There is one month to go before government's exchange control and tax amnesty draws to a close and there are only a few issues that stand in the way of being able to apply for amnesty with a clean conscience.
A month ago, the authorities released revised regulations and a circular that gave much-needed clarity on some murky issues relating to donations and trusts.
It also made it much easier for people with undeclared offshore income or inheritances to come clean.
But the new policy initiatives came down heavily on loop structures, also known as 74/26 companies. It also gave too little clarity on whether all amnesty applicants who may have fallen foul of Vat legislation when they took their money offshore would be protected from prosecution by the SA Revenue Service (Sars) during or after the amnesty.
It's been a long road for the treasury department since it initially announced the amnesty in the budget in February this year. Finance minister Trevor Manuel has had to sign off numerous changes to the initial legislation to accommodate the complex and sophisticated structures that were used to take money offshore.
Significant sums of money are tied up in trust and company structures that are designed to put as much distance as possible between actual ownership and control of the asset, so it's taken time to reach final legislation that paves the way for these to be unwound.
A problem encountered in the amnesty process is that it is rare for money to be directly donated to the offshore trust from SA. It was often taken offshore and deposited into a foreign bank account or invested elsewhere and only later donated to the trust. The regulations released in late September formally recognise that most donations to foreign discretionary trusts had been made indirectly or had been deemed donations and accommodate these donations in the amnesty process.
Standard Private Bank private banker Shan Abernethy says the regulations allow for indirect and deemed donations to foreign discretionary trusts to be given amnesty when they were made "at the instance of the donor".
He says the only issue that seems not to have been adequately dealt with in the legislation, and subsequent regulations, is where the donor to a foreign discretionary trust is a wound-up deceased estate.
"It would appear as if the assets in such a trust would remain outside the so-called net. This unfortunately does not give comfort to the ultimate beneficiaries of these assets because it is not clear whether the beneficiaries in this situation are still technically in breach."
However, it would appear from subsequent discussions with exchange control experts that the beneficiaries in these circumstances would need to declare their contingent interest in the foreign discretionary trust in their tax returns, and any distributions received from such trusts to an authorised dealer and to Sars where applicable. This would regularise these assets.
Also of great concern to advisers and potential applicants is the fact that the amnesty doesn't encompass Vat transgressions.
The final regulations to the Amnesty Act that were released at the end of September did touch on the Vat issue but there is no agreement on whether regulation 17 provides amnesty to all illegal Vat acts when the person was taking money offshore or just zero-rated export transactions.
Applicants that did engage in illegal Vat activities when under- or overinvoicing run the risk of their application being rejected by the amnesty unit because the funds involved illegal activities.
The only way the amnesty unit can reject an amnesty application if the person has fulfilled all the requirements laid out in the act is if the funds are generated from illegal activities.
Even if amnesty is granted the applicant still runs the risk that Sars could identify the Vat violations after the amnesty and prosecute the applicant.
Notwithstanding these concerns, most advisers are recommending that their clients seek amnesty and, if in doubt about Vat, approach Sars because Sars has indicated that it is willing to negotiate.
The amnesty unit will be under huge pressure to wade through the applications. Experts believe about 80% of the applications were affected by the regulations and circular that were released two months before the end of the amnesty.
Many people who had offshore foreign income and inheritances had already sent through their applications and these will have to be identified by the amnesty unit, sent back to the applicant and resubmitted for income tax amnesty, which will take considerably longer than the first time around.
There are mixed views about whether the people with a lot of money offshore will find the offer to come clean enticing enough to apply for amnesty and bring it out into the open.
Investec Private Bank chief investment officer Warren King doesn't think the people who are considering applying are doing so because of the amount they have offshore. "There are some people with small amounts offshore who are not interested in applying for amnesty and there are some with very big sums offshore who are happy to do whatever it takes because they view it as an opportunity to legitimise themselves."
He says government's decision to minimise the disclosure requirements of the amnesty has helped make it more attractive to apply for amnesty.
The Reserve Bank is still providing more clarity on the 74/26 company structures, he says, but the regulations and the circular released in late September show the authorities have been fair. "The details of the regulations clearly show the authorities' intention to make the amnesty as far-reaching and attractive as possible."
Bowman Gilfillan Findlay Tait tax partner Alan Keep says the big money is still out there because many of the people who have applied for amnesty took traveller's cheques out of the country and have between R500 000 and R2m offshore.
"As for the people who understand their sophisticated structures, I'm not sure whether they'll come back because the structures have been set up cleverly and these people may be comfortable with the way they've been set up."
He says it's probably going to be a few years before the UK enforces know-your-client regulations and it could take more than a decade before the pressure the Organisation for Economic Cooperation & Development (OECD) countries are bringing to bear on the tax havens begins to threaten their confidential status. But he believes these initiatives will catch up with them in the end.
Abernethy says a number of wealthy clients are applying for amnesty so they can sleep better at night. About 20%-30% of Standard Private Bank's clients who have indicated they will apply for amnesty are elderly and retired.
"They're worried about their beneficiaries and their ability to access the funds," he says.
