Monthly Archives: May 2017

Houston-based GulfMark Offshore, which runs support vessels for offshore drilling, said Tuesday that it plans to to file for bankruptcyafter reaching a agreement with bond holders to convert debt to equity.

The reorganization, which was first reported in the Houston Business Journal, would help the company shed $430 million in debt. Shareholders will have .75 percent of the equity in the reorganized company. GulfMark said it expects to file for Chapter 11 bankruptcy by May 21.

We are confident that this step will position GulfMark to seize opportunities as the downturn continues and in the eventual market recovery, saidQuintin Kneen, GulfMarks CEO, said in statement.

While operators drilling in West Texas shale plays have managed to turn a profit with lower oil prices, the offshore drilling industry has struggled to recover asoil prices hover at or below $50 a barrel.

Earlier this month at the Houstons annual Offshore Technology Conference, the industrys largest gathering, executives from large companies discussed the need to cut costs in offshore operations. Some companies, like British oil company BP, said they can profit with lower- for- longer oil prices. But smaller offshore drillers and service companies havent managed to profit, conference goers said.

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GulfMark Offshore plans bankruptcy filing - FuelFix (blog)

5/16/2017

ABERDEEN -- 2H Offshore, riser and conductor specialists in subsea services group Acteon, is pleased to announce the launch of the STREAM (STeel Riser Enhanced Analytics using Measurements) Joint Industry Project (JIP), which will see 2H Offshore work with operators to find efficiencies for the industry.

STREAM JIP logo. Source: 2H Offshore.

STREAM aims to provide a measurement-based foundation for steel catenary riser (SCR) modelling to allow for accurate fatigue assessment. SCRs have been widely used in the deepwater offshore industry due to their service reliability. However, field measurements indicate that riser fatigue damage is often over predicted at the critical touch down region, which can lead to higher riser costs for the industry.

Full-scale field data from six deepwater SCR systems has been secured from STREAM JIP participants, including four major operators. 2H will apply its proven riser response data analytics methodology to benchmark design, identify gaps and derive calibrated modeling parameters. The results will benefit the future design and life extension of riser systems.

Himanshu Maheshwari, 2H Offshore Senior Project Manager, said: The modern subsea market is evolving, with a need for smarter, more efficient solutions. At 2H we are leading these changes by combining our domain expertise with the intelligent use of data.

Data is critical to bridge the gap between numerical analysis and actual response in the field for deep water SCRs. The STREAM JIP will provide a platform for operators to work together to achieve an industry consensus on optimal design parameters.

Currently, four major oil and gas operators have agreed to participate in the JIP. 2H also invites more interested industry partners to join the JIP and in turn benefit from field data insights.

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2H Offshore launches JIP to drive intelligent efficiencies - WorldOil (subscription)

By Ginger Gibson | WASHINGTON

WASHINGTON Major U.S. multinationals are pushing the Trump administration to deepen the tax break it has already tentatively proposed on $2.6 trillion in corporate profits being held offshore, a key piece in Washington's intricate tax reform puzzle.

As President Donald Trump tries to deliver on his campaign promise to overhaul the tax code, lobbyists for technology, drug and other manufacturers are working with officials behind closed doors, six lobbyists working with various industries told Reuters.

In line with tax cuts already embraced by Republicans in the House of Representatives, the lobbyists said they are telling the White House and Treasury Department that if companies are forced to bring home, or repatriate, foreign earnings, they want a sharply reduced tax rate.

The lobbyists are making an aggressive case that cutting the tax rate on offshore profits to 10 percent from 35 percent, as the administration has indicated it may favor, is not enough.

Rather, the lobbyists said they want a lower, bifurcated rate of 3.5 percent on earnings already invested abroad in illiquid assets, such as factories, and 8.75 percent on cash and liquid assets.

During the 2016 presidential campaign, Trump proposed setting the rate at 10 percent, and argued it could be used to raise tax revenue to pay for tax cuts or infrastructure.

Discussion of hard numbers in the long-running repatriation debate may indicate tax reform is advancing on Trump's slow-moving domestic policy agenda. Or it may just be lobbyists trying to set the early framework for a long slog ahead, which could be adjusted if they get concessions elsewhere.

"For us, its how you create a tax environment where you give business long-term certainty," one lobbyist said.

The changes being discussed are part of larger tax reform, another lobbyist said: "Our international tax system is out of whack with the rest of the world. This system is not sustainable."

LATEST PUSH IN LONG CAMPAIGN

The lobbyists' demands represent the latest effort in a push by corporate America that has been under way since 2004-2005, the last time Washington let multinationals pay only a small fraction of the taxes due on their foreign profits.

Repatriation and comprehensive tax reformare important to the economy, Apple Inc (AAPL.O) CEO Tim Cook said earlier this month on CNBC. "The administration ... they're really getting thisand want to bring this back and I hope that that comes to pass," he said. Apple held $239.6 billion of cash and securities offshore as of April 1.

Under current law, U.S.-based corporations are supposed to pay 35-percent income tax on profits worldwide. But companies can defer that tax on active profits left outside the country.

The deferral rule has incentivized multinationals to park profits offshore and about $2.6 trillion in earnings is being held overseas by more than 500 U.S. companies, according to Audit Analytics, a corporate research firm.

Nearly a third of that is held by 10 companies, including Apple, Microsoft Corp (MSFT.O), Pfizer Inc (PFE.N) and General Electric Co (GE.N), the firm said. All four of those companies declined to comment.

These companies and hundreds of others could bring their foreign profits into the United States at any time, but they do not in order to avoid paying the 35-percent tax due.

If the $2.6 trillion overseas were repatriated at once, two things would happen. First, Washington would get a big jolt of tax revenue. Second, repatriated profits not collected by the Internal Revenue Service could be put to use in the economy.

As the law stands, tax-deferred profits can be held offshore indefinitely. The result of that has been companies biding their time, claiming their profits are "trapped" offshore while lobbying for a repatriation tax cut. The last time they got one was in 2004-2005 under former President George W. Bush, whose administration let multinationals voluntarily repatriate profits at a 5.25 percent tax rate.

At the time, Bush tried to extract promises from companies that they would dedicate repatriated funds to investments in new plants and other job-creating projects.

But in a 2011 follow-up study, a Senate committee concluded the Bush repatriation tax "holiday" cost the Treasury at least $3.3 billion in net revenue over 10 years and "produced no appreciable increase in U.S. jobs or domestic investment."

Rather, the repatriated funds largely went to shareholder dividends and executive bonuses, the committee said.

The repatriation tax break now being discussed differs from Bush's: repatriation would not be voluntary, but mandatory, so foreign profits would have to be brought home.

In addition, lobbyists said they have talked to the administration about ending deferral and exempting foreign profits from taxation. The administration has floated this as an option. Lobbyists said there has been discussion about limiting that exemption to 95 percent of repatriated foreign earnings.

(Editing by Kevin Drawbaugh and Bill Rigby)

Puerto Rico on Wednesday willface investors for the first time in a bankruptcy court, as it kicks off the biggest and most divisive debt restructuring in U.S. public finance history.

WASHINGTON The Trump administration's top trade officials hope to keep the North American Free Trade Agreement as a trilateral deal in negotiations with Canada and Mexico to revamp the 23-year-old pact, senators said on Tuesday.

WASHINGTON/RIYADH When U.S. President Donald Trump meets Saudiprincesin Riyadh on Saturday, hecan expecta warmer welcome than the one given a year ago to his predecessor Barack Obama, who Riyadh considered soft on arch foe Iran and cool toward a bilateral relationship that is amainstay of the Middle East's security balance.

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US companies push hard for lower tax rate on offshore profits - Reuters

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May 16, 2017, 8:01 AM EDT May 16, 2017, 11:20 AM EDT

Scottish judges paved the way for as much as 10 billion pounds ($13 billion) to be invested in offshore wind power by overturning a ruling that said projects may kill too many birds.

Planning permission should move forward at four wind farms being developed by SSE Plc, Mainstream Renewable Power Ltd., Fluor Corp. and SDIC Power Holdings Co., according to the ruling by three judges at the Inner House at the Court of Session in Edinburgh on Tuesday.

They said a judge in the Outer Court was wrong to revoke consent in July for the wind farms, that may create as much as 2.3 gigawatts of new capacity off Scotlands east coast. The earlier ruling asserted that Scottish ministers didnt properly assess how the projects would threaten migratory seabirds such as the puffin.

The earlier decision strayed well beyond the limits of testing the legality of the process,according to the ruling. Matters of scientific fact and methodology which, whatever the judges own particular skills may be, are not within the proper province of a court of review.

Scotlands government welcomed the decision by saying it remains strongly committed to the development of offshore wind energy, according to an email from Minister for Business, Innovation and Energy Paul Wheelhouse. Offshore wind has a key role to play in our fight against the threat posed by climate change to both our society and our natural environment, he said.

Mainstream said it would now seek to develop the 2 billion pound Neart Na Goithe offshore wind farm as quickly as possible, according to a separate statement. The project has a contract with the U.K. government for a subsidy of 114 pounds a megawatt hour.

The Royal Society for the Protection of Birds, which brought the original case against the wind farms, said the projects could be among the most deadly windfarms for birds anywhere in the world.

RSPB Scotland is, of course, hugely disappointed by todays Inner House judgment, said Stuart Housden, director RSPB Scotland, in an email. Combined, these four huge projects threaten to kill thousands of Scotlands internationally protected seabirds every year, including thousands of puffins, gannets and kittiwakes.

The decision will boost investor confidence in the U.K.s emerging offshore wind industry, as the country hosts its latest subsidy auction, said Tom Harries, Bloomberg New Energy Finance analyst. Developing an offshore wind site in the U.K. is risky and costly enough already, without the added threat of retroactively losing an environmental permit.

Edward Black, a spokesman for SSE, said the company was delighted with the outcome of the appeal and will now consider the best options for the two Seagreen wind farms affected.

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Scottish Offshore Wind May Get Lift After Bird Ruling - Bloomberg

More than 100 members of Congress are urging the Trump administration not to open up the Atlantic or Pacific oceans for oil and gas drilling as part of the Interior Departments review of federal offshore policies.

In a letter released on Monday, the members said drilling in the Atlantic or the Pacific would imperil local economies based on fishing and tourism, which they said would both be threatened by the effects of a potential oil spill.

We do not believe that new oil and gas exploration or production activity in the Atlantic and Pacific Outer Continental Shelf (OCS) is compatible with the sustainable coastal economies on which so many of our constituents and communities depend, the members wrote.

As you conduct a review of our nation's existing oil and gas leases, we again strongly urge you to reject proposals to open the Atlantic and Pacific OCS Regions to new offshore drilling and exploration."

Democrats make up the bulk of the members signing the letter, though a handful of Republicans joined as well, including co-lead authors Reps. Frank LoBiondo (R-N.J.), Dave ReichertDavid ReichertHouse GOP not sold on Ryans tax reform plan Lawmakers push back against Trump offshore drilling review Here are the 20 Republicans who rejected ObamaCare repeal MORE (R-Wash.) and Mark Sanford (R-S.C.).

President Trump signed an executive order in April requiring the Interior Department to reconsider the five-year offshore drilling plan the Obama administration finalized last year. That plan did not include lease sales for the Atlantic, Pacific or Arctic oceans.

The Interior Department last week announced that it would consider allowing six companies to use seismic testing to assess potential oil and gas reserves in the Atlantic Ocean, though it will take years before any potential testing permit is issued.

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Lawmakers push back against Trump offshore drilling review | TheHill - The Hill

Its a tiny island with a big claim to fame.

We, the smallest town in the smallest state in the United States, have the very first offshore wind farm and we should be so proud, Nancy Dodge of the Block Island Power Company Board said earlier this month.

Her enthusiastic comments came as Block Island turned off its diesel generators, and started using offshore wind power as its source of electricity. That switch officially happened on May 1 after years of planning and development.

This is the start of something much bigger and we will always be able to say Block Island was the first, added Jeffrey Grybowski of Deepwater Wind, the company leading the charge on the years long, multi-million dollar project.

That project involves five wind turbines spinning three miles off of the island.

An undersea cable connects the turbines to the mainland, providing power to some 17,000 mainland homes.

A separate cable then connects to Block Island, providing its residents with clean wind power as well.

Now with the first offshore wind farm up and running, Deepwater Wind is shifting its focus to other projects for New York and Massachusetts.

Massachusetts can build big projects that are not too far from where we are right now, and produce a lot of clean energy, and a lot of clean jobs doing it, Grybowski adds while standing on Block Island.

Deepwater Wind is just one of several companies envisioning hundreds of turbines off the Massachusetts coast, as Governor Charlie Baker asks utilities to incorporate offshore wind power into the states grid over the next two decades.

Were talking about projects that would be located 20 miles from the south coast of Massachusetts and maybe 15-16-17 miles from the closest point of the Vineyard or Nantucket, Grybowski, the CEO of Deepwater Wind, adds.

At that distance, he says, the turbines will only be visible from land if someone is looking for them.

Thats a key point Deepwater Wind reiterated several times, well aware of the fierce opposition Cape Wind has faced for years.

That project, not associated with Providence based Deepwater Wind, hopes to build more than a hundred wind turbines in Nantucket Sound, just a few miles off of Cape Cod and Marthas Vineyard.

Back on Block Island, distance to land was also an issue. Some residents, like Rosemarie Ives, say that their once pure views of the Atlantic will never be the same following the installation of the man-made turbines so close to shore.

Ives and others also protest the speed with which the Block Island wind project received regulatory approval.

It went so fast, through the federal process and the state process, says Mary Jane Balser, the owner of Block Island Grocery.

I cant even get a mowing permit from Coastal faster than they got the permits to put that wind farm in, she adds, referring to the Rhode Island Coastal Resources Management Council.

Opponents of the project, who overall still support a move to clean energy sources, point to political connections between Rhode Island and Deepwater Winds Chief Executive Officer as one possible reason for what they call a fast track.

Jeffrey Grybowski served as Chief of Staff to former Rhode Island Governor Donald Carcieri. He left his post just before the administration, in 2008, named Deepwater Wind Rhode Islands preferred developer of offshore wind power. By that time Grybowski was practicing corporate law at a firm representing Deepwater Wind. Grybowski later joined Deepwater in 2010.

Balser goes on to say she believes Block Island was chosen for the first in the nation wind farm because of its small, transient population.

There were bigger motives. Get the first one in the ground where youll have the least amount of legal opposition and then, wham, build on it everywhere else, she says.

I feel the whole financial picture of this was unfair, not thorough enough, and the people here were used, she continued, warning those living near future projects to follow proceedings closely.

Balser says she asked countless questions about the finances of the projects, but was never given detailed answers by the company nor the state of Rhode Island.

Initially, Deepwater Wind told residents on Block Island that theyd save 40% on electricity bills with the switch to wind.

Now officials say the savings may be closer to 25%. That would save an average consumer about $30 per month.

Balser isnt even convinced of that, saying, I will not save any money, and neither will anyone else.

An unexpected price increase of the undersea cables bringing energy from the turbines to land accounts for some of the lost savings.

There were a number of areas where we encountered rocks, and so that made the complexity of installing the cables higher, the costs went up, explains Brian Gemmell of National Grid, the company in charge of that part of the project.

National Grid and Deepwater both say things like that offer valuable lessons learned as similar projects are built out in Massachusetts.

The other issue is the high price of power generated.

Right now, National Grid pays Deepwater Wind 24 cents per kilowatt hour generated.

That price goes up annually, landing at nearly 48 cents per kilowatt hour in 20 years.

The average price of electricity right now in New England is 16 cents per kilowatt hour.

But project officials say comparing the future price of offshore wind to the current average is misleading, since it too will increase with time, especially as coal and nuclear plants are decommissioned.

Plus, on Block Island specifically, using wind prevents customers from being subjected to the sometimes dramatic swings in diesel costs. Space will also be saved on the Block Island Ferry, now that diesel isnt being hauled to the island every few days. Block Island Power Company estimates that up to 1 million gallons of diesel was used annually, before switching to offshore wind power.

Meanwhile, Deepwater Wind continues to build out its plans for future offshore wind projects in Massachusetts. It hopes to know if projects are approved within the next year or so.

Published at 10:00 PM EDT on May 14, 2017 | Updated at 7:58 AM EDT on May 15, 2017

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Swirling Controversy: Celebration, Concern Over Offshore Wind ... - NECN

By Julie Wilson

News of the demise of the offshore industry may be premature. Production from offshore continues to rise: its 12 percent higher than it was six years ago, and will be 10 percent higher again in another six years, reaching over 503 million barrels of oil equivalent per day of oil and gas in 2023.

The offshore sector had been subject to high cost escalation as the market heated up from the mid-2000s. Offshore costs were driven by increasing complexity, greater use of customized designs components, local content requirements and rising labor costs. North American shale plays responded much more quickly to lower prices, and in a capital-constrained world, offshore has mostly been losing the battle for capital allocation at least in those companies with a foot in each camp.

But there are companies that rely on the offshore for at least some of their growth, and they have been re-working their best projects to optimize for lower oil prices. Projects are smaller, complexity is eschewed and enabling technologies are being applied to reduce inefficiencies, shorten cycle time and bring down cost.

Cost reduction and project redesign are resulting in a small recovery in new projects in deepwater, where the biggest prizes still lie. We expect eight new deepwater projects to receive final investment decisions this year equaling 2015 and 2016 combined. Project costs are about 20 percent lower than in mid-2014.The progress in reducing costs means that 14 billion barrels of oil equivalent from undeveloped deepwater resources could be profitably developed at $60 a barrel.

Deepwater major projects are becoming competitive (in break-even price) with new tight oil drilling, and we are not yet at the bottom of the cost cycle offshore. In contrast, shale plays are experiencing cost inflation as the rig count and activity increase, creating competition among operators for pared-down equipment and crews.

Deflation took some time to gather pace offshore, but is now most apparent in the rig sector where many rigs have been retired or idles 40 percent of modern 6th and 7th generation deepwater rigs are not contracted. Rig companies have reduced their own costs by around 20 percent, but have been forced to offer steeply discounted rig rates that have slashed margins. We expect further deflation in the rig market in over the next two years, when more rigs will roll off high-priced long-term contracts.

New ways of working have brought structural changes which should serve to keep costs lower. New technologies and new practices are both playing a role.

Offshore exploration well drill times have fallen from an average of 78 days in 2013 to just 56 days in 2016. Similar improvements are happening in development wells. New deepwater drilling technologies include dual derricks, dual blow-out preventers and sophisticated downhole sensors, which all speed rig operations.

Revised practices such as streamlined logistics, proactive maintenance and improved well planning all increase efficiency. Operators, contractors and suppliers are collaborating more and earlier to design a better well and trouble-shoot issues before they occur.

Operators are once again building long-term supplier relationships through vehicles such as global framework contracts, to streamline and standardize processes and equipment. The supply chain itself has been collaborating and consolidating to provide innovative solutions to the operators by creating efficiencies. The upper echelon of the subsea supply chain has seen the major original equipment manufacturers (OEMs) pair off with the leaders in the marine construction market and work together to increase efficiencies throughout the entire life cycle of the project.

Innovation continues in the offshore sector but now its directed at efficiency and cost reduction rather than pushing the technical limits.

Julie Wilson is research director for Global Exploration at Wood MacKenzie.

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Commentary: Offshore sector not dead yet - FuelFix (blog)

The South African Revenue Service (SARS) launched the Special Voluntary Disclosure Programme (SVDP) in October 2016, providing taxpayers with the opportunity to make good on any tax and/or exchange control contraventions of which they may be guilty in relation to offshore investments.

The nine-month window period opened on October 1, 2016 and closes on June 30, 2017, a period chosen to encourage disclosure before the institution of the new international Common Reporting Standards, which require the financial institutions of signatory countries to exchange information about the financial affairs of foreign taxpayers within their jurisdictions. SARS expects the automatic reporting of this information to begin in September this year, with the prospect of additional penalties and interest being imposed on South African taxpayers unless they come clean beforehand.

Its important to note that the SVDP legislation had not been promulgated at the time of writing in November 2016, so it is possible that changes could yet be made although SARS assures us that the draft bill reflects the outcome of the public consultation process and the proposals have been presented to Parliaments Standing Committee on Finance. However, tax assessments based on SVDP disclosures will be concluded only once the final legislative framework has the approval of Parliament.

The specifics

Although the SVDP makes provision for the disclosure of both tax contraventions and exchange control contraventions, not all taxes and not all taxpayers are covered by the programme, so it is important to understand the detail as it applies to your specific circumstances.

The tax SVDP covers receipts and accruals not declared to SARS (as required by the Income Tax Act and Estate Duty Act) from which an asset situated outside South Africa was derived, if the asset was held from March 1, 2010 to February 28, 2015. This wording is important. Amounts could have been sent offshore from earnings not declared to either SARS or the South African Reserve Bank (SARB), in which case those amounts, as well as any income arising from them, could have contravened the tax and exchange control legislation. Alternatively, the amounts may have been declared for tax purposes but taken offshore in contravention of exchange controls. In such cases, the amounts may be in contravention of exchange controls, but only the non-declaration of subsequent earnings gives rise to a tax contravention.

The receipts and accruals could have arisen before March 1, 2010, but will still be covered if they resulted in an asset, such as an investment, being held from March 1, 2010 to February 28, 2015. The draft legislation also makes provision for assets that may have been disposed of before March 1, 2010, in which case the taxpayer is permitted to treat the assets as if they were still held from March 1, 2010 to February 28, 2015. However, this is not permitted if the assets were donated to a trust or disposed of to a trust through a loan account. There are specific requirements for trusts (see below).

The tax required to be paid under the tax SVDP is calculated as follows:

1. Determine the market value in foreign currency of each asset that is subject to the SVDP for each year of assessment that ended on or after March 1, 2010 and before March 1, 2015. For individuals, this would be February 28, 2011, 2013, 2014 and 2015, and February 29, 2012.

2. In respect of each asset, translate the foreign currency into rands at the spot rate on the last business day on or before each year end. You can calculate historical rates by going to http://www.oanda.com.

3. Aggregate the market values in rands of each of the assets as calculated in Step 2 to determine one amount in rands for each year.

4. Determine which of the amounts is the highest across all of the years.

5. Apply a rate of 40 percent to the highest amount determined in Step 4.

6. The amount arrived at in Step 5 must be included in your taxable income in the first year of assessment that ended after March 1, 2014. For individuals, this is the tax year that ended on February 28, 2015.

7. Where the asset was disposed of before March 1, 2010, the value to be included at Step 1 is the assets highest value while it was actually held. SARS may accept a reasonable estimate of this value where it cannot be accurately determined.

Benefits of the SVDP

The primary benefit of the tax SVDP is that the declared receipts and accruals up to the 2014/15 tax year will be regarded as exempt for tax purposes, regardless of when they were earned that is, even if such receipts and accruals were earned before March 1, 2010. No understatement penalty will apply and no interest will arise in respect of periods before the year of inclusion in other words, the 2014/15 tax year for individuals.

It may seem obvious (or it may not) that your responsibilities dont end with the regularisation of your assets. You should declare the income in all subsequent tax returns that is, from the 2015/16 tax year (March 1, 2015 to February 29, 2016).

The downside

There are limitations to the SVDP for example, it covers income tax and estate duty, but employees tax is specifically excluded. Income tax covers several taxes, such as capital gains tax (CGT), dividends tax and donations tax, and these are all covered. Value-added tax is not covered under the SVDP. Neither are contributions to the Unemployment Insurance Fund or the Skills Development Levy.

The tax SVDP may not be made by or on behalf of a trust. Special provisions apply to donors, deceased estates of donors and beneficiaries of discretionary trusts with offshore assets that meet the SVDP requirements and have not vested in a beneficiary. The relevant applicant (donor, deceased estate of a donor, or trust beneficiary) is deemed to have held the asset and received or accrued the income. Such applicants should consider the legislation carefully and obtain expert advice.

The open-ended VDP

It is worth noting that the existing Voluntary Disclosure Programme (VDP), set out in the Tax Administration Act, provides a separate mechanism for taxpayers to declare previously undisclosed tax irregularities. The VDP is open-ended and no end date is contemplated. It is wider than the SVDP in terms of the taxes and taxpayers covered, but potentially more punitive in terms of the tax payable.

There is no limit to how far back the taxes can be calculated, and penalties can be imposed up to 10 percent of the tax understated, with interest running for the full period of non-disclosure. However, if the undeclared taxable income is less than the deemed income under the SVDP (in other words, 40 percent of the highest market value of the assets), the VDP may provide a more cost-effective route. Importantly, the VDP does not cover exchange control contraventions.

If you suspect you might have failed to comply with exchange control regulations, it is important to ascertain exactly what contravention occurred, if any. In certain cases, what might be a contravention if it took place before a certain date might be condoned if it took place later, when exchange controls were relaxed. For example, South African residents who earned income outside South Africa before July 1, 1997 were required to repatriate the earnings to South Africa. With effect from July 1, 1997, such earnings could be left abroad. It is now possible to regularise non-repatriated income earned before July 1, 1997 without incurring any exchange control penalty, provided it is declared to an authorised dealer (one of the big commercial banks) before March 31, 2017 (note that this date may be extended to June 30, 2017 in line with the extension of the SVDP, but dont delay, check with your bank).

Exchange Control Circular No. 6/2016 sets out what exchange control contraventions are subject to the SVDP relief and what contraventions can be regularised by disclosure. It is worth examining this document in detail.

The exchange control SVDP is open to all current and former South African residents, including individuals, sole proprietors, partnerships, deceased estates, insolvent estates, South African trusts, close corporations and companies. It is an opportunity to regularise unauthorised foreign assets held on or before February 29, 2016. It does not apply to bearer instruments. Applications must be made within the SVDP period. Applicants must make full disclosure of all unauthorised foreign assets (excluding bearer instruments) by providing the source of the assets and details of the manner in which the assets were transferred and retained offshore.

Where an exchange control contravention can be regularised only via the SVDP, a levy will be payable based on the market value of the assets on February 29, 2016:

Five percent if the levy is paid from the foreign assets and the assets are repatriated to South Africa; or

10 percent if the levy is paid from the foreign assets and the assets are retained offshore; or

12 percent if the levy is not paid from the foreign assets.

Where the foreign assets are denominated in multiple foreign currencies, the currencies can be converted to United States dollars as at February 29, 2016 (using the conversion rates published on the SARBs website).

It is possible to have a situation where an exchange control contravention can be regularised without incurring any penalty, or an apparent contravention turns out not to have been one for example, when earnings were retained offshore after July 1, 1997. However, a tax liability may exist if such amounts were not declared to SARS, depending on the circumstances. South Africa moved from a sourced-based to a residence-based tax system on March 1, 2001, with the result that offshore income and capital gains accruing to South African residents came into the tax net.

In the case of undeclared taxes, it may be possible to use either the VDP or the SVDP. There does not seem to be anything in the various pieces of legislation to prevent a piecemeal approach. In other words, you can use the SVDP for both tax and exchange control, or you can use the VDP for tax and the SVDP for exchange control. Or you can use the VDP for tax and merely regularise the exchange control contravention by way of declaration if this is applicable to your situation or any other combination.

Where a SARS or an exchange control investigation or audit is pending or under way, the SVDP relief is not available. All other eligible South African taxpayers who hold, or held, offshore investments should assess their position to determine whether all relevant tax and exchange control disclosures have been made. If doubt exists, they should take advice as to what course of action would be best to ensure that all disclosures and payments are in order to avoid significant penalties and possible criminal prosecution.

Going back several years and obtaining all the information to ascertain the best course of action and to support an application can be time-consuming. It is important to act sooner rather than later, so as not to miss the window period. However, it might also be a good idea to make the application only once the tax legislation has been promulgated. Deficiencies in the legislation may come to light, and it is still possible that changes could be made. For example, the tax SVDP does not seem to cater adequately for a situation where an asset was held on March 1, 2010, but disposed of shortly afterwards, before the end of the 2011 tax year. SARSs SVDP guide specifies that such assets should be treated as if they were held during the five-year period that ended on February 28, 2015 for purposes of determining the deemed income inclusion for the tax SVDP. This seems at odds with the legislation, and no doubt other anomalies will surface as applicants prepare their calculations.

USEFUL LINKS

The legislation setting out the tax aspects of the Special Voluntary Disclosure Programme (SVDP) is set out in sections 14 to 18 of the Rates and Monetary Amounts and Amendment of Revenue Laws Bill of 2016 and the Rates and Monetary Amounts and Amendment of Revenue Laws (Administration) Bill of 2016. The legislation can be downloaded from the South African Revenue Service (SARS) website. (Enter the title of the legislation in the search facility.)

The SVDP Guide v1-2 contains useful information about the practical aspects of applying for the relief (which must be done via eFiling) and the information required to be disclosed. It also has helpful links to other documents and information. The guide is available on the SARS website (put SVDP into the search facility).

Exchange Control Circular No. 6/2016 is available on the website of the South African Reserve Bank. (Enter the title in the search facility.)

Kari Lagler is an independent tax consultant and registered tax practitioner. The information in this article is of a general nature, and readers should obtain expert advice for their specific situations.

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Tax on offshore investments: time to come clean - Independent Online