South Africa
This report analyses the implementation of the AEOI Standard in South Africa with respect to the requirements of the AEOI Terms of Reference. It assesses both the legal frameworks put in place to implement the AEOI Standard and the effectiveness of the implementation of the AEOI Standard in practice.
The methodology used for the peer reviews and that therefore underpins this report is outlined in Chapter 2.
Overall findings
AEOI legal framework
South Africa’s legal framework implementing the AEOI Standard is in place and is consistent with the requirements of the AEOI Terms of Reference. This includes South Africa’s domestic legislative framework requiring Reporting Financial Institutions to conduct the due diligence and reporting procedures (CR1) and its international legal framework to exchange the information with all of South Africa’s Interested Appropriate Partners (CR2).
Effectiveness of AEOI in practice
South Africa’s implementation of the AEOI Standard is partially compliant with the requirements of the AEOI Terms of Reference to ensure the effectiveness of the AEOI Standard in practice. While South Africa is on track with respect to exchanging the information in an effective and timely manner (CR2), there are significant issues with respect to ensuring that Reporting Financial Institutions correctly conduct the due diligence and reporting procedures (CR1).
Overall rating in relation to the effectiveness in practice: Partially Compliant
General context
South Africa commenced exchanges under the AEOI Standard in 2017.
In order to provide for Reporting Financial Institutions to collect and report the information to be exchanged, South Africa:
Under this framework Reporting Financial Institutions were required to commence the due diligence procedures in relation to New Accounts from 1 March 2016. With respect to Preexisting Accounts, Reporting Financial Institutions were required to complete the due diligence procedures on High Value Individual Accounts by 28 February 2017 and on Lower Value Individual Accounts and Entity Accounts by 28 February 2018.
Following the initial Global Forum peer review, South Africa amended its legislative framework to address issues identified, effective from 1 June 2021.
With respect to the exchange of information under the AEOI Standard, South Africa:
is a Party to the Convention on Mutual Administrative Assistance in Tax Matters and activated the associated CRS Multilateral Competent Authority Agreement in time for exchanges in 2017; and
put in place three bilateral agreements.1
Table 1 sets out the number of Financial Institutions in South Africa that reported information on Financial Accounts in 2021 as defined in the AEOI Standard (essentially, because they maintained Financial Accounts for Account Holders, or that were related to Controlling Persons, resident in a Reportable Jurisdiction). It also sets out the number of Financial Accounts that they reported in 2021. In this regard, it should be noted that South Africa requires the reporting of Financial Accounts held by all non-residents and domestic residents and some accounts may be required to be reported more than once (e.g. jointly held accounts or accounts with multiple related Controlling Persons), which is reflected in the figures below. These figures provide key contextual information to the development and implementation of South Africa’s administrative compliance strategy, which is analysed in the subsequent sections of this report.
Table 2 sets out the number of exchange partners to which information was successfully sent by South Africa in the past few years (including where the necessary frameworks were in place containing an obligation on Reporting Financial Institutions to report information, but no relevant Reportable Accounts were identified). These figures provide key contextual information in relation to South Africa’s exchanges in practice, which is also analysed in subsequent sections of this report.
In order to provide for the effective implementation of the AEOI Standard, in South Africa:
the South African Revenue Service (the tax authority) has the responsibility to ensure the effective implementation of the due diligence and reporting obligations by Reporting Financial Institutions and for exchanging the information with South Africa’s exchange partners;
technical solutions necessary to receive and validate the information reported by Reporting Financial Institutions were put in place by the South African Revenue Service; and
the Common Transmission System (CTS) is used for the exchange of the information, along with the associated file preparation and encryption requirements.
It should be noted that the review of South Africa’s legal frameworks implementing the AEOI Standard concluded with the determination that South Africa’s domestic and international legal frameworks are In Place. This has been taken into account when reviewing the effectiveness of South Africa’s implementation of the AEOI Standard in practice.
Findings and conclusions on the legal frameworks
The detailed findings and conclusions on the AEOI legal frameworks for South Africa are below, organised per Core Requirement (CR) and then per sub-requirement (SR) as extracted from the AEOI Terms of Reference (see Annex C).
CR1 Domestic legal framework: Jurisdictions should have a domestic legislative framework in place that requires all Reporting Financial Institutions to conduct the due diligence and reporting procedures in the CRS, and that provides for the effective implementation of the CRS as set out therein.
South Africa’s domestic legislative framework is in place and contains all of the key aspects of the CRS and its Commentary requiring Reporting Financial Institutions to conduct the due diligence and reporting procedures (SRs 1.1 – 1.3). It also provides a framework to enforce the requirements (SR 1.4).
SR 1.1 Jurisdictions should define the scope of Reporting Financial Institutions consistently with the CRS.
South Africa has defined the scope of Reporting Financial Institutions in its domestic legislative framework in accordance with the CRS and its Commentary.
SR 1.2 Jurisdictions should define the scope of Financial Accounts and Reportable Accounts consistently with the CRS and incorporate the due diligence procedures to identify them.
South Africa has defined the scope of the Financial Accounts that are required to be reported in its domestic legislative framework and incorporated the due diligence procedures that must be applied to identify them in accordance with the CRS and its Commentary.
SR 1.3 Jurisdictions should incorporate the reporting requirements contained in Section I of the CRS into their domestic legislative framework.
South Africa has incorporated the reporting requirements in its domestic legislative framework in accordance with the CRS and its Commentary.
SR 1.4 Jurisdictions should have a legislative framework in place that allows for the enforcement of the requirements of the CRS in practice.
South Africa has a legislative framework in place to enforce the requirements in accordance with the CRS and its Commentary.
CR2 International legal framework: Jurisdictions should have exchange relationships in effect with all Interested Appropriate Partners as committed to and that provide for the exchange of information in accordance with the Model CAA.
South Africa’s international legal framework to exchange the information is in place, is consistent with the Model CAA and its Commentary and provides for exchange with all of South Africa’s Interested Appropriate Partners (i.e. all jurisdictions that are interested in receiving information from South Africa and that meet the required standard in relation to confidentiality and data safeguards) (SRs 2.1 – 2.3).
SR 2.1 Jurisdictions should have exchange agreements in effect with all Interested Appropriate Partners that permit the automatic exchange of CRS information.
South Africa has exchange agreements that permit the automatic exchange of CRS information in effect with all its Interested Appropriate Partners.
SR 2.2 Such an exchange agreement should be put in place without undue delay, following the receipt of an expression of interest from an Interested Appropriate Partner.
South Africa put in place its exchange agreements without undue delay.
SR 2.3 Jurisdictions should ensure that the exchange agreements in effect provide for the exchange of information in accordance with the requirements of the Model CAA.
South Africa’s exchange agreements provide for the exchange of information in accordance with the requirements of the Model CAA.
Findings and conclusions in relation to effectiveness in practice
The detailed findings and conclusions in relation to effectiveness in practice of AEOI for South Africa are below, organised per Core Requirement (CR) and then per sub-requirement (SR) as extracted from the AEOI Terms of Reference (see Annex C).
CR1 Effectiveness in practice: Jurisdictions should ensure that in practice Reporting Financial Institutions correctly implement the due diligence and reporting procedures, which includes a requirement for jurisdictions to have in place an administrative framework to ensure the effective implementation of the CRS.
South Africa’s implementation of the AEOI Standard is partially compliant with respect to ensuring that Reporting Financial Institutions are correctly conducting the due diligence and reporting procedures. More specifically, while South Africa is meeting expectations with respect to collaboration with its exchange partners to ensure effectiveness (SR 1.6), there are significant issues with respect to ensuring effectiveness in a domestic context, such as through having an effective administrative compliance framework and related procedures (SR 1.5). South Africa should continue its implementation process to ensure its effectiveness, including by addressing the recommendations made.
SR 1.5 Jurisdictions should ensure that in practice Reporting Financial Institutions identify the Financial Accounts they maintain, identify the Reportable Accounts among those Financial Accounts, as well as their Account Holders, and where relevant Controlling Persons, by correctly conducting the due diligence procedures and collect and report the required information with respect to each Reportable Account. This includes having in place:
an effective administrative compliance framework to ensure the effective implementation of, and compliance with, the CRS. This framework should:
be based on a strategy that facilitates compliance by Reporting Financial Institutions and which is informed by a risk assessment in respect of the effective implementation of the CRS that takes into account relevant information sources (including third party sources);
include procedures to ensure that Financial Institutions correctly apply the definitions of Reporting Financial Institutions and Non-Reporting Financial Institutions;
include procedures to periodically verify Reporting Financial Institutions’ compliance, conducted by authorities that have adequate powers with respect to the reviewed Reporting Financial Institutions, with procedures to access the records they maintain; and
effective procedures to ensure that Financial Institutions, persons or intermediaries do not circumvent the due diligence and reporting procedures;
effective enforcement mechanisms to address non-compliance by Reporting Financial Institutions;
strong measures to ensure that valid self-certifications are always obtained for New Accounts;
effective procedures to ensure that each, or each type of, jurisdiction-specific Non-Reporting Financial Institution and Excluded Account continue to present a low risk of being used to evade tax; and
effective procedures to follow up with a Reporting Financial Institution when undocumented accounts are reported in order to establish the reasons why such information is being reported.
In order to ensure that Reporting Financial Institutions correctly conduct the due diligence and reporting procedures, South Africa implemented many of the requirements in accordance with expectations. However, significant issues were identified. The key findings were as follows:
South Africa implemented an overarching strategy to ensure compliance with the AEOI Standard developed after conducting a risk assessment that took into account a range of relevant information sources, such as comparing the AEOI returns submitted by the Financial Institutions with domestic returns and analysing the list of Reporting Financial Institutions and the lists of regulated entities. South Africa’s compliance strategy facilitates compliance and incorporates a credible approach to enforcement. South Africa intends to keep its compliance strategy and risk assessment under review to ensure its effectiveness on an ongoing basis.
South Africa has worked effectively to understand its population of Financial Institutions, utilising various relevant information sources, such as the list of entities maintained by South Africa’s financial regulators and the Foreign Financial Institution list for FATCA purposes, although it is not clear whether non-regulated entities that are Financial Institutions for purposes of the AEOI Standard are adequately covered. South Africa is taking action to ensure that Reporting Financial Institutions are classifying themselves correctly under its domestic rules and reporting information as required. South Africa intends to keep its understanding of its Financial Institution population up to date on a routine basis.
The institution responsible for implementing South Africa’s compliance strategy appears to have the necessary powers and resources to discharge its functions. With respect to resourcing, South Africa has assigned the equivalent of seven full time staff to monitor and ensure compliance by Reporting Financial Institutions, which have access to IT systems and tools to conduct risk assessments and which perform statistical analysis of the information reported. Overall, they appear to have developed an operational plan to verify compliance with the requirements, incorporating appropriate compliance activities, although only a limited number of activities have taken place so far.
South Africa has conducted some compliance exercises, including the issuance of compliance questionnaires to Reporting Financial Institutions where issues in the data have been identified. However, they have been limited in volume and scope. It is also noted that, although issues were identified, these have not yet been followed up on with verification and enforcement activities to ensure ongoing compliance.
South Africa appears ready to take effective action to address circumvention of the requirements if such circumvention is detected. However, it does not appear to have formal procedures in place to ensure self-certifications are obtained as required. With respect to following up on undocumented accounts, South Africa has conducted an analysis of the reasons why they have been reported and has begun to follow up with the Financial Institutions concerned to verify whether the requirements are being complied, beginning with the Financial Institutions that have reported a high number of undocumented accounts.
South Africa will keep its jurisdiction-specific lists of Non-Reporting Financial Institutions and Excluded Accounts under review to ensure they continue to pose a low risk of being used for tax evasion purposes.
Table 3 provides a summary of the specific activities undertaken, or that are planned to be undertaken, in relation to each of the key parts of the framework described above.
South Africa was not able to confirm that it collects and monitors information on the proportion of Financial Accounts that are reported that include information on the Tax Identification Numbers and dates of birth with respect to the individuals associated with them. These data points are key to exchange partners to effectively utilise the information and are important to developing an effective compliance strategy to ensure the AEOI Standard is being effectively implemented.
Information provided by South Africa also showed a significantly higher number of undocumented accounts reported by its Reporting Financial Institutions, when compared to other jurisdictions, which should only occur when it is not possible for the Reporting Financial Institutions to identify whether the accounts are held by Reportable Persons. However, the number of undocumented accounts has reduced over time. Follow-up discussions confirmed that South Africa is aware of these issues and is taking steps to address them.
Feedback was also received from South Africa’s exchange partners indicating that, compared to what they generally experience in relation to the information received from all of their exchange partners, they achieved a much lower level of success when seeking to match information received from South Africa with their taxpayer database.
Based on these findings it was concluded that South Africa is partially meeting expectations in ensuring that Reporting Financial Institutions correctly conduct the due diligence and reporting procedures, including by having in place the required administrative compliance framework and related procedures. More specifically, significant issues have been identified, including with respect to carrying out the necessary verification and enforcement activities, verification as regards whether self-certifications are obtained and the collection and monitoring of information on TINs and dates of birth. South Africa should therefore continue its implementation process accordingly, including by addressing the recommendations made.
South Africa should expand the information sources it uses to identify non-regulated entities that are Financial Institutions for the purposes of the AEOI Standard.
South Africa should further implement its procedures to verify whether Reporting Financial Institutions are reporting complete and accurate information.
South Africa should further develop and implement effective procedures to monitor and verify whether Reporting Financial Institutions are obtaining valid self-certifications as required, including dedicated communication activities, with a particular focus on self-certifications obtained after the opening of a Financial Account.
South Africa should routinely apply its enforcement activities where non-compliance is identified, including the application of penalties and sanctions as appropriate.
South Africa should implement systems to collect and monitor information on the reporting of Tax Identification Numbers and dates of birth to inform its compliance strategy.
SR 1.6 Jurisdictions should collaborate on compliance and enforcement. This requires jurisdictions to:
use all appropriate measures available under the jurisdiction’s domestic law to address errors or non-compliance notified to the jurisdiction by an exchange partner; and
have in place effective procedures to notify an exchange partner of errors that may have led to incomplete or incorrect information reporting or non-compliance with the due diligence or reporting procedures by a Reporting Financial Institution in the jurisdiction of the exchange partner.
In order to collaborate on compliance and enforcement, it appears that South Africa implemented all of the requirements in relation to issues notified to them (i.e. under Section 4 of the MCAA or equivalent) in accordance with expectations. While no such notifications have yet been received, it appears that South Africa has the necessary systems and procedures to process them as required. South Africa also notifies its partners effectively of errors or suspected non-compliance it identifies when utilising the information received.
Based on these findings it was concluded that South Africa is fully meeting expectations in relation to collaborating with its exchange partners to ensure that Reporting Financial Institutions correctly conduct the due diligence and reporting procedures. South Africa is encouraged to continue its implementation process accordingly, to ensure its ongoing effectiveness.
CR2 Effectiveness in practice: Jurisdictions should exchange the information effectively in practice, in a timely manner, including by sorting, preparing, validating and transmitting it in accordance with the AEOI Standard.
South Africa’s implementation of the AEOI Standard is on track with respect to exchanging the information effectively in practice, including in relation to sorting, preparing and validating the information (SR 2.4), correctly transmitting the information in a timely manner (SRs 2.5 – 2.8) and providing corrections, amendments or additions to the information (SR 2.9). South Africa is encouraged to continue its implementation process accordingly, to ensure its ongoing effectiveness.
SR 2.4 Jurisdictions should sort, prepare and validate the information in accordance with the CRS XML Schema and the associated requirements in the CRS XML Schema User Guide and the File Error and Correction-related validations in the Status Message User Guide (i.e. the 50000 and 80000 range).
Feedback from South Africa’s exchange partners did not raise any specific concerns with respect to their ability to process the information received from South Africa and therefore with respect to South Africa’s implementation of these requirements.
Based on these findings it was concluded that South Africa is fully meeting expectations in relation to sorting, preparing and validating the information. South Africa is encouraged to continue its implementation process accordingly, to ensure its ongoing effectiveness.
SR 2.5 Jurisdictions should agree and use, with each exchange partner, transmission methods that meet appropriate minimum standards to ensure the confidentiality and integrity of the data throughout the transmission, including its encryption to a minimum secure standard.
In order to put in place an agreed transmission method that meets appropriate minimum standards in confidentiality, integrity of the data and encryption for use with each of its exchange partners, South Africa linked to the CTS.
Based on these findings it was concluded that South Africa is fully meeting expectations in relation to agreeing and using appropriate transmission methods with each of its partners. South Africa is encouraged to continue to ensure the ongoing effectiveness of its implementation.
SR 2.6 Jurisdictions should carry out all exchanges annually within nine months of the end of the calendar year to which the information relates.
Feedback from South Africa’s exchange partners did not raise any concerns with respect to timeliness of the exchanges by South Africa and therefore with respect to South Africa’s implementation of this requirement.
Based on these findings it was concluded that South Africa is fully meeting expectations in relation to exchanging the information in a timely manner. South Africa is encouraged to continue to ensure the ongoing effectiveness of its implementation.
SR 2.7 Jurisdictions should send the information in accordance with the agreed transmission methods and encryption standards.
Feedback from South Africa’s exchange partners did not raise any concerns with respect to South Africa’s use of the agreed transmission methods and therefore with South Africa’s implementation of this requirement.
Based on these findings it was concluded that South Africa is fully meeting expectations in relation to sending the information in accordance with the agreed transmission methods and encryption standards. South Africa is encouraged to continue to ensure the ongoing effectiveness of its implementation.
SR 2.8 Jurisdictions should have the systems in place to receive information and, once it has been received, should send a status message to the sending jurisdictions in accordance with the CRS Status Message XML Schema and the related User Guide.
Feedback from South Africa’s exchange partners did not raise any concerns with respect to South Africa’s receipt of the information and therefore with South Africa’s implementation of these requirements.
Based on these findings it was concluded that South Africa is fully meeting expectations in relation to the receipt of the information. South Africa is encouraged to continue to ensure the ongoing effectiveness of its implementation.
SR 2.9 Jurisdictions should respond to a notification from an exchange partner as referred to in Section 4 of the Model CAA (which may include Status Messages) in accordance with the timelines set out in the Commentary to Section 4 of the Model CAA. In all other cases, jurisdictions should send corrected, amended or additional information received from a Reporting Financial Institution as soon as possible after it has been received.
South Africa appears ready to respond to notifications and to provide corrected, amended or additional information in a timely manner and no such concerns were raised by South Africa’s exchange partners and therefore with respect to South Africa’s implementation of these requirements.
Based on these findings it was concluded that South Africa appears to be fully meeting expectations in relation to responding to notifications from exchange partners and the sending of corrected, amended or additional information. South Africa is encouraged to continue to ensure the ongoing effectiveness of its implementation.
Note
← 1. With Hong Kong (China), Qatar and Singapore. South Africa has also activated a relationship under the CRS MCAA with Qatar.