some practical updates
We are heading into the last month for taxpayers to avail themselves of the VDP provided for in terms of the Voluntary Disclosure Programme and Taxation Laws Second Amendment Act ("the VDP Act"). The current VDP regime is due to come to an end on 31 October 2011. As at the date of this article, there has been no indication from the South African Revenue Service ("SARS") of any extension of the period in which a VDP application can be submitted under the current legislative framework.
As a reminder, in terms of the current VDP regime, provided the requirements in terms of the VDP Act are met, the relief can be summarised as follows:
- Where there is no awareness of an audit/investigation (section 3(1) of the VDP Act), there is 100% relief for interest and penalties and no criminal prosecution will be instituted.
- Where there is an awareness of an audit/investigation and subject to two further requirements (section 3(2) of the VDP Act), there is 100% relief for penalties and 50% relief for interest and no criminal prosecution will be instituted.
An anonymous approach can also be made in terms of the current VDP regime (section 5 of the VDP Act) which results in a non-binding private opinion being issued by a SARS official from the VDP Unit. Even though the SARS official's opinion is non-binding, receiving a positive opinion should provide a good indication of how a taxpayer's VDP application will be treated and the relief which will be applicable thereto. Our practical experience in dealing with anonymous applications is that a quick response is forthcoming and that SARS officials who are dealing with such applications are helpful in respect of queries and generally easily accessible. A case number is allocated to the anonymous application when the opinion is given and it is our understanding that when an application is resubmitted on a named basis, the same official will be allocated that case as one has to make reference to the particular case number in the named application.
At this late stage with the deadline looming, should a taxpayer still wish to make an anonymous VDP application, this should be submitted as soon as possible so that there is sufficient time to make a decision as to whether to submit a named VDP application before 31 October 2011. In this regard we understand that there is currently a backlog in respect of the VDP Units' review of VDP applications and accordingly, there will be quite a wait for taxpayers submitting VDP applications in the last month of the programme. As stated above, there appears to be a different channel which appears to fast track the anonymous applications.
Noting that the VDP provided for in the VDP Act is about to come to an end, it is worth noting that in terms of clauses 225 to 233 of the Tax Administration Bill ("TAB"), a permanent legislative framework for voluntary disclosure applicable across all tax types, excluding customs and excise, is proposed. In terms of the "Memorandum on the objects of the TAB" that was issued together with the TAB, 'The main purpose of such a framework will be to enhance voluntary compliance and is in the interest of the good management of the tax system and the best use of SARS' resources.' The permanent VDP framework in the TAB will not provide interest or exchange control relief, but proposes to provide for relief from penalties (100% relief from an administrative non-compliance penalty and partial relief from an understatement penalty which is currently known as additional tax) and criminal prosecution.
Regarding the time line of the promulgation of the TAB, it can be noted that the third draft was released in June 2011 and an opportunity was granted to make submissions before 12 August 2011. Public hearings were held on 16, 17 and 19 August 2011. According to our most recent information in this regard, National Treasury is supposed to respond to the submissions on 21 September 2011. The TAB is expected to become operative in early 2012, so watch this space for details.
Accordingly, between 31 October 2011 and the date upon which the TAB takes effect, there is currently no provision made for a VDP. Taxpayers who have missed the opportunity to come forward in order to regularise their tax affairs by 31 October 2011 will be open to attack by SARS under the normal (and often harsh) provisions of the various tax Acts. As is clear from the above, even though there will, from the time when the TAB is enacted, be a permanent VDP legislative framework in place, any relief received in terms of the new proposed VDP will be less favourable than is currently on offer.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.