Exit tax paid but not accepted.

[Shampoo]

I joined this forum for the SA side of tax pertaining to emigrants although I fled to Europe. So please bear with me.

 

When emigrating from SA all your shares on the JSE and other investments will be deemed as sold and the capital gains will have to be taxed in SA.

 

This re adjusts the base cost to a new level- So in short you would start on a clean page in OZ or wherever you live. 

 

I paid this Exit Tax but Portugal is not accepting the deemed sale. This is in contravention of the Tax Treaty that clearly states that CGT is a Residence based tax The deemed sale was in SA.

 

I sold all my shares the following year and instead of a tax loss I was billed with R180k due to the deemed sale not recognised. 

 

The question is .....who do I report this contravention of the Tax Treaty? 

 

 

 

 

[ottg]

 

That is a real bummer. Not so good news - if you read the double taxation agreement between RSA and Portugal it doesn't cover specifically dividends and capital gain tax. Now if you read the TAX Treaty from Portugal with RSA below (P6792/3) it says that both dividends and CGT can be taxed in both countries.

 

https://dre.pt/application/dir/pdf1sdip/2008/09/18300/0678106797.PDF

However, why don't you go through the process and ask for a formal "tax ruling". Engage a tax consultant in Portugal to 1st judge what will be the likelihood of success and what will be acceptable motivational criteria to be used. 

[Hugo2]

Good day Shampoo

 

Not into washing your head today, but tongue in cheek I ask you to clear your head

 

You have it 100% wrong!

 

Para 5 of Article 14 of the SA / Portugal treaty states that ONLY Portugal (country of tax residence) may tax you. You will therefore not succeed with your complaint

 

The exit s9H step up in base costs ONLY speaks to immovable property including shares in PropCo’s.  For any other situs SA assets tax non-residents, are normally tax exempt ie base cost is not a relevant term as SARS will not and may not tax you. Para 5 clearly says ONLY the country of tax residence.

 

You also incorrect in assuming the deemed disposal price in SA (exit value) is the deemed based cost for the new home country. Yes, it is so for Australia but for most EU countries (including UK) this is not true. Base cost remains base cost in their law and ONLY their law applies as ONLY Portugal may tax shares (other than PropCo shares) sold.

 

Finally, if you on a Golden Visa you may indeed not be tax non-resident. If you claim the golden visa benefit of 10 years tax exemption paying tax on source income only (in Spain the Beckam rules, in Portugal the investor immigrant rule) you did NOT tax emigrate from SA and Portugal may not tax you. You then incorrectly paid SA exit tax. Article4 Para 1 excludes from the Portugal tax resident definition, any person that pays Portuguese tax on source only

 

There is my view, so sorry to do this so bluntly but the message needs to go out: Golden Visa is not tax emigration and source rules are ONLY for Golden Visa residents

 

 

[Shampoo]

3 hours ago, Hugo2 said:

 

 I think you meant Art.13.5 and not Art. 14.5 but never the less it does state that CGT is residency based. Art 13 seems a copy and paste on both the Portuguese and Australian tax treaties with SA.

 

The fact that I was a resident on South African soil on the day of the deemed sale, the CGT was only payable to SARS. I had not yet entered Portugal. Regarding CGT I was only liable to Portugal tax from the date of arrival. The tax treaty only came into effect after departure from SA and landing in Portugal.

 

I had to submit my SA tax from 01 March up to the day before departure and it had to include the deemed sale. This info I got from many websites including SARS, BDO SOUTH AFRICA and SAIT. Link below. 

PS. I do not have a Golden Visa. I do have Non Habitual Residency status but it does not exempt me from CGT.

https://www.thesait.org.za/news/308311/The-Legal-and-Tax-Consequences-of-Emigration-.htm

 

  

 

 

[Gerhardk]

Not going into anything technical but when I was in RSA the competent authority contacts were two SARS officials and the one was the person negotiating the treaties. At the time they were employed by SARS (thus reported to the Commissioner of SARS) but I think there may have been a reporting to Treasury as well.  As you know the tax treaty is an agreement between countries' governments (effectively)  which should override domestic tax legislation so Treasury should be the entity to contact and accordingly the Minister of Finance.

 

So my approach would be to report to other competent authority first and then to his/her boss etc.

[Hugo2]

20 hours ago, Gerhardk said:

Not going into anything technical but when I was in RSA the competent authority contacts were two SARS officials and the one was the person negotiating the treaties. At the time they were employed by SARS (thus reported to the Commissioner of SARS) but I think there may have been a reporting to Treasury as well.  As you know the tax treaty is an agreement between countries' governments (effectively)  which should override domestic tax legislation so Treasury should be the entity to contact and accordingly the Minister of Finance.

 

So my approach would be to report to other competent authority first and then to his/her boss etc.

Not correct. Treaties define the competant authority as `C:SARS’ or an authorised agent. The authority is not the policy maker so the party tomthe agreement is the MINISTER parliament ratifies but it then places execution and implementation down to Commissioner for SARS. 

[Hugo2]

On 8/30/2018 at 1:28 PM, Shampoo said:

 I think you meant Art.13.5 and not Art. 14.5 but never the less it does state that CGT is residency based. Art 13 seems a copy and paste on both the Portuguese and Australian tax treaties with SA.

 

The fact that I was a resident on South African soil on the day of the deemed sale, the CGT was only payable to SARS. I had not yet entered Portugal. Regarding CGT I was only liable to Portugal tax from the date of arrival. The tax treaty only came into effect after departure from SA and landing in Portugal.

 

I had to submit my SA tax from 01 March up to the day before departure and it had to include the deemed sale. This info I got from many websites including SARS, BDO SOUTH AFRICA and SAIT. Link below. 

PS. I do not have a Golden Visa. I do have Non Habitual Residency status but it does not exempt me from CGT.

https://www.thesait.org.za/news/308311/The-Legal-and-Tax-Consequences-of-Emigration-.htm

 

  

 

 

 

Correct it is article 13

 

you then answer yourself, at the time you paid sars there was no right to access treaty (on exit date) so you therefore can’t keep Portugal bound to the treaty benefits as it applies only if you in one country selling in another country. On actual disposal while resident in Portugal, provided you are paying tax on world basis you may avail to treaty in which case SA may not tax (unless SA immovable property) and Portual tax rules and SARS can’t dictate to them to step up base cost

 

 

[Shampoo]

Typically the Exit Tax is paid after one has left RSA when the e-filing page becomes available some months after tax year end. Only then can you file your taxes and include the deemed sale of securities. This is done from foreign soil months after arriving. It does not mean that the deemed sale was done on foreign soil as the SA domestic law "forced" the sale automatically while still as a SA resident.

 

Is it because the tax treaty became effective only upon my arrival and this negates the deemed sale and that CGT was not Resident Based?

I fail to see why SAIT and SARS are wrong. When foreigners immigrate into SA their securities are re-based.  

[Hugo2]

On 9/5/2018 at 8:13 PM, Shampoo said:

Typically the Exit Tax is paid after one has left RSA when the e-filing page becomes available some months after tax year end. Only then can you file your taxes and include the deemed sale of securities. This is done from foreign soil months after arriving. It does not mean that the deemed sale was done on foreign soil as the SA domestic law "forced" the sale automatically while still as a SA resident.

 

Is it because the tax treaty became effective only upon my arrival and this negates the deemed sale and that CGT was not Resident Based?

I fail to see why SAIT and SARS are wrong. When foreigners immigrate into SA their securities are re-based.  

Good day Shampoo

 

Thankx but you make huge mistake by using filing tax date as relevant. One of the earliest tax court cases, Concentra I recall, made it clear the tax event falls into one and only one tax year and in the next tax year the event can’t repeat. You can also NOT claim year 2 events in year 1 of taxfiling but where the tax act has a deeming tax EVENT, the law dictates the deemed tax year. Exit tax is charged in terms of s9H and it DEEMS the disposal to be the DAY BEFORE.

 

Good argument but the deeming tax disposal was long time ago and the action being taken on foreign soil is not relevant

 

Again: if you pay tax in Portugal on SOURCE, you have NOT tax emigrated from SA. I am not convinced you should have suffered the tax

[Shampoo]

https://www.moneyweb.co.za/mymoney/moneyweb-tax/panic-uncertainty-about-expat-tax/?utm_source=Moneyweb&utm_campaign=ff2b74bca4-EMAIL_CAMPAIGN_2018_09_13_04_06&utm_medium=email&utm_term=0_b106a40770-ff2b74bca4-141299505&mc_cid=ff2b74bca4&mc_eid=abcdc262c1

 

//A lot of South Africans have opted for financial emigration instead, thereby breaking their tax residency, Leon says. 

But this may come at a significant cost for some individuals as financial emigration requires them to pay a CGT exit charge.//

 

If the above is correct and as I financially emigrated then I too have to pay the exit tax. I have done so and Portugal must accept the re based value regardless of when I submitted the tax return. The deemed sale remains to be executed on the day before departure and at the stage where I never even knew where I was going to retire in Europe.

 

 

Edited September 16, 2018 by Shampoo