Background
On 8 March 2018, the Organisation for Economic Cooperation and Development (OECD) published the Model of Mandatory Disclosure Rules (MDR) Standard. MDR strengthens the Common Reporting Standard (CRS), an international agreement to fight tax evasion. MDR collects information on service providers (“intermediaries”) and entities suspected of hiding beneficial owners and evading tax. CRS calls these financial activities “Avoidance Arrangements” and “Opaque Offshore Structures”. To comply with MDR, South Africa updated its regulation as Gazetted on 9 October 2020. South Africa has used MDR since 1 March 2024.
Who must give data to SARS?
Any intermediary in a financial arrangement that could shift/hide income and its recipient, must give certain information on the arrangement/structure to SARS. Sometimes, participants in the arrangement who are South African tax residents must also give information.
“Intermediaries” means those who design or market the arrangement/structure (known as “promoters”). An intermediary is also a person or organisation that helps the promoter with the arrangement.
MDR is only for intermediaries connected with South Africa. MDR also covers a foreign intermediary operating through a branch located in South Africa, or intermediaries residing in, managed, controlled, incorporated, or established under the domestic laws of South Africa.
An intermediary must give MDR information to SARS if it:
- Has a branch in South Africa through which the arrangement or structure was offered or through which the services were provided.
- Is a South African tax resident or is managed in South Africa.
- Is incorporated or established in South Africa.
The regulation requires SARS sometimes to identify a Reportable Taxpayer whose identity is hidden by the financial structure. SARS requires this information especially when the Reportable Taxpayer’s intermediary is not subject to MDR, and the taxpayer is an actual or potential user/beneficiary of a CRS Avoidance Arrangement or Opaque Offshore Structure.
What must be reported?
Disclose details about:
- All the steps and transactions that form part of the arrangement or structure.
- The underlying investment.
- Persons involved.
- Tax details (including actual tax residency) of the clients and users of the arrangement/structure, and of any other known intermediaries.
The “client” of an intermediary means any person who:
- Makes a CRS Avoidance Arrangement or Opaque Offshore Structure available for implementation; or
- Provides services connected with these structures.
Reportable information can mean marketing materials, structure diagrams, presentations, and other documents that explain the structure or arrangement. This information must describe all jurisdictions where a CRS Avoidance Arrangement or Opaque Offshore Structure has been made available for implementation.
When must the information be reported?
An intermediary that is a promoter must submit an MDR report to SARS within 30 days from the date that the arrangement/structure is made available for implementation (to Intermediaries, Clients, or users). If an intermediary is a service provider, it must give SARS the MDR report within 30 days from when the services are first supplied.
The OECD provides guidance on high-risk CBI/RBI schemes, arrangements, or structures and their hallmarks to help service providers recognise avoidance arrangements and opaque offshore structures.
Pre-existing arrangements or structures established on or after 29 October 2014 — and before the CRS law became effective — must be disclosed within 180 days from the date MDR comes into effect: 1 March 2024.
Failure to report under the MDR will result in criminal sanction and administrative penalties (R100 000 for promoters and R50 000 for service providers per month without a report).
How must the information be reported?
MDR reporting is available only for electronic submission on the SARS eFiling platform. The disclosing entity should activate the MDR tax type on eFiling to enable completion of the MDR001 form.
