Medtronic International Trading S.A.R.L vs CSARS

---

Medtronic International Trading S.A.R.L vs CSARS

• 24 February 2021
• VAT
• SARS

Value Added Tax: Whether the provisions of the voluntary disclosure agreement prohibit a request for remission of interest under section 39(7) of the VAT Act 89 of 1991.

HUGHES J

Introduction

[1] Medtronic International Trading S.A.R.L, the applicant, seeks to review two decisions taken by the respondent, the Commissioner for the South African Revenue Services (SARS). This judicial review against the decisions of SARS is sought in terms of the Promotion of Administration of Justice Act 3 of 2000 (PAJA), alternatively on the principle of legality, the common law and section 33 of the Constitution of the Republic of South Africa. Significantly, aside from the review per se, the applicant seeks declaratory relief on a question of law.

[2] The applicant seeks the following relief:

‘1. That it be declared that:

1.1. the provisions of Chapter 16, Part B, sections 225 to 233 of the Tax Administration Act, Act 28 of 2011 (" the TAA") relating to voluntary disclosure programmes ("VDFF') do not prohibit a request for remission of interest in terms of section 39(7) of the Value-Added Tax Act, Act 89 of 1991 (PVAT Act") notwithstanding a VDP agreement having been entered into;

1.2 notwithstanding a prior VDP agreement having been entered into, the respondent has a statutory duty to consider, adjudicate and decide on a request for the remission of interest in terms of section 39(7)(a) of the VAT Act.

2. That the following decisions of the respondent be reviewed and set aside in terms of the Promotion of Administrative Justice Act, Act 3 of 2000 ("PAJA"), alternatively the principle of legality, and remitted back to SARS for reconsideration, namely:

2.1. The decision set out in the respondent's letter dated 1 November 2018, of which the applicant was informed per e-mail on 20 November 2018, to refuse to consider the applicant's request for remission of interest in terms of section 39(7)(a) of the VAT Act;

2.2. Alternatively, the respondent's decision set out in its letter of 13 March 2019, of which the applicant was informed per e-mail on 28 March 2019, to refuse to withdraw its decision referred to in paragraph 2.1 above and to decide that it cannot consider the request for the remission of the interest levied.

3. That the respondent be ordered to consider, adjudicate and decide on the applicant's request for remission of interest in terms of section 39(7)(a) of the VAT Act, dated 12 October 2018, and inform the applicant of its decision within 15 days of the order being granted. SARS' decision may not be contrary to the declaratory relief as set out above;

4. That in the event of the respondent deciding not to remit the interest, that it provides detailed written reasons as envisaged in the VAT Act, read with the TAA and PAJA within the same 15 days of the order being granted;

5. That in the event of the respondent failing to comply with paragraphs 3 and 4 above, that the applicant be granted leave to approach this Court on the same papers, supplemented if necessary, for further appropriate relief;

6. That the respondent be ordered to pay for the costs of this application, including the costs occasioned upon the employment of two counsel.’

[3] According to the parties this review essentially involves two interrelated decisions. The first being, the review of the decision taken by the respondent refusing to consider the applicant’s request for remission in terms of section 39(7)(a) of the Value- Added Tax Act (VAT Act). Additionally, the decision not to withdraw such aforesaid decision in terms of section 9 of the Tax Administration Act 28 of 2011(Tax Act).

Background

[4] During the course of June 2004 and May 2017, Ms Hildegard Steenkemp, who was employed by the applicant in the Africa group, as an accountant, embezzled an amount of R537,236,176 from the applicant. Ms Steenkemp achieved this by submitting false VAT 201 returns to the respondent and she sought reimbursements from the respondent in order to conceal her embezzlement. Eventually, Ms Steenkemp was arrested following investigations and forensic audits having been conducted.

[5] The applicant contends that it is a victim as a result of the conduct of Ms Steenkemp and has suffered a substantial loss. Hence, on 13 December 2013, the applicant applied to the respondent for Voluntary Disclosure Programme (VDP) relief in terms of section 225 and 233 of the Tax Act. Around 29 March 2018, during the VDP discussions with the respondent, the applicant sought that the respondent waives the interest. According to the applicant, about 10 April 2018, the VDP unit responded by stating that SARS was prepared to waive all understatement and late payment penalties, as it did not have the authority to waive the interest arising from the underpayment of the VAT.

[6] On 14 and 18 June 2018 the two VDP agreements were concluded between SARS and the applicant. According to these VDP agreements the applicant was liable

for the payment of the capital VAT amount of R286,464,756.62 and interest of R171,205,356.12, which the applicant submits it paid. Having undertaken to pay the capital and interest amounts, SARS contends that it agreed with the applicant that it would grant the applicant relief in respect of the understatement and administrative non-compliance penalties in the amount of R172million. In addition, SARS would not pursue any criminal action for any of the offences in respect of the default.

[7] The applicant contends that in terms of section 39(7)(a) of the VAT Act read with interpretation note 61 (IN61) it is entitled to a ‘waive’ of interest for the period. To this request the respondent’s view is that the applicant is attempting to renegade on the VDP agreements reached in the face of having been granted a reprieve of the R172million in penalties. Hence, SARS concluded that the request made by the applicant was not valid. In fact, SARS states that the applicant ought to have submitted a notice of objection for the remittance of the interest. The respondent went so far as to state that section 39(7)(a) of the VAT Act and to the extent of section 187(6) of the Tax Act applying, do not apply to VDP agreements.

[8] Lastly, to further qualify the above the respondent advised the applicant that section 232 of the Tax Act specifically excluded assessments pursuant to a VDP agreement from being subject to an objection and appeal. Hence, in the instance of an assessment pursuant to a VDP sections 39(7)(a) of the VAT Act and 187(6) of the Tax Act likewise do not apply. The applicant was told to proceed by way of an objection to the decision taken by SARS not to accede to the request for the remission, by completing the prescribed Notice of Objection form.

[9] The applicant having received SARS decision requested that they withdraw same in terms of section 9(1) of the Tax Act, as the existence of the VDP agreements does not preclude them seeking remission. The applicant further contends that the decision not to remit the interest is not subject to an objection in terms of section 104(2) of the Tax Act, section 32 of the VAT Act and section 271 of the Tax Act, as alluded to by SARS.

The Law

[10] It is not in dispute that the parties concluded two VDP agreements which complied with section 230 of the Tax Act. Section 230 reads as follow:

‘The approval by a senior SARS official of a voluntary disclosure application and relief granted under section 229, must be evidenced by a written agreement between SARS and the qualifying person who is liable for the outstanding tax debt in the prescribed format and must include details on-

(a) the material facts of the 'default' on which the voluntary disclosure relief is based;

(b) the amount payable by the person, which amount must separately reflect the understatement penalty payable;

(c) the arrangements and dates for payment; and

(d) relevant undertakings by the parties.’

[11] The request by the applicant is in terms of section 39(7)(a) of the VAT Act which states:

‘Where the Commissioner is satisfied that the failure on the part of the person concerned or any other person under the control or acting on behalf of that person to make payment of the tax within the period for payment contemplated in subsection (1)(a), (2), (3), (4), (6), (6A) or (8) or on the date referred to in subsection (5), as the case may be-

1. was due to circumstances beyond the control of the said person, he or she may remit, in whole or in part, the interest payable in terms of section ....’

[12] The explanatory as regards what constitutes ‘circumstances beyond a person’s control’ is to be found in explanatory note 61. The interpretation note, IN61, states that: ‘circumstances beyond a person' control are generally those that are external, unforeseeable, unavoidable or in the nature of an emergency, such as an accident, disaster or illness which resulted in the person being unable to make payment of VAT due.

[13] The last relevant section is that of section 187 of the Tax Act as is set out hereafter:

‘(1) If a tax debt or refund payable by SARS is not paid in full by the effective date, interest accrues, and is payable, on the amount of the outstanding balance of the tax debt or refund

....

(6) If a senior SARS official is satisfied that interest payable by a taxpayer under subsection (1) is payable as a result of circumstances beyond the taxpayer's control, the official may, unless prohibited by a tax Act, direct that so much of the interest as is attributable to the circumstances is not payable by the taxpayer.

(7) The circumstances referred to in subsection (6) are limited to—

(a) a natural or human-made disaster;

(b) a civil disturbance or disruption in services; or

(c) a serious illness or accident.

(8) SARS may not make a direction that interest is not payable under subsection (6) after the expiry of three years, in the case of an assessment by SARS, or five years, in the case of self-assessment, from the date of assessment of the tax in respect of which the interest accrued.’

The case at hand

[14] The applicant contends that it was entitled to seek a request in terms of a remittance for the interest imposed as a result of the default occasioned by Ms Steenkemp. The applicant contends, they qualify for the remittance of the interest, as the requirements set out in section 39(7)(a) have been met. However, the respondent refused to consider the applicant’s request and it is that decision which is the subject of this review application.

[15] According to the applicant, the respondent’s defence in this application places reliance on a legal question, which is evident from a concession made during interlocutory proceedings and is evident in its answering affidavit. This being ‘whether SARS may consider a request for the remission of interest in terms of section 39(7)(a) of the VAT Act once a taxpayer has agreed to pay such interest in terms of a voluntary disclosure agreement contemplated by section 230 of the TAA’.

[16] In essence, this comes down to the respondent or the applicant’s interpretation of section 39(7)(a) of the VAT Act and to an extent section 187(6) of the Tax Act. These are the same sections which the respondent contends that they purport to deal with ‘remission of interest following a taxpayer’s failure to make timeous payment of a tax debt.’ In the same breath the respondent states that the provisions of section 39 of the VAT Act were to be deleted by section 271 of the Tax Act, however, somehow section 39 is still in force as the evolution of Chapter 12 of the Tax Act is still underway.

This article first appeared on sars.gov.za

 

0 COMMENTS

LEAVE A COMMENT