Finance Minister Nhlanhla Nene and United States (US) ambassador to South Africa Patrick Gaspard have signed an intergovernmental agreement to improve international tax compliance and to implement the Foreign Account Tax Compliance Act.
The agreement, which was signed on Monday, promotes transparency between South Africa (SA) and the US on tax matters, while also underscores growing international cooperation in the endeavour to end tax evasion worldwide.
“South Africa is committed to automatic exchange of information for tax purposes and to thereby make the world a more transparent place from a tax perspective. This commitment has been expressed through South Africa’s role in both the G20 and the Global Forum on Transparency and Exchange of Information for Tax Purposes,” said Minister Nene.
The US enacted the Act in 2010 to combat offshore tax evasion by encouraging transparency and obtaining information on accounts held by US citizens in other countries.
The Act calls for foreign financial institutions to provide the US Internal Revenue Service (IRS) with information about US account holders annually. Failing that, a 30% withholding tax will be imposed on the foreign financial institution with regard to certain US source payments, such as interest.
The withholding tax is, however, waived if foreign financial institutions enter into disclosure compliance agreements with the US Treasury.
Ambassador Gaspard, who signed the agreement on behalf of the US, said the signing of the agreement is an important step forward in the collaboration between both countries to combat tax evasion.
“When taxpayers overseas avoid paying what they owe, other taxpayers have to bear a disproportionate share of the tax burden. The intergovernmental Agreement to Improve International Tax Compliance and to implement the Act is an important part of the US government’s effort to address that issue.”
In July 2012, the US introduced the option of a country entering into an intergovernmental agreement which would alleviate the need for financial institutions to enter directly into an agreement with the US.
The Agreement to Improve International Tax Compliance and to Implement the Foreign Account Tax Compliance Act between the US and SA is a reciprocal agreement, which ensures that financial institutions in SA will report information about US account holders to the South African Revenue Service (SARS).
SARS will in turn relay that information, by means of automatic exchange of information (AEOI), to the IRS, under the Double Taxation Convention in force between the US and SA. Reciprocally, the IRS will provide similar information about South African account holders in the US to SARS. – SAnews.gov.za
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