Paul Gering | Tax Partner, PKF Durban

The Medtronic case highlighted the mechanisms of the Voluntary Disclosure Programme (VDP) to voluntarily notify SARS of large undisclosed income or overstated expenditure.

One might want to spend some time considering why SARS was never able to detect the issues of the fraudulent VAT claims over the 13-year period. If one stopped and pondered this point, then perhaps the real benefit of the VDP is to SARS as opposed to just the taxpayer.

As we know the VDP is a permanent mechanism in the tax legislation which allows SARS to collect taxes that are properly due to the fiscus, without having to expend significant resources to audit such taxpayers. Hence the VDP, allows taxpayers to pay over taxes that SARS had no knowledge of. The VDP allows SARS to collect the correct amount of taxes and remit penalties but does not “explicitly” allow for the remission of interest on the late payment of such taxes.

In the Medtronic Case, the taxpayer successfully concluded a VDP with SARS for the underpayment of VAT. Following the conclusion of the VDP Medtronic then attempted to request a remission of the interest under the normal administrative provisions of the Tax Administration Act (TAA). SARS challenged the taxpayer’s ability to request such remission as the VDP agreement concluded between SARS and Medtronic included the interest amount which the taxpayer accepted and paid.

This dispute made its way to the highest Court in the Land where the Constitutional Court has ruled on their interpretation of the law. It is now very clear that if you claim the protection/relief under the VDP, you must pay the tax and the interest – if however you choose not to claim the protection of the VDP you can seek the relief of the penalties and the interest if you meet those “narrow tests”, but you cannot claim further relief for interest outside the VDP if you chose the VDP route.

Now that we are all clear on the law, is this truly in the interest of justice and the tax-paying public? Would Medtronic, if they could walk the path again, choose the path of the VDP or would they take a view on the “buried bodies” and not seek revenge against the bookkeeper.

What was the chance of criminal action against the directors if they made disclosure in the ordinary course and then chose to seek the remission of the penalties and interest in the ordinary course of events – a potential first incidence of non-compliance, a capturing error or perhaps a so called “human made disaster”, all of which would have been beyond the control of the taxpayer.

If one wants an effective VDP, is the time not ripe for a proper review of the legislation considering the benefits to fiscus, the other taxpayers and even the taxpayer in question. Surely for a VDP to be effective, there needs to be more benefit/relief to the opting/honest taxpayer whose voluntary compliance to rectify old errors (that were not identified by SARS and which may never be identified). The benefits of an effective VDP is tremendous to SARS and taxpayers alike