Medtronic as a matter of interest

Medtronic as a matter of interest

• 15 August 2025
• Tax Administration
• Adv Christel van Wyk

The Voluntary Disclosure Programme (VDP) was introduced as a permanent measure to encourage voluntary compliance with tax laws. It provides taxpayers with the opportunity to rectify past mistakes in the interest of sound tax administration and the efficient use of SARS resources.

The relief under the VDP is limited. It excludes criminal prosecution, administrative non-compliance penalties, and understatement penalties. Importantly, it does not extend to late payment penalties or interest. To qualify for relief, the disclosure must meet all VDP requirements.

Relief for interest

The central issue in Commissioner for the South African Revenue Service v Medtronic International Trading S.A.R.L. [2024] ZACC 26 (“the Medtronic case”) was whether a taxpayer who concluded a Voluntary Disclosure Agreement (VDA) with SARS could later seek remittance of interest under section 39(7) of the Value-Added Tax Act 89 of 1991 (VAT Act), despite having agreed to pay such interest in the VDA.

The Supreme Court of Appeal was divided. The majority held that once a taxpayer requests SARS to remit interest, the Commissioner is obliged to consider the request under the Promotion of Administrative Justice Act 3 of 2000 (PAJA). The minority disagreed, reasoning that once a VDA is concluded, the taxpayer cannot seek remittance of interest, since the VDA itself forms the centrepiece of the VDP. Altering its material terms, such as the obligation to pay interest, would effectively undo the agreement.

The Constitutional Court endorsed the minority view, emphasising that the statutory obligation to pay interest is integral to the VDA.

The Constitutional Court’s approach

The Court held that if SARS lacks the authority to remit interest after a VDA has been concluded, there is no purpose in considering such a request. The Tax Administration Act (TAA) is silent on remittance of interest in this context, and section 39(7) of the VAT Act makes payment of interest peremptory.

Since the VDA expressly provides for interest, a taxpayer who signs it unequivocally accepts this obligation. The Court therefore confirmed that statutory interest cannot be waived after the agreement is finalised.

Pacta sunt servanda

The Court further highlighted that section 230 of the TAA requires that successful participation in the VDP must culminate in a binding agreement. In line with the principle of pacta sunt servanda (“agreements must be honoured”), both SARS and the taxpayer are bound to the terms of the VDA.

Conclusion

Taxpayers considering the VDP must carefully familiarise themselves with its requirements and the scope of relief it offers. The programme does not provide comprehensive relief and specifically excludes the waiver of interest.

The Medtronic judgment provides final clarity: statutory interest cannot be waived through the VDP. Such a term cannot be incorporated into a VDA nor pursued afterwards. The obligation to pay interest remains intact.

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