National Treasury and South African Revenue Service on International Tax Agreements

Meeting report

Opening Remarks by Chairperson

The Chairperson welcomed the members and read apologies from Ms W Zondi (ANC, KwaZulu Natal) and Mr E Von Brandis (DA, Western Cape).

Minutes of the last meeting were unanimously adopted.

The Chairperson gave a background of the 14 agreements to be tabled for adoption by the Committee.

Briefing by SARS on Value-Added Tax agreements

Mr Prenesh Ramphal, Senior Manager: SARS said the purpose of the agreement was to provide for mutual assistance and cooperation and the prevention of fiscal evasion with respect to value-added tax. South Africa introduced VAT in 1991, Lesotho introduced VAT in 2003 and Swaziland introduced VAT in April 2012.

Agreement between the Government of the Republic of South Africa and the Government of the Kingdom of Swaziland on mutual assistance and cooperation and the prevention of fiscal evasion with respect to value-added tax.

The agreement was entered into to make provision for and regulate various matters relating to value-added tax. Mr Ramphal expanded on the various articles of the Agreement.

Article 3: Refund System

Paragraph 1: Both Governments would establish a refund system to administer the refund and assessment of tax as provided for by the agreement.

RSA VAT was destination based such as imports and domestic consumption was taxed while exports are free of tax; a direct export is free of tax whereas an indirect export is taxed with a refund mechanism to the person who paid the tax; harmonized tax laws, that is, same tax rate, currency valuation, tax design and administration, facilitate implementation of a tax refund system between governments.

The benefits were that it harmonized a common customs procedure; removes incentive to under declare imports and round trip goods; reduces the administrative burden on both tax authorities; no requirement for the VAT refund administrator (VRA); single less frequent payments to the tax authority.

A Memorandum of Understanding (MoU) between the tax authorities would be developed setting out operational procedure regarding: any matter that would facilitate or improve the operation of the refund system provided for in the agreement.

Where an importer had paid a lesser amount of tax in the export State in respect of a sale or a supply of goods that had been exported than the tax liability in the import state, the deficit shall be recovered from the importer by the tax authority in the import state.

Article 7: Resolution of Difficulties

The Competent authority shall endeavor to resolve by mutual agreement any difficulties or doubts arising as to the interpretation or application of this agreement. In order to reach agreement an oral exchange of opinions can take place directly between representatives of the tax authorities of the contracting states.

Memorandum of Understanding

Article 5: Refund Procedures

Administered by each tax authority or by a Manager (Claims and Refund Manager); paid directly to the tax authority; no refund to the qualifying purchaser; instead would facilitate the refund directly to the tax authority.

Article 7: Resolution of Difficulties

The Competent authority shall endeavor to resolve by mutual agreement any difficulties or doubts arising as to the interpretation or application of this agreement. In order to reach agreement an oral exchange of opinions could take place directly between representatives of the tax authorities of the contracting states.

Article 8: Tax invoices

Original and valid tax invoices under RSA legislation.

Article 11: Obligations for SRA

Communicate appointment of the Manager; exchange information where non-compliance is suspected or detected; ensure Manager performs the necessary functions namely: tax invoice and claim verification, refund form/envelopes.

Article 12: Obligations for SARS

Exchange information where non-compliance is suspected or detected; pay 100% of the RSA VAT directly to the tax authority; remittance of VAT refunds to be made on a weekly basis; offset rejected claims-against future refund claims.

Discussion

The Chairperson commented that the Select Committee of Finance considered for approval the report of the agreement between the Government of the Republic of South Africa and the Government of the Kingdom of Swaziland on mutual assistance and cooperation and the prevention of fiscal evasion with respect to value-added tax.

The Committee unanimously adopted the agreement.

Agreement between the Government of the Republic of South Africa and the Government of the Kingdom of Lesotho on mutual assistance and cooperation and the prevention of fiscal evasion with respect to value-added tax.

The agreement was entered into to make provision for and regulate various matters relating to value-added tax.

Article 3: Refund System

Paragraph 1: Both Governments would establish a refund system to administer the refund and assessment of tax as provided for by the agreement.

RSA VAT is destination based such as imports and domestic consumption is taxed while exports are free of tax; a direct export is free of tax whereas an indirect export is taxed with a refund mechanism to the person who paid the tax; harmonized tax laws, that is, same tax rate, currency valuation, tax design and administration, facilitate implementation of a tax refund system between governments.

The benefits included a harmonized common customs procedure; removes incentive to under declare imports and round trip goods; reduces the administrative burden on both tax authorities; no requirement for the VAT refund administrator (VRA); single less frequent payments to the tax authority.

A Memorandum of Understanding (MoU) between the tax authorities would be developed setting out operational procedure regarding: any matter that would facilitate or improve the operation of the refund system provided for in the agreement.

Where an importer had paid a lesser amount of tax in the export State in respect of a sale or a supply of goods that had been exported than the tax liability in the import state, the deficit shall be recovered from the importer by the tax authority in the import state.

Article 7: Resolution of Difficulties

The Competent authority shall endeavor to resolve by mutual agreement any difficulties or doubts arising as to the interpretation or application of this agreement. In order to reach agreement an oral exchange of opinions can take place directly between representatives of the tax authorities of the contracting states.

Article 5: Refund Procedures

Administered by each tax authority or by a Manager (Claims and Refund Manager); paid directly to the tax authority; no refund to the qualifying purchaser; instead would facilitate the refund directly to the tax authority.

Article 7: Resolution of Difficulties

The Competent authority shall endeavor to resolve y mutual agreement any difficulties or doubts arising as to the interpretation or application of this agreement. In order to reach agreement an oral exchange of opinions could take place directly between representatives of the tax authorities of the contracting states.

Article 8: Tax invoices

Original and valid tax invoices under RSA legislation.

Article 11: Obligations for RSA

Communicate appointment of the Manager; exchange information where non-compliance is suspected or detected; ensure Manager performs the necessary functions namely: tax invoice and claim verification, refund form/envelopes.

Article 12: Obligations for SARS

Exchange information where non-compliance is suspected or detected; pay 100% of the RSA VAT directly to the tax authority; remittance of VAT refunds to be made on a weekly basis; offset rejected claims-against future refund claims.

Discussion

The Chairperson said the Select Committee of Finance considered for approval the report of the agreement between the Government of the Republic of South Africa and the Government of the Kingdom of Lesotho on mutual assistance and cooperation and the prevention of fiscal evasion with respect to value-added tax.

The Committee unanimously adopted the agreement.

Protocol amending the Agreement between the Republic of South Africa and the Republic of India for the avoidance of double taxation and the prevention fiscal evasion with respect to taxes on income.

Ms Oshna Mahoraj, Manager: SARS briefed the Committee on this subject. The amendments to the agreement became necessary in view of the global initiative to incorporate a comprehensive exchange of information Article in existing Double taxation agreements.

Article 25: Exchange of Information

The article was in line with the OECD/UN models and extends to taxes of every kind and description.

The article ensured that bank secrecy or the absence of a domestic tax interest can no longer be used to deny a request for exchange of information.

Full exchanges were authorized and included automatic exchanges.

Discussion

The Chairperson said the Committee had considered and proposed for adoption the Protocol amending the Agreement between the Republic of South Africa and the Republic of India for the avoidance of double taxation and the prevention fiscal evasion with respect to taxes on income.

The Committee unanimously agreed.

Protocol amending the Agreement between the Republic of South Africa and the Republic of Turkey for the avoidance of double taxation and the prevention fiscal evasion with respect to taxes on income.

Ms Oshna Mahoraj briefed the Committee on the above. The amendments to the agreement became necessary in view of the global initiative to incorporate a comprehensive exchange of information Article in existing Double taxation agreements.

Article 24: Exchange of Information

The article was in line with the OECD/UN models and extended to taxes of every kind and description.

The article ensured that bank secrecy or the absence of a domestic tax interest can no longer be used to deny a request for exchange of information.

Full exchanges were authorized and included automatic exchanges.

Discussion

The Chairperson said the Committee had considered and proposed for adoption the Protocol amending the Agreement between the Republic of South Africa and the Republic of Turkey for the avoidance of double taxation and the prevention fiscal evasion with respect to taxes on income.

The Committee unanimously agreed.

African Tax Administration Forum (ATAF) Multilateral Agreement on Mutual Assistance in tax matters

Ms Oshna Mahoraj briefed the Committee on the above. The ATAF agreement establishes ATAF and entered into force on 8 October 2012 establishing ATAF as an International organization. The parties to the ATAF multilateral agreement on mutual assistance in tax matters are 36 member states of ATAF.

The Member States of ATAF include: Benin, Botswana, Burkina Faso, Burundi, Cameroon, Chad, Comoros, Cote d’Ivoire, Egypt, Eritrea, Gabon, Gambia, Ghana, Kenya, Lesotho, Liberia, Madagascar, Malawi, Mauritius, Morocco, Mozamique, Namibia, Niger, Nigeria, Rwanda, Senegal, Seychelles, Sierra Leone, South Africa, Sudan, Swaziland, Tanzania, Uganda, Zambia and Zimbabwe.

Article 9: Costs

The Contracting Parties shall waive all claims for reimbursement of ordinary costs incurred in the execution of this agreement.

Discussion

The Chairperson said the Select Committee on Finance considered for approval the African tax administration forum agreement on mutual assistance in tax matters.

The Committee unanimously adopted the agreement.

Southern African Development Community (SADC) Multilateral Agreement on Tax matters.

Ms Oshna Mahoraj briefed the Committee on the above. The Southern African Development Coordinating Conference (SADCC) established on 1st April 1980 was the precursor of the SADC.

The SADCC was transformed into SADC on the 17th August 1992 where the SADC treaty was adopted, redefining the basis of cooperation among member states into legally binding arrangement. The parties of the SADC agreement on assistance in tax matters are 15 member states of the SADC. The member states of SADC include: Angola, Botswana, DRC, Lesotho, Madagascar, Malawi, Mauritius, Mozamique, Namibia, Seychelles, South Africa, Swaziland, Tanzania, Zambia and Zimbabwe. 

Article 3: Taxes Covered

This agreement shall apply to all taxes on income, capital and goods and services imposed by or on behalf of the State Parties with the exception of custom duties.

Article 9: Costs

The State Parties shall waive all claims for reimbursement of costs incurred in the execution of this agreement.

As soon as the requested party anticipates that expenses of a substantial or extraordinary nature may be incurred in the provision of assistance pursuant to this agreement, it would before incurring such costs notify the competent authorities of the requesting party and both competent authorities shall decide the manner in which the cost shall be borne.

Article 15: Ratification and Entry into force

This agreement shall be ratified by member states in accordance with their constitutional procedures.

This agreement shall enter into force thirty calendar days after two thirds of the Member States had submitted their instrument of ratification to the Executive Secretary of SADC.

Discussion

The Chairperson said the Select Committee on Finance had considered for approval the Southern African Development Community Multilateral agreement.

The Committee unanimously agreed.

Agreement between the Government of the Republic of South Africa and the Government of the Cooks Islands for the exchange of information relating to tax matters

Ms Oshna Mahoraj, Manager: SARS briefed the Committee on the above. The agreement closely follows the OECD Model tax Information Exchange Agreement (TIEA) which forms the foundation for the vast majority of TIEAS worldwide. TIEA ensures that bank secrecy or the absence of a domestic tax interest can no longer be used to deny a request of information.

Article 1: Scope of the Agreement

Exchange of information that is foreseeable relevant to the enforcement of the domestic laws of the parties concerning taxes and tax matters covered by the agreement; includes information that is foreseeable relevant to the determination, assessment, enforcement or collection of tax with respect to persons subject to such taxes or to investigation of tax matters or the prosecution of criminal tax matters in relation of such persons, the requested party shall ensure that effective exchange of information is not unduly prevented or delayed.

Article 2: Taxes Covered

This agreement shall apply to any identical or substantially similar taxes imposed after the date of signature of the agreement in addition to or in place of the existing taxes, or any substantially taxes if the parties so agree.

Article 4: Exchange of information upon request

Information shall be exchanged without regard to: Whether the requested party needs such information for its own tax purposes-domestic tax interest; and whether conduct being investigated would constitute a crime under the laws of the requested party-dual criminality.

Article 8: Costs

Unless the competent authorities of the parties otherwise agree, indirect costs incurred in providing assistance shall be borne by the requested party  and  direct costs incurred in providing assistance shall be borne by the requesting party.

Discussion

The Chairperson said the Select Committee had considered for approval the agreement between the Government of the Republic of South Africa and Government of the Cook Islands for the exchange of information relating to tax matters according to section 231 of the Constitution.

The Committee unanimously adopted the agreement.

Agreement between the Government of the Republic of South Africa and the Government of Barbados for the exchange of information relating to tax matters

Ms Oshna Mahoraj briefed the Committee on the above. The agreement closely follows the OECD Model tax Information Exchange Agreement (TIEA) which forms the foundation for the vast majority of TIEAS worldwide. TIEA ensures that bank secrecy or the absence of a domestic tax interest can no longer be used to deny a request of information.

Article 1: Scope of the Agreement

Exchange of information that is foreseeable relevant to the enforcement of the domestic laws of the parties concerning taxes and tax matters covered by the agreement; includes information that is foreseeable relevant to the determination, assessment, enforcement or collection of tax with respect to persons subject to such taxes or to investigation of tax matters or the prosecution of criminal tax matters in relation of such persons, the requested party shall ensure that effective exchange of information is not unduly prevented or delayed.

Article 2: Taxes Covered

This agreement shall apply to any identical or substantially similar taxes imposed after the date of signature of the agreement in addition to or in place of the existing taxes, or any substantially taxes if the parties so agree.

Article 4: Exchange of information upon request

Information shall be exchanged without regard to: Whether the requested party needs such information for its own tax purposes-domestic tax interest; and whether conduct being investigated would constitute a crime under the laws of the requested party-dual criminality.

Article 8: Cost

Unless the competent authorities of the parties otherwise agree, indirect costs incurred in providing assistance shall be borne by the requested party  and  direct costs incurred in providing assistance shall be borne by the requesting party.

Discussion

The Chairperson said the Select Committee had considered for approval the agreement between the Government of the Republic of South Africa and Government of Barados for the exchange of information relating to tax matters according to section 231 of the Constitution.

The Committee unanimously adopted the agreement.

Mr S Mohai (ANC, Free State) asked if these agreements had ever been broken and how countries conducted trade diploma in terms of violations.

Ms Oshna Mahoraj replied that there had not been difficulty with regards to violations of these agreements because of the initiatives by the global forum to review jurisdiction and to ensure that the regulations complied with international standards with regards to exchange of information. This related to exchange of information or taxes covered for example customs, drugs these were included under the custom administrative. No violation of agreements yet but in future there would be issues with countries domestic laws.

Mr Ron Van der Merwe, Consultant: SARS replied that these three countries in respect to exchange of information, offshore financial jurisdiction were reluctant to request information from South Africa because of the non-existence of tax in those jurisdictions. The flow of request would be from South Africa to that jurisdiction which was to stop tax invoice. We could extend our network of this agreement to cover possible cases of tax avoidance well.

Mr V Mtileni (EFF, Limpopo) asked if the agreements with other countries affected the Rand value exchange rate.

Mr Ron Van der Merwe replied that the impacts of these agreements was mainly on exchange of information and on tax matters and was unlikely to have any impact on Rand. It could be possible in a trade agreement which should be done by DTI. He added full double taxation agreement related to taxation between two countries and not on currency valuation.

Mr Franz Tomasek, Group Executive: Legislative Research and Development at SARS replied that if there was any impact it would be positive because it dealt with tax information exchange agreement essentially discouraging people from hiding money. Full double taxation agreement encouraged investment to South Africa which would improve the situation of Rand.

The Chairperson commented that there must be order in terms of the trades between countries.

Mr Mtileni said some Indians do not bank in South Africa but rather remit their money to India and asked if SARS had detector machines to detect currencies at the port of entry for those who travel with huge cash.

Ms T Motara (ANC, Gauteng) said questions be restricted to tax matters not banking and foreign exchange. A non-south African national cannot bank in South Africa.

The Chairperson said the Committee would be visiting the reserved bank on the 14th of October.

Agreement between the Government of the Republic of South Africa and the Principality of Monaco for the exchange of information relating to tax matters

Ms Oshna Mahoraj briefed the Committee on the above. The agreement closely follows the OECD Model tax Information Exchange Agreement (TIEA) which forms the foundation for the vast majority of TIEAS worldwide. TIEA ensures that bank secrecy or the absence of a domestic tax interest can no longer be used to deny a request of information.

Article 1: Scope of the Agreement

Exchange of information that is foreseeable relevant to the enforcement of the domestic laws of the parties concerning taxes and tax matters covered by the agreement; includes information that is foreseeable relevant to the determination, assessment, enforcement or collection of tax with respect to persons subject to such taxes or to investigation of tax matters or the prosecution of criminal tax matters in relation of such persons, the requested party shall ensure that effective exchange of information is not unduly prevented or delayed.

Article 2: Taxes Covered

This agreement shall apply to any identical or substantially similar taxes imposed after the date of signature of the agreement in addition to or in place of the existing taxes, or any substantially taxes if the parties so agree.

Article 4: Exchange of information upon request

Information shall be exchanged without regard to: Whether the requested party needs such information for its own tax purposes-domestic tax interest; and whether conduct being investigated would constitute a crime under the laws of the requested party-dual criminality.

Article 8: Cost

Unless the competent authorities of the parties otherwise agree, indirect costs incurred in providing assistance shall be borne by the requested party  and  direct costs incurred in providing assistance shall be borne by the requesting party.

Discussion

The Chairperson commented that the Select Committee had considered for approval the agreement between the Government of the Republic of South Africa and Government of the Principality of Monaco for the exchange of information relating to tax matters according to section 231 of the Constitution.

The Committee unanimously adopted the agreement.

Agreement between the Government of the Republic of South Africa and the Argentine Republic for the exchange of information relating to tax matters

Ms Oshna Mahoraj briefed the Committee on the above. The agreement closely follows the OECD Model tax Information Exchange Agreement (TIEA) which forms the foundation for the vast majority of TIEAS worldwide. TIEA ensures that bank secrecy or the absence of a domestic tax interest can no longer be used to deny a request of information.

Article 1: Scope of the Agreement

Exchange of information that is foreseeable relevant to the enforcement of the domestic laws of the parties concerning taxes and tax matters covered by the agreement; includes information that is foreseeable relevant to the determination, assessment, enforcement or collection of tax with respect to persons subject to such taxes or to investigation of tax matters or the prosecution of criminal tax matters in relation of such persons, the requested party shall ensure that effective exchange of information is not unduly prevented or delayed.

Article 2: Taxes Covered

This agreement shall apply to any identical taxes imposed after the date of signature of the agreement in addition to or in place of the existing taxes, or any substantially taxes if the parties so agree.

Article 4: Exchange of information upon request

Information shall be exchanged without regard to: Whether the requested party needs such information for its own tax purposes-domestic tax interest; and whether conduct being investigated would constitute a crime under the laws of the requested party-dual criminality.

Article 8: Cost

Unless the competent authorities of the parties otherwise agree, indirect costs incurred in providing assistance shall be borne by the requested party  and  direct costs incurred in providing assistance shall be borne by the requesting party.

Discussion

The Chairperson said the Select Committee had considered for approval the agreement between the Government of the Republic of South Africa and Argentine Republic for the exchange of information relating to tax matters according to section 231 of the Constitution.

The Committee unanimously adopted the agreement.

Agreement between the Government of the Republic of South Africa and the Government of the Principality of Liechtenstein for the exchange of information relating to tax matters

Ms Oshna Mahoraj briefed the Committee on the above. The agreement closely follows the OECD Model tax Information Exchange Agreement (TIEA) which forms the foundation for the vast majority of TIEAS worldwide. TIEA ensures that bank secrecy or the absence of a domestic tax interest can no longer be used to deny a request of information.

Article 1: Scope of the Agreement

Exchange of information that is foreseeable relevant to the enforcement of the domestic laws of the parties concerning taxes and tax matters covered by the agreement; includes information that is foreseeable relevant to the determination, assessment, enforcement or collection of tax with respect to persons subject to such taxes or to investigation of tax matters or the prosecution of criminal tax matters in relation of such persons, the requested party shall ensure that effective exchange of information is not unduly prevented or delayed.

Article 2: Taxes Covered

This agreement shall apply to any identical or substantially similar taxes imposed after the date of signature of the agreement in addition to or in place of the existing taxes, or any substantially taxes if the parties so agree.

Article 5: Exchange of information upon request

Information shall be exchanged without regard to: Whether the requested party needs such information for its own tax purposes-domestic tax interest; and whether conduct being investigated would constitute a crime under the laws of the requested party-dual criminality.

Article 9: Cost

The requesting party shall reimburse the requested party for all direct costs incurred in providing information pursuant to this agreement.

Discussion

The Chairperson said the Select Committee had considered for approval the agreement between the Government of the Republic of South Africa and Government of the Principality of Liechtenstein for the exchange of information relating to tax matters according to section 231 of the Constitution.

The Committee unanimously adopted the agreement.

Agreement between the Government of the Republic of South Africa and the Government of Belize for the exchange of information relating to tax matters

Ms Oshna Mahoraj briefed the Committee on the above. The agreement closely follows the OECD Model tax Information Exchange Agreement (TIEA) which forms the foundation for the vast majority of TIEAS worldwide. TIEA ensures that bank secrecy or the absence of a domestic tax interest can no longer be used to deny a request of information.

Article 1: Scope of the Agreement

Exchange of information that is foreseeable relevant to the enforcement of the domestic laws of the parties concerning taxes and tax matters covered by the agreement; includes information that is foreseeable relevant to the determination, assessment, enforcement or collection of tax with respect to persons subject to such taxes or to investigation of tax matters or the prosecution of criminal tax matters in relation of such persons, the requested party shall ensure that effective exchange of information is not unduly prevented or delayed.

Article 2: Taxes Covered

This agreement shall apply to any identical taxes imposed after the date of signature of the agreement in addition to or in place of the existing taxes, or any substantially taxes if the parties so agree.

Article 4: Exchange of information upon request

Information shall be exchanged without regard to: Whether the requested party needs such information for its own tax purposes-domestic tax interest; and whether conduct being investigated would constitute a crime under the laws of the requested party-dual criminality.

Article 8: Cost

Unless the competent authorities of the parties otherwise agree, indirect costs incurred in providing assistance shall be borne by the requested party, and direct costs incurred in providing assistance shall be borne by the requesting party.

Discussion

The Chairperson said the Select Committee had considered for approval the agreement between the Government of the Republic of South Africa and Government of Belize for the exchange of information relating to tax matters according to section 231 of the Constitution.

The Committee unanimously adopted the agreement.

Agreement with the United States to improve International Tax Compliance and to implement FATCA (Foreign Account Tax Compliance Act)

Mr Tomasek briefed the Committee on the above. The USA enacted FATCA in 2010 to combat offshore tax evasion by encouraging transparency and obtaining information on accounts held by US taxpayers in other countries. FATCA calls for foreign financial institutions (FFI) to provide the Internal Revenue service (IRS) with information on US account holders annually or else a 30% withholding tax (WHT) would be imposed on certain US source payments to the FFIs such as interest.

Release of IGAs

The three types of model intergovernmental agreement (IGA) released by the US in 2012 included:

Model 1: reciprocal/non-reciprocal exchange of information

Model 2: non-reciprocal, direct reporting to IRS

Intended to relieve burden on FFIs and address potential legal impediments to providing information to IRS under domestic law.

Model 1 IGA characteristics included; No direct reporting to the IRS by FFIs; FFIs report to domestic tax authority and exchange of information takes place under existing tax treaties; result –No WHT tax imposed on FFIs by the US.

SA - US IGA

Cabinet approval to negotiate and sign received on 4th September 2013; closely followed the model 1 reciprocal IGA which forms the foundation for the majority of IGAs worldwide. Affected FFIs in South Africa would report the required information to SARS which would exchange information with the US automatically in accordance with the double taxation convention (DTC) that already exists between South Africa and the US. The US would obtain information from its institutions for automatic exchange to South Africa.

Article 2: Obligations to obtain and exchange information with respect to reportable accounts

Specifies the information financial institutions would need to report to their competent authorities in each State; competent authorities would exchange information under Articles 26 of the DTC; relieves the obligation on South African FFIs to report directly to the IRS and enhances the exchange of information between the States.

Article 3: Time and manner of exchange of information

Time and manner of exchange of information between South African and US competent authorities; first automatic exchange of information(AEOI) to take place by 30 September 2015; competent authorities must enter into MOU for AEOI and implementation of the IGA; confidentiality be maintained; infrastructure to  be in place by 30 September 2015 in both jurisdictions or the IGA terminates.

Article 4: Application of FATCA to South African financial institutions

If reporting obligations were met, FFIs would not be subjected to WHT; South African retirement plans to be treated as either an exempt beneficial owner or a deemed compliant financial institutions as appropriate. The commencement of AEOI was coordinated in accordance with the principle of reciprocity.

Article 6: Mutual Commitment to continue to enhance the effectiveness of information exchange and transparency

US Government committed to provide equivalent levels of reciprocity to South Africa- A pre-requisite for SA concluding IGA; Commitment to develop an international model for AEOI; Legislation must be in place in both jurisdictions to ensure that tax identification numbers of the foreign resident could be exchanged by 2017.

Article 7: Consistency in the application of FATCA to partner jurisdictions

Most-favored nation provision; if more advantageous terms are negotiated in newer IGAs, South Arica would be notified of the terms and they would e automatically incorporated in South Africa- US IGA unless South Africa declines.

Annexes and MOU

Annex 1 and Annex 2 form an integral part of the agreement; annex 1 set out due diligence requirements for identifying and reportable accounts and on payments to certain non-participating financial institutions. Annex 2 set out entities and accounts that are not the subject of reporting – normally entities and accounts that are either unavailable or only incidentally available to non-residents.

The MOU ensured that third party reporting was allowed in accordance with paragraph 3 of Article 5,the ultimate responsibility for compliance remained with the FFI.

Discussion

Mr Motlashuping asked why the United States of America had an automatic exchange of information different from other countries agreements.

The Chairperson replied that South Africa was part of a global environment.

Mr Tomasek said the global standard of automatic exchange was approved this year and South Africa was part of the early adopters y 2017 it would have been extended to other adopters. Forty countries were currently in the group of early adopters which would be extended to other countries. USA were the first to move into space.

The Chairperson commented that the Committee would attend the World Economic Forum in order to understand global issues on economy.

Mr Mohai asked if South Africa provided any specialized training with regards to the execution of these agreements.

Mr F Tomasek replied that SARS had a working group that set up with the practitioners in order to deal with the issues as they came up primarily the financial institutions. Some of these financial institutions were part of the global groups and there are authorities for liaising information too.

Ms Motara requested clarity on most-favored nation. She asked if it was automatic or if it came with ratification. Clarification required on single tax number and its indication as there must not be duplication.

Mr Tomasek replied that most favored nation was automatic and as soon as other countries were added the information would be given to SARS to switch them on or down. Not everybody had recourse to tax number hence banks had identification numbers of customers which are linked to account numbers which formed the local tax numbers which ensured that SARS did not make mistakes on information.

Mr Mohai asked if the reform legislation on the taxing in America in 2010 was a post global recession or part of the consequence that America faced in terms of reforming the system and maximizing the corrections.

Mr Tomasek replied that there had been a lot of increase in international tax after the global recession. OECD and other initiatives came up to ensure that people paid their taxes hence the concept of automatic exchange of information.

Mr Mtileni asked if South Africans were paying tax as some politicians may not be paying tax.

The Chairperson replied that SARS was tracking down on those people who did not pay tax.

Mr Tomasek replied that as far as SARS was concerned, everybody had to pay tax. SARS would get the facts on why they did not pay tax like legitimate allowance or other strange structures. SARS would come up with ideas on why they should pay tax.

The Chairperson said money came from revenue collection.

Mr Mtileni said there were some doing businesses with government that SARS was afraid to follow up on.

The Chairperson said taxation laws would be handled at the later stage.

The Chairperson said the Select Committee on Finance had considered for approval the Agreement with the United States to improve International Tax compliance and implement FATCA.

The Committee unanimously agreed.

Annex E to the SACU Agreements on Mutual Administrative Assistance

Mr Mark Van Den Broek, Senior Specialist International Customs: SARS briefed the Committee on the annex E to the SACU agreements on mutual administrative assistance. The purpose of the annex was to provide an enabling legal basis for Customs Cooperation between the members of the Southern African Customs Union (SACU) that would give effect to the obligation to ensure the effective and harmonious application of the 2002 SACU agreement. SACU was established in 1910 and consists of five member state: Botswana, Lesotho, Namibia, South Africa and Swaziland. Annex E on mutual administrative assistance developed gave effect to this obligation and based on international standards and best practice. Annex E was found to be an agreement in terms of section 231(2) of the Constitution and it was therefore presented for ratification. SARS was competent authority on customs cooperation.

Article 2: Scope

Obliges Customs administrations to provide mutual administrative assistance to each other in order to ensure the proper application of their respective customs laws; prevent, investigate and combat customs offences; facilitate simplification and harmonization of customs procedure; ensure security of supply chain.

Assistance to be afforded subject to domestic laws and limitations such as lack of competence and resources in the Customs administration and excludes recovery of customs duties on each other’s behalf.

Article 3: Communication of Requests

Requests to be exchanged directly between Customs administrations through central coordination units.

Requests to be in writing or electronic and accompanied y information deemed useful; Requests involving specific procedure or methodology subject to domestic laws of requested Party; Option to provide information “on own initiative”.

Article 4: information for Application and Enforcement of Customs law

Customs administrations may exchange information on a range of matters:

New customs law enforcement techniques; new trends for committing customs offences; goods known to be the subject of customs offences; persons involved in customs offence etc.

Mr Roedolf Mostert, Senior Manager: SARS briefed the committee on articles 7&8: Automatic and Advance Exchange of Information.

Members can arrange for information to be exchanged on an automatic basis in advance of the arrival of consignment; automatic refers to the regular transmission of agreed information without the need for individual requests; exchange of specific information in advance helps identify high risk consignments before arrival and timely risk assessment had the benefit of facilitating movement of legitimate trade.

Article 10: Technical Assistance

Members may provide each other with Customs technical assistance including: Exchange of customs officials and experts; specialized training and assistance; and exchange of professional, scientific and technical data relating to Customs law and procedures etc.

Article 11: Surveillance

Customs administrations may upon request maintain special surveillance over: movements of persons suspected of contravening customs law; suspect storage or movement of goods and means of payment; premises used for storing goods used in illicit trade; means of transport suspected of use in contravening Customs laws. This is to be provided within the scope of the requested administration’s competence and available resources.

Article 23: Confidentiality of Information

Information to be treated as confidential and afforded protection in terms of relevant domestic laws; personal data exchange only possible after members agreed in an arrangement to provide protection at least in line with domestic laws of supplying state; customs administrations may use information and documents received in terms of Annex as evidence before courts.

Article 24: Personal Data Protection

Personal data exchanged only between Customs administrations with prior approval required before providing to other authority; receiving administration to notify how data was used and results obtained and shall keep data only for time necessary to achieve purpose for which it was supplied; records must be kept of all exchanges of personal data; security measures to e in place to protect personal data; liabilities pertain to misuse of personal data.

Article 25: Exemptions

Assistance may be refused or subject to conditions if it: Infringes sovereignty, laws or treaty obligations; infringes security, public policy or essential national interests; involves violation of industrial, commercial or professional secrecy; is inconsistent with domestic laws and administrative provisions.

Requesting administrations must indicate if they would be unable to provide the assistance they are requesting in which case requested administrations had full discretion.

Assistance may be postponed under certain circumstance; reasons must be provided for refusal or postponement.

Article 30: Settlement of Disputes

Customs administration to resolve any disputes on interpretation or application of Annex y mutual agreement and through SACU structures; Disputes not settled through such consultation shall be referred to Council for a decision.

Discussion

Mr Motlashuping asked if there was a presentation pattern of the articles as some articles were skipped and asked if surveillance mentioned in the presentation referred to South African site or other member country.

Mr Van Den Broek replied that every single article could have been treated but a lot of them were standards in terms of model agreements that would have been previously presented. He added that customs administrations were allowed to do surveillance within the domestic territories where they were investigating. This allowed SACU to investigate each other which would be decided by competence or resource availability.

The Chairperson said the report of the Select Committee on Finance on the Annex E to the SACU Agreement on Mutual Administrative assistance had been considered for approval according to Section 2.3.1 of the Constitution.

The agreement was unanimously adopted by the Committee.

The Chairperson thanked the SARS team for the presentations.

Ms Motara commented on the Joint Portfolio Committee and Select Committee programme and the NTPBS process. She added that the formal process of requesting permission should be done early.

The Chairperson said the NTPBS process was part of the work of the Committee and the Committee was scheduled to visit the Reserve Bank on the 14th October while Strategic plan to be tabled to the leadership before the 15th October.

The Chairperson suggested that the Secretary circulated the framework of the days to the Committee.

An appeal was made to the Chairperson to relay programme on joint committee meetings to the managers from SARS and National Treasury.

The meeting was adjourned.