Tax clearance certificates and tax compliance status: Changes on the tax and exchange control fronts

From a practical perspective, SARS’ announcement regarding TCCs does not change a lot. Prior to SARS ceasing to issue TCCs, a taxpayer applying to confirm its TCS would be issued with a letter confirming its TCS as compliant, including a pin that could be provided to third parties to verify this, and a TCC. Going forward, only the letter confirming the taxpayer’s TCS as compliant will be issued and third parties will have to verify that a taxpayer’s TCS is compliant by using the pin provided.

Effect of the change regarding TCCs on exchange control issues

Pursuant to SARS’ decision regarding TCCs, the South African Reserve Bank’s Financial Surveillance Department (FinSurv) issued Circular 23/2019 and Circular 24/2019 on 12 November 2019. These circulars deal with, among other things, the effect of the announcement regarding TCCs on individuals who wish to emigrate for exchange control purposes or who wish to transfer funds abroad, using their foreign investment allowance (FIA). We discussed the way in which individuals can use their FIA and the rules pertaining to its use in our Tax & Exchange Control Alert of 10 May 2019.

In Circular 23/2019, FinSurv announced several changes, including the following, which are reflected in the amended version of the Currency and Exchanges Manual for Authorised Dealers (AD Manual):

• Section B.2(B)(i)(d) of the AD Manual, which deals with the FIA and previously made reference to the TCC, now states that when an authorised dealer allows a taxpayer to transfer funds abroad using her FIA, authorised dealers must use the TCS PIN to verify the taxpayer’s TCS via SARS eFiling prior to effecting any transfers. Authorised dealers must ensure that the amount to be transferred does not exceed the amount approved by SARS. Authorised dealers should note that the TCS can expire and should authorised dealers find that the TCS PIN has indeed expired, then the authorised dealer must insist on a new TCS pin to verify the taxpayer’s tax compliance status;

• Section B.2(B)(i)(m) of the AD Manual, which deals with applications by individuals to invest in excess of the annual FIA limit of R10 million abroad in a calendar year, now states that authorised dealers must use the TCS PIN to verify the taxpayer’s TCS via SARS eFiling prior to effecting any transfers. Authorised dealers should note that the TCS PIN can expire and should authorised dealers find that the TCS PIN has indeed expired, then the authorised dealer must insist on a new TCS PIN to verify the taxpayer’s compliance; and

• Section B.4(G)(i)(d) of the AD Manual, which deals with the use of the FIA in the case of a South African resident temporarily abroad. This section states substantially the same to what is in section B.2(B)(i)(d) of the AD Manual, referred to above. (We discussed the exchange control rules applicable to residents temporarily abroad in our Tax & Exchange Control Alert of 29 September 2017.

In Circular 24/2019, FinSurv announced further changes, including the following, which are reflected in the amended version of the AD Manual:

• Section B.2(J)(i)(b) of the AD Manual, which deals with emigration by individuals for exchange control purposes and previously made reference to the TCC, now states that all emigration applications must be accompanied by a duly completed Form MP 336(b) signed by the applicant, together with a printed TCS verification result obtained via the SARS TCS system reflecting the compliance status of the applicant(s) including a breakdown of the remaining capital assets held in South Africa. All subsequent transfers by emigrants will depend on the current TCS at the date and time the TCS PIN is used. A TCS PIN will be issued where the remaining value of the assets on emigration are above the limits outlined in subsection B.2(J)(ii)(a) of the AD Manual and a TCS PIN Good Standing will be issued where the remaining value of the assets on emigration are within the limits outlined in subsection B.2(J)(ii)(a);

• Sections B.2(J)(v)(a)(hh) and B.2(J)(v)(a)(ii) of the AD Manual, which deal with the transfer of an individual’s assets abroad pursuant to an individual’s emigration for exchange control provision, also now refer to providing the TCS information to the authorised dealer instead of a TCC; and

• A new provision, namely section B.2(J)(v)(a)(ll), which also deals with emigration and which states that pursuant to a person’s emigration, all previously undeclared assets, excluding where the assets represent an inheritance and/or insurance policies, must be referred to SARS for a tax directive. Subsequently, an application must be submitted to FinSurv accompanied by a printed TCS verification result obtained via the TCS system reflecting the compliance status of the applicant(s) including the value of the capital assets declared to and approved for transfer by SARS.

Observation

Individuals who wish to make use of the FIA or who wish to emigrate for exchange control purposes in future, should take note of the changes in the AD Manual and that TCCs will no longer be issued or provided. Hopefully, the transition from using the TCC to using the TCS PIN will be seamless and will not cause any delays to the process of transferring funds abroad using one’s FIA or when emigrating for tax and exchange control purposes.