The 2011 South African Tax Administration Act (TAA) contains provisions which require taxpayers who have entered into “Reportable Arrangements” to report the details of those arrangements to the South African Revenue Service (SARS). The primary purpose of the reportable arrangement provisions is to give SARS early warning of transactions that have the objective of obtaining a tax or financial benefit, even if these arrangements are entered into quite legitimately.
On 16 March 2015, the Commissioner for SARS issued public notice 212 setting out a number of new transactions which will be regarded as reportable arrangements with effect from the date of issue of the notice. This includes contributions to and acquisitions of a “beneficial interest” in a non-resident trust on or after 16 March 2015 where the amount of all contributions or payments (whether made before or after 16 March 2015) or the value of the beneficial interest exceeds or is likely to exceed R10 million.
There is some uncertainty as to what constitutes a “beneficial interest” but our understanding is that beneficial interests in Sovereign pension schemes (including the Conservo International Personal Pension Plan, Qualifying Non-UK Pension Schemes – QNUPS – and Qualifying Recognised Overseas Pension Schemes – QROPS) may be reportable both by members as the individuals obtaining the tax or financial benefit and by the “promoter” of the scheme. Contributions to and beneficial interests in collective investment schemes and foreign investment entities are excluded.
Notice 212 refers to two categories of “participants” in reportable arrangements, namely “promoters” who are primarily responsible for “selling, designing, organising or otherwise managing the arrangement” and the “person” who actually derives the tax or financial benefit itself. Reportable arrangements must be reported to SARS within 45 business days of either the date on which the arrangement qualifies as a reportable arrangement or of a taxpayer becoming party to a reportable arrangement, failing which significant financial penalties and/or criminal sanctions may be imposed.
Prior to 16 March 2015 it was not necessary to report where the obtaining of a tax benefit was not the main or one of the main purposes of the arrangement. This exclusion now appears to have been removed, significantly widening the scope of the legislation. However, whilst the reportable arrangement rules are intended to give notice to SARS of possible impermissible tax avoidance transactions (as contemplated in the general anti-avoidance rules – GAAR) it is important to understand that the obligation to report an arrangement does not mean that it is automatically deemed to be an impermissible tax avoidance transaction under GAAR. This is merely a reporting obligation which does not have any effect on the substantive consideration of normal tax liability.
All promoters, their clients and members of relevant schemes need to be made aware of these reporting obligations. It is possible that Sovereign Trust Limited, as promoter of the arrangement, will have an obligation to make reports to SARS. However data protection laws governing Guernsey will nullify this obligation shifting the reporting duty to the participant. The reporting obligation will therefore rest on the person who derive the financial or tax benefit. If any questions arise please contact your local tax consultant or lawyer.