Voluntary Disclosure Programme - Voluntary or Not?

Voluntary Disclosure Programme - Voluntary or Not?

• 02 August 2024
• Corporate Tax
• Adv Christel van Wyk

Two of the fundamental requirements to access the Voluntary Disclosure Programme (VDP) are that the disclosure must be voluntary and that the person seeking relief must not have received or deemed to have received notice of commencement of audit or investigation of the person’s tax affairs. The audit or investigation should logically not have been concluded. It is only if the application is considered to be ‘voluntary’ that the voluntary disclosure relief for understatement penalties, administrative non-compliance penalties and protection from criminal prosecution is accessible.

The ambit of the deeming provision may be far reaching unless a senior SARS official makes a determination as provided for in section 226(2) of the Tax Administration Act, 28 of 2011 (the Act). If a company, for example, seeks voluntary disclosure relief, and any of its shareholders or any officer of the company received a notice of commencement of an audit that relates to the default, the disclosure by the company is not considered ‘voluntary’ for purposes of section 227 of the Act. In the same way, in the case of a trust, if any beneficiary or trustee of that trust received a notice of commencement of an audit of the trust, a voluntary disclosure by the trust of that particular default is not regarded as voluntary. The company or trust in these examples will therefore not be able to access any voluntary disclosure relief for such default unless a senior SARS official considers the facts and ambit of the audit or investigation and holds the view that SARS would not have detected the default. Furthermore, the official must regard the application to be in the interest of good management of the tax system and the best use of SARS resources.

The requirement that the application must be ‘voluntary’ in terms of section 227(a) of the Act, is important as it determines whether the person qualifies for voluntary disclosure relief, and the extent of understatement penalty relief is in turn dependent on whether the disclosure is made before or after the commencement of an audit or investigation.

In Reed v Minister of Finance and Others (30832/2015) [2017] ZAGPPHC 916 (2 June 2017) (the Reed case) the crisp question before the High Court was whether the  application was in fact ‘voluntary’. Mr. Reed held the majority member’s interest in a close corporation (CC). SARS ‘looked into’ the tax compliance of the CC and of Mr. Reed. SARS found that Mr. Reed did not submit tax returns for 22 years. He subsequently submitted a VDP application, which SARS declined as it was not considered to be 'voluntary'. The Court held that ‘looking into’ the tax affairs of Mr. Reed was considered to be an investigation, that he was aware of this before the application was made and as result the application was not considered to be ‘voluntary’.

In Purveyors South African Mine Services (Pty) Ltd v Commissioner for the South African Revenue Service (135/2021)[2021] ZASCA 170 (7 December 2021) (the Purveyors case) the taxpayer appealed the decision of the Tax Court to reject the VDP application on the basis of not being ‘voluntary’. The taxpayer in this case approached SARS to regularize VAT that was supposed to have been paid over in respect of the import of an aircraft, based on a tax technical opinion from their tax advisors. SARS indicated that there were penalty implications, which the taxpayer acknowledged, but sought a second opinion from their advisors, again confirming the liability. Almost a year later, the taxpayer applied for voluntary disclosure relief but SARS rejected the application on the grounds that it was not ‘voluntary’.

The crisp issue on appeal was whether SARS was correct in rejecting the application for not being ‘voluntary’. The court turned to the interpretation of statutory interpretation rules and concluded that SARS had extensive powers to prevent taxpayers from making disclosures that are neither voluntary nor complete in all material respects.  

Having regard to the facts, the court concluded  that the taxpayer knew that it was liable for the relevant tax and penalties, which SARS could not waive and held that the application was not ‘voluntary’ on the following basis:

• The VDP application was prompted by compliance action by SARS after becoming aware of the default as a result on informal interactions with the  taxpayer;
• The taxpayer knew it was liable for the tax liability to become tax compliant; and
• The VDP application was not prompted by a desire to come clean but to avoid penalties and fines.

The purpose of a voluntary disclosure application is to ensure that errant taxpayers come clean out of their own volition, without any prompting to correct their defaults. The provisions are not designed to allow taxpayers to seek informal advice and if it does not suit them, to apply for relief. The onus is on a taxpayer to establish on a balance of probabilities that it had fully met the requirements of the voluntary disclosure provisions, relating to both the voluntary nature of the application and the disclosure made. The only way for a taxpayer to approach SARS beforehand without compromising the voluntary nature of the application is to anonymously, through its advisors, fully motivate and request a private non-binding opinion, which may subsequently be included in the fully compliant voluntary disclosure application.

Join Adv Christel van Wyk on September 9th where she will host a webinar on "Practical Guidance: Tax Return Corrections, Objections and Voluntary Disclosure"

• Click here to read more
• Click here to view a short introduction video

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