Originally published in Recent Developments in Taxation, July 2011
The Tax Administration Bill, 2011, (TAB) which is expected to be enacted later this year contains a permanent Voluntary Disclosure Programme (TAB VDP) which provides relief to non-compliant taxpayers, albeit on less favourable terms than the current VDP under the Voluntary Disclosure Programme and Taxation Laws Second Amendment Act No. 8 of 2010.
In terms of the latter, a window period is offered from 1 November 2010 to 31 October 2011, during which non-compliant taxpayers may disclose possible defaults, and regularise their tax affairs, while being absolved from penalties, additional tax and possibly also interest resulting from the non-payment of the tax when due.
In terms of the relief provided for in the TAB VDP, successful applicants will firstly be pardoned from any criminal sanctions under a tax act or related common law offence. Non-compliant taxpayers can furthermore expect a monetarily benefit for "coming clean" with the SARS, as they will, if successful, be relieved from additional tax to the extent provided for in the TAB.
Relief in this regard depends on the degree and level of default of the taxpayer and whether or not the SARS has embarked on an audit into the tax affairs of the applicant. Successful applicants that have remedied their defaults will, in addition, be absolved from 100% of administrative penalties that will in future be levied under TAB, save for penalties imposed for the late submission of a return.
Interest and the actual tax arising from the default (in respect of which the voluntary disclosure is made) nevertheless remain due and payable to the SARS.
The procedural aspects of the permanent VDP are similar to that of the current VDP. In order to qualify for the relief, a non-compliant taxpayer should make a disclosure to the SARS, which must:
- be voluntary and complete in all material respects;
- made in the prescribed form and manner;
- relate to a default, which could have resulted in a penalty or additional tax being levied; and
- not result in a refund becoming due by the Commissioner: SARS.
If the above minimum requirements are met, the SARS has no discretion and is obliged to grant the applicant relief. The SARS however retains the right to withdraw relief, and pursue prosecution, if it establishes that a taxpayer failed to disclose a matter that was material for purposes of making a valid voluntary disclosure. Any such decision by the SARS in this regard is, however, subject to objection and appeal.
The term "default" is defined to mean the submission of incorrect or incomplete information to the SARS; or the failure to submit information; or the adoption of a tax position, which resulted in an incorrect:
- assessment for tax; or
- payment of tax by the taxpayer; or
- refund of tax made by the SARS.
Although TAB is prescriptive as to the procedure for making a voluntary disclosure, the SARS has to date not yet released any prescribed forms or regulations. Presumably the prescribed from will take on a similar format to the prescribed form applicable to the current VDP.
Once an applicant qualifies, relief is evidenced by the conclusion of an agreement between the SARS and the taxpayer (Agreement) on the proper treatment of the taxpayer's tax affairs. Such an Agreement should contain the prescribed minimum information such as the:
- the material facts relating to the default;
- the tax, interest and where applicable the additional tax that remains due and payable;
- the proposed dates and manner for payment of the amount due to the SARS;
- future treatment of the issue (if relevant); and
- undertakings (if any) by the SARS or the taxpayer.
Lastly, in addition to the above, the SARS may issue an assessment that gives effect to the Agreement, which will not be subject to objection and appeal.
A non-compliant taxpayer may apply anonymously to the SARS for a non-binding private opinion relating to his or her eligibility for relief under the TAB VDP. The opportunity to apply for a non-binding private opinion is the only safeguard available to non-complaint taxpayers wishing to regularise their tax affairs under the VDP.
It is therefore recommended that taxpayers, who are in doubt about whether they will qualify for the VDP relief, test the chance of success of their application by making use of the non-binding private opinion option.
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.