The nitty gritty of SARS’ Voluntary Disclosure Programme
The Tax Administration Act, 2011 (“TAA”) allows a taxpayer to approach the South African Revenue Service (“SARS”) to “come clean”, provided all the relevant requirements are met. In particular, the requirements for a valid application in terms of the “voluntary disclosure programme” (“VDP”) in terms of section 227 of the TAA are that the disclosure must:
- be voluntary;
- involve a “default” that has not occurred within five years of the disclosure of a similar “default” by, inter alia, the applicant;
- be full and complete in all material respects;
- involve certain behaviours referred to in the understatement penalty provisions;
- not result in a refund due by SARS; and
- be made in the “prescribed form and manner.”
In a recent Supreme Court of Appeal (“SCA”) case, Purveyors South Africa Mine Services (Pty) Ltd v Commissioner for the South African Revenue Services (Pty) Ltd, an appeal against the decision of the Tax Court was dismissed, upholding the rejection by SARS of the VDP application submitted by Purveyors South Africa Mine Services (Pty) Ltd (“Taxpayer”).
In 2015, the Taxpayer entered into an aircraft lease agreement with a company incorporated and tax resident in the USA. The agreement allowed the Taxpayer to operate air charter services for the benefit of a non-resident company that owns and operates a mine located in the DRC. During January 2015, the Taxpayer commenced the provision of air charter services for flights from Johannesburg to Lubumbashi and Kinshasa in the DRC.
On 30 January 2017, the Taxpayer requested a meeting with SARS to regularise VAT, which it was advised should have been paid in respect of the import of the aircraft. SARS responded by indicating, inter alia, that there were also penalty implications. After further correspondence between the Taxpayer and SARS, in May 2017, SARS advised the Taxpayer that it had to resolve the matter as SARS had allowed the Taxpayer sufficient time to regularise its tax affairs. The Taxpayer obtained a further opinion confirming that the Taxpayer was liable for import VAT as well as penalties and interest.
In April 2018, the Taxpayer submitted a VDP application. SARS rejected the application on the grounds that it was not voluntary and did not contain new facts as these had already been disclosed to SARS prior to the submission of the application.
The Tax Court found that the application was not voluntary as there was an element of compulsion on the part of the Taxpayer.
The SCA considered the meaning of the term “voluntary disclosure”’ and noted that “voluntary” is defined to mean “performed or done of one’s own free will, impulse or choice; not constrained, prompted, or suggested by another” and that “disclosure” means “to open up to the knowledge of others, to reveal”. The SCA held as follows:
“The language used in the section clearly indicates the legislature’s intention to arm the Commissioner with extensive powers to prevent taxpayers from disclosures which are neither voluntary nor complete in all material respects. The fact that the section provides that the disclosure application must be made in the prescribed form or manner rather than obtaining ad hoc advice from SARS is a clear indication that the mischief sought to be prevented is one where a taxpayer discloses information to SARS and later on makes a voluntary disclosure application. The purpose of the application is designed to ensure that errant taxpayers who are not compliant must come clean, out of their own volition and without any prompting, to make amends in respect of their defaults by informing SARS. No purpose would be served if the TAA enables errant taxpayers to obtain informal advice and when it does not suit them, to then apply for voluntary disclosure relief. Whether a voluntary disclosure has been prompted by a compliance action is a question of fact to be determined by examining the circumstances in which it was made.” (our emphasis)
The SCA held that a taxpayer cannot obtain VDP relief where “SARS had prior knowledge of the default, regardless of the source of such prior knowledge, and had in addition, warned the taxpayer of the consequences of its default.” According to the SCA, granting relief in such circumstances would not accord with the purposes of the VDP being:
- to enhance voluntary compliance with the tax system by allowing taxpayers to disclose defaults which SARS is not aware of, and
- to ensure the best use of SARS’ resources.
The SCA noted that a sensible interpretation of the voluntary disclosure provisions, their context and purpose show that the legislature clearly had in mind that a taxpayer who elects to inform SARS of its default runs the risk that any subsequent disclosure might not be treated as being voluntary. The SCA stated that the mechanics of section 227 is to incentivise taxpayers to come clean so that SARS can give them immunity and went on to state that, “[t]his can only happen if there is a full and proper disclosure, of which SARS was unaware and which disclosure was not prompted by SARS… Clearly it is not the intention of the legislature to reward involuntary conduct with exemptions conferred by the section.”
With reference to the facts, the SCA held that the application by the Taxpayer was not voluntarily as the Taxpayer did not disclose information of which SARS was unaware and accordingly, dismissed the appeal.
It is evident from the Purveyor case that taxpayers must carefully consider approaching SARS informally in relation to a default as doing so is likely to jeopardize a subsequent VDP application. It is further important that a VDP application must not be driven by “any fear or compulsion”.
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