Pretoria: National Treasury and the South African Revenue Service (SARS) are opening negotiations with the US to conclude an inter-governmental agreement with respect to the USA’s Foreign Account Tax Compliance Act (FATCA). The move will significantly reduce South African financial institutions’ compliance costs with respect to the Act.
The negotiations, said Treasury and SARS in a joint statement on Friday, were with the US Treasury Department. “This would be achieved through the exchange of information between South Africa and the USA on a reciprocal basis, in terms of the existing double taxation agreement between the two countries,” said the two parties.
In 2010, the US enacted FATCA, which aims to obtain information on accounts held by US citizens with foreign financial institutions (FFIs) on an automatic basis.
Starting in 2014, FATCA imposes a 30% withholding tax on all forms of investment income earned directly or indirectly from US assets by FFIs, which include South African banks, asset managers, private equity funds, long-term insurers and other participants in the financial sector.
The withholding tax is, however, waived if FFIs individually enter into disclosure agreements with the US Internal Revenue Service (IRS). In July last year, the USA released a model for an inter-governmental approach to the automatic exchange of information between governments, as an alternative to individual FFI agreements.
In November 2012, the USA released a model for an inter-governmental approach to business-to-IRS reporting. The automatic exchange of information between jurisdictions assists in combating tax evasion and is a common feature of double taxation agreements.
It is also a feature of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, which South Africa signed in 2011.
“National Treasury and SARS have met with representative bodies for the affected financial institutions to discuss the impact of FATCA. These bodies expressed strong support for an inter-governmental agreement for the automatic exchange of information between South Africa and the USA,” said the statement.
With this, South Africa joins a growing number of jurisdictions that have either concluded or opened a dialogue with the USA, with a view to concluding an inter-governmental agreement.
The emerging prospect of further co-operation between these jurisdictions for the automatic exchange of information between them is an exciting development, which South Africa will be exploring.
Comments and proposals with respect to the negotiation of an inter-governmental agreement with the USA should be sent by 28 February 2013 to Shelley-Anne Carreira (email@example.com) of SARS and Lutando Mvovo (firstname.lastname@example.org) of National Treasury.