Accounting weekly

South Africa forced to report tax transactions to US

The US Internal Revenue Service (IRS) require financial and tax authorities in other countries to report tax information under the Foreign Account Tax Compliance Act, or FATCA.

The FATCA is a portion of the 2010 Hiring Incentives to Restore Employment (Hire) Act and requires foreign financial institutions to report on the holdings of US taxpayers, including individuals who live outside the country, to the IRS. Failure to do this, can result in steep penalties of up to 30% of their US source income for financial institutions.
Ides is a secure system of automated, standardised information exchanges that can be used to provide information to the IRS about financial accounts held by US persons by the 145 000 financial institutions in more than 110 host countries (including South Africa) that has signed Intergovernmental Agreement (IGA) for FATCA compliance with the US.
The IRS will also use Ides to provide similar information to the host country’s tax authority on accounts in US financial institutions held by the jurisdiction’s residents.
South Africa signed an IGA with the US on 9 June 2014, making South Africa an IGA Jurisdiction, effective 1 July 2014 . The SA IGA requires impacted South African financial institutions to identify all clients in line with the client due diligence requirements stipulated in the SA IGA and to (amongst other things) report certain specified information on certain clients to the South African Revenue Services (SARS) on an annual basis.
According to a FATCA information brochure published by KPMG, the SA IGA contemplates that all South African financial institutions (as defined) will be required to identify their clients (according to enhanced due diligence procedures) and report certain information to SARS annually in respect of these clients that are determined to be US Persons. These institutions will also be required to register on the IRS FATCA Portal. Certain ongoing compliance monitoring will also be required.
A failure to comply with the requirements set out in the SA IGA will result in a breach of South African law.
IRS commissioner John Koskinen said in a statement that the opening of the Ides is a milestone in the implementation of  FATCA, that will enhance its ability to “detect hidden accounts and help ensure fairness in the tax system.”
Read more: