Stricter rules for CRS compliance

Although the 2016 Regulations were repealed, much of the content in the 2020 Regulations remains the same, with the notable changes being:

1. The new section on commentaries on the CRS, to be followed when interpreting the regulations.
2. The exception to the requirement that, with respect to new individual accounts or new entity accounts, a reporting financial institution (RFI) must obtain a self-certification upon opening an account. In terms of the update, a 90-day period of compliance is allowed where:

• a self-certification is obtained when opening the account, but cannot be validated because it is a subsequent process undertaken by the RFI’s back-office function; or
• in exceptional cases, where it is not possible to obtain a self-certification on the first day of the account opening process due to the requirements of the business of the RFI.

3. The insertion of the new paragraph B under section X, which permits an RFI to suspend transactions or close a financial account where the account holder or controlling person fails to provide a self-certification within 90 days from the date on which it is required.
4. The new section on mandatory disclosure rules, set to come into effect from 1 March 2023 will require an “Intermediary” or the user of a “CRS Avoidance Arrangement” or “Opaque Offshore Structure” to disclose to the South African Revenue Service certain information set out in the regulations, if certain requirements are met. These rules essentially place a reporting obligation on persons involved in setting up structures that result in the avoidance of CRS legislation or make it difficult to determine the identity of the beneficial owners of the structure. Briefly, for the purposes of these rules, the 2020 Regulations define:

• “CRS Avoidance Arrangement” as any arrangement designed to circumvent or which is marketed as, or has the effect of, circumventing CRS legislation or exploiting an absence thereof through various ways described in the 2020 Regulations.
• “Intermediary” as any person who is responsible for the design or marketing of a “CRS Avoidance Arrangement” or “Opaque Offshore Structure” and any person that provides relevant services in respect of that arrangement or structure where that person can reasonably be expected to know that the arrangement or structure constitutes a “CRS Avoidance Arrangement” or “Opaque Offshore Structure”.
• “Opaque Offshore Structure” as a passive offshore vehicle that is held through an opaque structure which is designed to allow a natural person to be a beneficial owner of that passive offshore vehicle, in a manner that makes it difficult to determine who the beneficial owner is or which creates the appearance that such person is not a beneficial owner.

There are instances in which an “Intermediary” or user will not be obliged to disclose any information. In particular, they are not required to disclose confidential information that is protected under professional secrecy rules set out in domestic law.

Considering that CRS is constantly evolving, it is important to keep abreast of the developments as authorities in the international tax society seek to improve international tax compliance.