Third party returns – exchange of information in accordance with international tax standards

In order to provide the necessary legislative amendments required to implement the tax proposals that were announced in the 2015 National Budget on 25 February 2015, the National Treasury (Treasury) published the 2015 Draft Tax Administration Laws Amendment Bill (TALAB) on 22 July 2015 for public comment.

One of the important proposals relates to greater tax transparency and the automatic exchange of information between tax administrations in various jurisdictions in order to counter cross-border tax evasion and aggressive tax avoidance. To this effect, s32 of the TALAB proposes the insertion of a definition of "international tax standard" in

s1 of the Tax Administration Act, No 28 of 2011 (TAA), to mean "an international standard as specified by the Commissioner by public notice for the exchange of

tax-related information between countries".

Treasury indicated that this definition was inserted to implement a scheme under which the South African Revenue Service (SARS) may require South African financial institutions to collect information under an international tax standard such as the Organisation for Economic Cooperation and Development Standard for Automatic Exchange of Financial Account Information in Tax Matters.

The aforementioned standard encompasses the Common Reporting Standard (CRS) that was endorsed by the G20 Finance Ministers in 2014. In order to ensure the consistency and efficiency of this standard, certain financial institutions must report on all account holders and controlling persons, irrespective of whether there is an international tax agreement between South Africa and their jurisdiction of residence or whether such jurisdiction is currently a CRS participating jurisdiction.

This reporting requirement will ease the compliance burden on reporting financial institutions as they would otherwise have to effect changes to their systems and collect historical information each time South Africa concludes a new international tax agreement or a jurisdiction is added to the CRS. Pursuant to the proposed amendment, all reporting financial institutions are obliged by statute to obtain the information and provide it to SARS. In addition, the financial institutions must ensure compliance with the relevant data protection laws.

In order to give effect to the proposed implementation of the international tax standard, s37 of the TALAB proposes the amendment of s26 of the TAA. Currently, s26 enables the Commissioner of SARS, by public notice, to require third parties to submit returns for a person with whom that party transacts, ie employers, banks and asset managers of the taxpayer.

The TALAB proposes the insertion of subsection 3 to s26 of the TAA, which provides as follows:

The Commissioner may require a person to register as a person required to submit a return under this section, an international tax agreement or an international standard for exchange of information.

The intention of the proposed amendment is to ensure that the relevant financial institutions register with SARS in order to comply with international tax standards. In turn, the registration will assist SARS in the administration and the enforcement of international tax standards.

Public comments on the proposed amendments are due by close of business on 24 August 2015.