An intergovernmental agreement to improve international tax compliance was signed by South Africa and the United States on Monday.
The agreement, which promotes transparency between South Africa and the US on tax matters, was signed by Finance Minister Nhlanhla Nene and US ambassador to South Africa Patrick Gaspard.
It aims to realise the Foreign Account Tax Compliance Act, a US federal law that aims to combat offshore tax evasion by encouraging transparency and obtaining information on accounts held by US citizens in other countries.
“South Africa is committed to automatic exchange of information for tax purposes and to make the world a more transparent place from a tax perspective,” Nene said. “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.”CollaborationThe Act calls for foreign financial institutions to provide the US Internal Revenue Service (IRS) with information about American account holders.
Gaspard, who signed the agreement on behalf of the US, said the signing of the agreement was an important step 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.ReciprocityThe Agreement to Improve International Tax Compliance and to Implement the Foreign Account Tax Compliance Act between the US and South Africa is a reciprocal agreement, which ensures that financial institutions in South Africa 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 to the US Internal Revenue Service under the Double Taxation Convention in force between the US and South Africa.
The IRS will provide similar information about South African account holders in the United States to SARS.