The first agreement for the exchange of information relating to tax matters concluded by South Africa with San Marino took effect on 28 January 2012.
South Africa has concluded a large number of double taxation agreements with its trading partners, which generally contain an article that authorises the exchange of information between South Africa and the treaty partner.
South Africa is a member of the Organisation for Economic Co-operation and Development’s (OECD) Global Forum on Transparency and Exchange of Information for Tax Purposes. At the Global Forum’s meeting in Mexico in 2009, it was decided to put a peer review mechanism in place for all forum members based on its standards of transparency and information exchange for tax purposes.
The Global Forum established a Peer Review Group to create the methodology and detailed terms of reference for the peer review process, and decided that there would be two phases of that process. Phase one would examine the legal and regulatory framework in each jurisdiction and phase two would evaluate the implementation of the standards in practice.
The Global Forum was, under phase one, mandated to evaluate the legal framework in South Africa regarding the exchange of information for tax purposes, and phase two would have required the Global Forum to establish from the Commissioner: South African Revenue Service the extent to which South Africa has implemented the Global Forum’s standards in practice.
South Africa has therefore undertaken to ensure that it complies with the standards prescribed by the Global Forum and is required to conclude exchange of information agreements with various countries so that it complies with those standards. It is for this reason that the South African government has concluded an exchange of information agreement with San Marino. The agreement was published in the Government Gazette on 25 January 2012 and it is stated that the agreement entered into force on 28 January 2012.
The purpose of the agreement is described as being to promote international efforts in the fight against financial and other crimes, including terrorist financing. The agreement is aimed at facilitating the terms and conditions governing the exchange of information relating to taxes.
The scope of the agreement is described as providing assistance via the exchange of information that is foreseeably relevant to the administration and enforcement of the domestic laws of the contracting countries relating to the taxes covered by the agreement. This includes information that is foreseeably relevant to the determination, assessment, enforcement or collection of tax with respect to persons subject to those taxes or to the investigation of tax matters or the prosecution of criminal tax matters in relation to such persons.
Article 2 of the agreement deals with the taxes covered by the agreement and in the case of South Africa relates to normal tax, secondary tax on companies, withholding tax and royalties, the tax on foreign entertainers and sports persons, and value-added tax. The agreement does not directly refer to the new dividends tax, which will take effect from 1 April 2012. The agreement envisages the provision of information upon request by one of the countries for purposes of complying with the agreement.
Article 4 of the agreement provides that where the information in possession of the respective authority of the country from which the information is requested is insufficient to enable it to comply with the request for information, that country shall use the information gathering powers it considers relevant to provide the requesting country with the information requested.
The article provides that each country will ensure that it has the authority to obtain and provide, via the competent authority, as defined and on request, information held by banks and similar financial institutions, information regarding legal and beneficial ownership of companies and similar businesses, and in the case of trusts, information on settlors, trustees and beneficiaries.
The relevant authority is required to acknowledge receipt of the request to the competent authority of the other country and must use its best endeavours to obtain the requested information as quickly as possible. The agreement also envisages the conducting of tax examinations abroad whereby the revenue authority of one country may enter the other country to interview individuals and examine records with the prior consent of the individuals or other persons concerned.
It is possible that a request for information may be declined where the request does not comply with the agreement, or where the requesting country has not exhausted all means available in its own country to obtain the information, or where the disclosure of information requested will be contrary to the public policy of the requested party.
The agreement recognises information subject to legal privilege and also seeks to protect trade, business, industrial, commercial or professional secrets or trade processes, and in such cases the request for information in this regard may be declined. The fact that a taxpayer is disputing an amount of tax does not prevent the tax authority requesting information from the other country.
Article 7 of the agreement seeks to preserve the confidentiality of the information disclosed by one country to the other and it is provided that the information may be used only for purposes set out in the agreement.
The agreement concluded by South Africa and San Marino is based on the OECD’s model agreement for tax information exchange agreements. Clearly, the conclusion of the exchange of information agreements for tax purposes increases the reach the Commissioner: South African Revenue Service to obtain information from abroad regarding taxpayers residing in South Africa. It also imposes an obligation on South Africa to provide information to another country where the other contracting state requires information regarding its taxpayers who may have business dealings in South Africa.
It will be interesting to see the report published pursuant to the peer review conducted on South Africa, and to see the extent to which South Africa has complied with the standards prescribed by the Global Forum.
Beric John Croome is a tax executive of Edward Nathan Sonnenbergs (ENS)
150 West Street
Tel: +27 11 269 7600
Fax: +27 11 269 7899