The onus to prove ‘behaviour’ in the Voluntary Disclosure Process
28 July 2015
Posted by: Author: Mark Bovey
discussion of the interpretational issues that may arise when a taxpayer needs
to prove behaviour under the Voluntary Disclosure Programme
October 2012, SARS launched a Voluntary Disclosure Programme under the
provisions of sections 225 to 233 of the Tax Administration Act, No. 28 of
2011, as amended ("the TAA”). The main aim of the Programme is to encourage
taxpayers to disclose, on a voluntary basis, previous non-compliance which may
have prejudiced SARS, without the fear of understatement and other
however challenges a taxpayer may face once a voluntary disclosure application
(VDA) has been made to SARS. In this article all references to legislation
refer to the TAA.
What happens after application
taxpayer submits a VDA, it is assigned to a SARS official. At this point the
taxpayer will usually receive an email or letter requesting further information
that no previous VDA has been made in respect of the current default;
that there is no audit or investigation pending with regard to the default; and
details of which behavior resulted in the understatement/default and provision
of substantiating reasons to support your selection (in this regard SARS refers
to the understatement penalty in column 5 or 6 of the understatement penalty
percentage table in section 223(1));
of this submission, a decision will be taken on the applicable voluntary
disclosure relief to be granted in terms of section 229. The response to
SARS regarding points (i) and (ii) are straightforward and need not be a cause
for concern. The reason for this is that the SARS VDP Unit operates in isolation to the rest
of SARS and it would not be aware of any pending audits or investigations being
conducted. Thus the main purpose of these questions is to protect the integrity
of the Programme. Without this additional information, the Unit would not be
able to make an informed decision in accepting or rejecting a VDA.
to SARS regarding point (iii) have the potential to be somewhat more
prejudicial to the taxpayer. This view is premised on the understanding that
SARS has no basis for requesting the taxpayer to make this determination. The
support for this view is contained in section 104(2), although in the dispute
resolution chapter (Chapter 9), which states that "The burden of proving…the imposition of an understatement penalty…is
upon SARS”. When one reads the VDP provisions in the TAA, there is no section
therein that allows SARS to reverse this onus and place it upon the taxpayer.
Nevertheless, the power of negotiation lies with SARS in that if a taxpayer
does not make a submission in this regard, SARS will not accept the VDA. In
essence, a taxpayer is forced to make a submission at the request of SARS. The
writer is of the view that this onus lies with SARS and SARS should be able to
make this determination based on the contents of the VDA.
pitfalls in making a submission on ‘behaviour’ to SARS is that if VDP relief is
withdrawn for any reason, there is a possibility that the taxpayer’s rights
will be prejudiced. In terms of section 231(1), when SARS withdraws VDP relief,
all penalties that were waived are re-imposed, including understatement
penalties. A taxpayer, in terms of section 231(2), is entitled to object to the
withdrawal of the VDP relief and while the taxpayer would be objecting to the
decision to withdraw the VDP relief, the associated result is that assessments
may be issued with regard to the original default as well. One must then ask
the question, would a taxpayer be able to challenge SARS’ decision to impose
understatement penalties when they have already conceded to a behavior in
section 223 with SARS?
indeed a vexed question. Needless to say, the VDP provisions provide much
needed relief to a taxpayer who requires his tax affairs to be regularised.
However, certain interpretational issues still need to be ironed out before the
full purpose and effects of the Disclosure Programme can be felt by a taxpayer.
It is recommended that when a taxpayer is requested to make a submission to SARS
regarding the behavior that resulted in the default, due consideration must be
given to such a response.
This article first appeared on the May/June 2015 edition on Tax Talk.