The Exchange Control Amnesty and Amendment of Taxation Laws Act ("Amnesty Act"), although comprehensive, is unclear on certain matters. Some of these issues have been addressed in the media, in the official SARS response to representations made by organisations and individuals dated 19 May 2003, and in the Explanatory Memorandum released on 26 May 2003. Certain of these issues are addressed below:
Firstly, many have questioned why the amnesty was not extended to cover companies, at the time of extending the ambit to include close corporations, trusts and deceased estates. The reason given for this is that the main purpose of the amnesty is that of an exchange control amnesty and it is not considered appropriate to extend the amnesty to companies that in any event operated under a more flexible and discretionary exchange control regime. Companies have historically enjoyed more means to take funds offshore legally and are permitted to invest in offshore business projects with exchange control approval. As a result, only a company that qualifies as a "facilitator" may apply for the amnesty, in conjunction with an applicant, in the circumstances described below.
Another controversial issue was the exclusion of business advisors from the amnesty. The National Treasury, South African Reserve Bank (SARB) and SARS have advised that this was not considered necessary due to the fact that no disclosure of the names of the advisors will be required on the application form and such information will not be requested of the applicants. In addition, where the names of advisors are disclosed, these will be deleted from the applications prior to passing on the information relating to successful applications to the SARB and SARS. Where advisors have assisted applicants to contravene exchange control regulations in a more immediate or physical manner, such persons should make application as facilitators, provided that they no longer hold the assets in question themselves.
In a related issue, concern has been expressed that professional advisors who are consulted on the amnesty and are requested to assist applicants in lodging applications would be required, in terms of the Regulations issued in terms of the Financial Intelligence Centre Act (FICA) to disclose such information to the Financial Intelligence Centre. Regulations were gazetted on 26 May 2003 to exempt such professionals from the obligations placed on them in terms of the FICA Regulations, where they are consulted in relation to the amnesty or the submission of an application. This exemption extends to situations where the potential applicant resolves not to submit an application and also to unsuccessful applications.
From a technical point of view, there is considerable uncertainty in relation to the application of the amnesty to deceased estates and to discretionary trusts.
In relation to the latter, it is described below how the donor of the trust is permitted to make an election, which results in the assets being deemed to be his/hers for purposes of the amnesty and the Income Tax Act (but apparently not for purposes of the Estate Duty Act, which is note-worthy). This means that the donor can make application for the amnesty regardless of the basic requirement that the applicant must hold the asset in order to apply for the amnesty. However, the legislation seems to be so narrowly constructed that such election is only envisaged where the asset donated to the trust is the same asset that is currently held by the trust. In other words, the legislation does not appear to cater for the situation where the trust has used the donated asset to acquire a further asset, or the asset has been exchanged, etc. Although this is problematic, the amnesty legislation does provide for the issue of Regulations in order to clarify certain specified matters, including the treatment of discretionary trusts. In our discussions with the officials at the Commissioner’s office, however, they advised that the issue of Regulations is not planned at this stage.
All that remains is for the "grey money" to come forward and submit applications in the limited time available.
Deloitte & Touche
Exchange Control Amnesty and Amendment of Taxation Laws Act, Act 12 of 2003
Editorial comment: Draft regulations from the Amnesty Unit were released for comment on 15 August 2003.