Taxpayers must be cautious when entering into agreements under the voluntary disclosure programme (VDP), says Tax Consulting SA.

According to the group, SARS and, more importantly, the court’s interpretation of the agreements made under the VDP is that they are binding and cannot be amended.

In November 2022, SARS announced that its VDP would be permanently available. The programme is a sort of open-door policy that allows taxpayers to regularise their tax affairs by coming clean on defaults in payments or other non-compliance acts that could lead to penalties or action if discovered by SARS.

SARS said that if they discover non-compliance during their own investigations, the help provided through the VDP will not be an option. Instead, they will take legal action to address the non-compliance.

“We want all taxpayers to understand that they always have an opportunity to regularise their tax affairs,” said the taxman.

According to Tax Consulting SA, the recent case of Medtronic International v CSARS placed a taxpayer who was intending to get out of trouble into further legal battles.

Facts

The taxpayer (Medtronic) brought a review application against the Commissioner of SARS (The Commissioner) due to the taxpayer being a victim of fraud from a Medtronic employee to the tune of approximately R460 million.

This placed the taxpayer in non-compliance with SARS; the taxpayer then applied for and was granted relief in terms of the Voluntary Disclosure Programme (VDP), and the parties entered into a VDP agreement.

The taxpayer subsequently applied for a remission of interest as provided by the Value Added Tax Act; however, this was refused due to the agreement between the two parties remaining in force and being unamendable.

As a result, the taxpayer brought a review application against the Commissioner, said Tax Consulting SA.

The primary issue dealt with was what should be contained in a record regarding review proceedings.

“The taxpayer’s contention was that the Commissioner must comply with the Uniform Rules of Court and supply the information which led to the decision being taken. The Commissioner asserted the fact that no decision had been considered, adjudicated upon or decided on the taxpayer’s request for remission of interest,” Tax Consulting SA said.

High Court finding

The court found that the taxpayer’s approach was misguided, noting that what needs to be determined is not from the pleaded case but rather the decision sought to be reviewed.

Ultimately, a Court remains guided by what is relevant, as only relevant evidence is admissible, said Tax Consulting SA.

The court further held that the Commissioner unequivocally stated that “under the circumstances, as the agreements entered into between the Commissioner and the respective taxpayer remains in force, the Commissioner cannot consider the request for the remission of interest levied.”

This was received by letter, and the taxpayer’s legal representative was fully aware that the refusal to consider the remission of interest request was based on the question of law.

As a result, the court dismissed the taxpayer’s application, and costs were awarded in favour of the Commissioner.

Supreme Court of Appeal finding

The taxpayer launched an appeal in the SCA; however, the court only considered the issue of whether the Commissioner had a duty to consider the taxpayer’s request for remission of interest.

“The Court found that the Commissioner’s refusal to consider and determine the taxpayer’s request altogether undermines the fundamental right entrenched in section 33 of the Bill of Rights, the right to Just Administrative Action.”

“Accordingly, it was held that SARS bears a statutory duty buttressed by the Constitution to, at the very least, consider the request for remission of interest and decide it on its own merits,” said Tax Consulting SA.

Analysis

In essence, the taxpayer was attempting to review a decision of the Commissioner that had not actually been taken, said the tax firm.

“The question of why the taxpayer brought their review application arises when one considers the fact that the taxpayer was aware that the Commissioner’s refusal to consider the remission of interest application was based on a legal issue, or otherwise stated, on the interpretation of a legislative provision contained in Section 39 of the VAT Act.”

“The taxpayer, on its own version, was aware that the respondent did not base the refusal to consider the remission of interest on facts whereby discretion was used.”

Tax Consulting SA said the taxpayer should have applied for the remission of interest and informed SARS about the fraud they fell victim to as extenuating circumstances.

This could have been used as a mitigating factor in the application. Along with applying for the remission of interest, the taxpayer should have also applied for relief under the VDP and explained in the application that they were a victim of fraud and had also requested remission of interest, it added.