South Africa Briefs On CRS Regulations
The South African Revenue Service (SARS) has issued draft regulations to require certain financial institutions (FIs) to report on accounts held or controlled by foreign residents.
The OECD’s Common Reporting Standard (CRS), which the regulations are in response to, obliges countries and jurisdictions to obtain financial information from their FIs and to exchange that information automatically with other jurisdictions on an annual basis. In South Africa, reporting FIs will, pursuant to legislative amendments to the Tax Administration Act, be bound by statute to obtain the information and provide it to SARS.
Within its briefing note on the regulations, SARS has confirmed that it will apply the wider CRS approach. FIs must report on all account holders and controlling persons, irrespective of whether South Africa has an international tax agreement with their jurisdiction of residence or whether the jurisdiction is currently a CRS participating jurisdiction.
It is hoped that this will ease the compliance burden on reporting FIs “as they would otherwise have to effect system changes and collect historical information each time a jurisdiction is added to the CRS or South Africa concludes a new international tax agreement.”
The OECD provides jurisdictions with an option to exclude from the due diligence requirements FIs and financial accounts that present a low risk of being used for tax evasion. The SARS briefing note further clarifies this by including a proposal as to the criteria it intends to use to define such non-reporting FIs and excluded accounts.
SARS has noted, however, that “CRS avoidance schemes to transfer undeclared income to excluded accounts prior to the commencement of reporting periods have been detected, indicating that a cautious approach in compiling the ‘low risk’ list of excluded entities or accounts is highly appropriate.”
An appendix to the briefing note provides a template for the inclusion of proposed entities in the low-risk lists, to be completed by the requesting FI or group of FIs. These applications must be submitted on or before the closing date for comments on the CRS regulations of January 4, 2016.
