilitator if s/he acts solely in his/her own advisory capacity, and would thus not qualify for the amnesty. The person would be included if s/he acts as both a facilitator and an advisor. This is explained in the Explanatory Memorandum.

Clause 6: Required information for application by applicant
There are different information requirements depending on the information required. There is one for the exchange control, the foreign income levy and Subclause 6(3) deals with the information required for the domestic amnesty. It was not clear in the previous draft just what kind of information was needed by Treasury. This led to concerns from accounting firms that Treasury is engaged in a "witch hunt". This was never the intention, and the provision has now been clarified as follows: if one generated South African income that one intended to ship offshore without disclosing this to SARS, Treasury is not interested in the history of that income. It only requires the person to disclose the actual amount that was moved offshore into a foreign bank account. Documentary proof is needed of those dates if it has occurred since 1998. Prior to 1998 Treasury will simply accept a sworn affidavit. These information requirements are thus very light.

There was also some concern regarding statements of assets and liabilities. This has now been softened and provides that the person only has to estimate fair market value.

Clause 10: Circumstances where amnesty unit may not grant approval
Sub clause 1(b) now clarifies what is meant by an "investigation". The bottom line is that a person is under investigation if it is for exchange control, fails to report foreign income or found to not have declared domestic income that relates to income that has been shifted offshore. Furthermore, a person cannot request amnesty if s/he is under investigation, unless that investigation is withdrawn.

Sub clause 3 now provides that a facilitator may join an application for amnesty if they were part of the foreign asset violation. It also provides that the facilitator will fail in the amnesty request if the applicant has failed as well. The aim here is to get the asset. If it does not come forward, the applicant nor the facilitator will receive amnesty.

Clause 12: Amount of exchange control amnesty levy
Sub clause 2(b), as well as Clause 13(4)(b) deals with the exemption of foreign dividends. One of the issues that came up is that a dividend is taxable under current law. But the aim is to make these dividends tax free in many circumstances in Treasury's upcoming budget. The problem is that the amnesty provisions will be finalised before the dividend exemption rule is finalised, and people requesting amnesty now will not have the benefit of this dividend exemption to be enacted later this year. The applicant is thus now allowed to delay the repatriation of the money pursuant to the amnesty, in order to take advantage of the new change in law allowing dividends to be brought home tax free.

Clause 17: Exemption for undeclared amounts arising in Republic
The amount and type of information needed for the domestic amnesty is clarified in this clause. Domestic amnesty essentially has very light disclosure requirements. All the applicant has to show is the first time the funds were taken offshore, and s/he will be granted amnesty for any finding of the amount disclosed up to the specified date. The applicant would not even have to trace it to the actual income, and the person would not have to prove that the income found by SARS is subsequently related to the conversion amount. Treasury does not want to delve into the history of the amount, and it is thus a "very light and generous amnesty". The concept here again is to receive limited information, and is not to engage on a "witch hunt" and track down endless sources of information.

Clause 26: Records, provision and use of information
Sub clause 1 provides that all the information except the names of anyone else involved, if the information is in an approved application, can go to SARS or the South African Reserve Bank (SARB). The provision qualifies that the sole purpose is to give effect to the object of exchange control amnesty.

Sub clause 3 deals with the information on unapproved applications, which at one time was going to go the Office of the Auditor-General (the AG). But the AG has indicated that he does not feel his Office has the authority to hold on to the information. The result is that unsuccessful applications will be submitted to Treasury after the termination of the Amnesty Unit. These will "just sit" with Treasury for at least a period of five years.

Discussion
Ms R Taljaard (DA) asked whether there is not a problem with including "audit" in Clause 10(1)(b), as it seems to broaden the category of who might not qualify beyond what was originally intended.

Prof Engel replied that the language of the provision has not changed since the previous draft. The key concern here is shared by Treasury, and it wanted a formal notice to be delivered of the investigation. Thus casual audits, investigations etc. are not enough.

Ms Taljaard stated that there might be a concern that Treasury will now be the receptacle of the information on the non-approved applicant, under Clause 26(3). What is the rationale behind keeping the information with Treasury?

Mr Grote responded that throughout these negotiations, Treasury has been very keen about providing certainty for applicants that the information will not be passed on to anyone else. The facilities to be used for storing this information are the same that the old Reserve Bank used to store gold. Thus nobody can walk into the archives and remove the information, as it is stored in strong rooms.

There are definite benefits to the information being stored with Treasury. Firstly, it is stored at a different geographical location than SARS and the Office of the Auditor-General, which are just across the street from Parliament itself. Secondly, Treasury is concerned about the public's perception that such information is being stored with Treasury. This has been discussed with the Director-General of Treasury. Treasury will ensure that this information is only available in the event of an appeal investigation.

Treasury is aware of this concern. Perhaps a media strategy needs to be devised to deal with this one more time, to make it clear to the public that there is no hidden agenda behind this decision.

Prof Engel added that Treasury will be subject to the same secrecy rules as the Amnesty Unit itself. The Amnesty Unit is subject to secrecy oaths which prevent it from disclosing the information to other governmental agencies. However Treasury has to hold onto the records for certain period as required by the Information Act - it cannot just burn them.

Ms Taljaard asked why Clause 26(3) does not refer to the purpose for retention of the documents. The reason this information is being kept by Treasury would have alleviated concerns. An amendment along these lines has to be considered.

Prof Engel replied that he is not against this proposal. He was uncertain if this is possible at this stage, as the Bill has already gone to the Government Printers. This will however definitely be clarified in the Explanatory Memorandum.

The Acting Chair asked whether the information kept with Treasury would be regarded as inadmissable evidence in a court of law.

Both Mr Grote and Prof Engel answered in the affirmative.

The Acting Chair asked Mr Grote to update the committee on any changes to Chapter Two of the Bill which deals with the Taxation Amendment Laws provisions.

Mr Grote responded that the only change related to the stamp duty. This was phrased in a way that only dealt with fixed deposits and not negotiable certificates of deposits. Treasury thus had to effect a late change to maintain the current levy of 5c on every R100. The previous wording prescribed a levy of 15c per R100 which is incorrect. This would have resulted in an increase which had to adjusted so that the amount remains constant until the Second Taxation Laws Amendment Bill is considered in September or October 2003.

The Acting Chair read the Committee Report, and noted that Members agreed. He noted the DA's abstention.

The meeting was adjourned.