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Can you get VDP relief for one tax year if you’re being audited for another tax year?

Tuesday, 26 May 2015   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

Q: I refer to the fact that in terms of the VDP II, any taxpayer who is already under audit, is excluded from VDP relief.

Is a taxpayer precluded from relief only for the year under investigation, or for ALL tax years? My personal experience to date has been that only the year specifically under audit is precluded, and all other years still qualify. Is this application correct?

The SARS VDP guide states that SARS may permit a person who would otherwise be excluded as a result of the audit or pending audit rule, to apply for VDP relief where SARS believes that:

-          the default would not otherwise have been detected during the audit or investigation; and 

-          the application would be in the interest of good management if the tax system and the best use of SARS resources.

This requires judgment and the application of a person's discretion. How is this judgment exercised in practice?

I have a client already selected for audit, and would like to offer them the option of voluntary disclosure of any defaults they are aware of, if this is in fact available to them. My experience is you get a different answer from each person you speak to at the VDP unit.

What should I do to cover my client (and myself) is these circumstances?

A: The Voluntary disclosure programme in Part B of Chapter 16 of the Tax Administration Act provides that a person may apply for voluntary disclosure relief, unless that person is aware of: 

(a)   a pending audit or investigation into the affairs of the person seeking relief; or

(b)   an audit or investigation that has commenced, but has not yet been concluded.

From the facts we accept that the audit has already commenced.  This means that the only option open to the taxpayer would be to request a senior SARS official to direct that the person can apply for voluntary disclosure relief, despite the fact that the audit has already commenced.  The senior SARS official would do so if he or she is of the view, having regard to the circumstances and ambit of the audit or investigation, that -

(a)    the 'default' in respect of which the person wishes to apply for voluntary disclosure relief would not otherwise have been detected during the audit or investigation; and 

(b)   the application would be in the interest of good management of the tax system and the best use of SARS' resources.  

You are correct that SARS provides no further information with respect to both requirements mentioned above.  It is the view of the senior SARS official that will be relevant.  Whilst it is reasonable to accept that SARS uses guidelines to assist the senior SARS official in considering such an application, this information is not available or is not public knowledge.  

The following may be relevant to "would not otherwise have been detected” requirement

The letter of authority to conduct the audit must indicate the initial basis and scope of the audit or investigation – see section 48(2).  It may be clear from this letter if the ‘default’ would have been detected during the course of the audit.  It is common for these letters to also indicate the relevant years of assessments under audit.  We submit that if a default was detected in a year under audit and it is clear that the same default was made in other years, not included in the initial scope, that the SARS view may well be that it would have been detected.  

If the senior SARS official is satisfied that SARS would not have unearthed the default, the person may be allowed to apply provided that this is in the interest of the good management of the tax system and amounts to the best use of SARS’s resources. Again SARS does not provide any information to explain this further. In the paragraph 16.7.1 of the Short guide to the Tax Administration Act it is stated that "the main purpose of such a framework is to enhance voluntary compliance in the interest of the good management of the tax system and the best use of SARS’s resources.”  

It therefore appears that the first requirement is the important hurdle to cross and that the second one may be easier.  But, as we have already indicated, the only avenue is for the taxpayer to apply to the senior SARS official.  

The SARS officials are more than likely not senior SARS officials. As the application is to be attended to by a senior SARS official, we believe the response should be relatively consistent.  We agree that "this requires judgment and the application of a person's discretion”, but we don’t know how this judgment is exercised in practice.  

There are tax practitioners that specialise in this field and it should be considered to consult one of them.  

Disclaimer: Nothing in this query and answer should be construed as constituting tax advice or a tax opinion. An expert should be consulted for advice based on the facts and circumstances of each transaction/case. Even though great care has been taken to ensure the accuracy of the answer, SAIT do not accept any responsibility for consequences of decisions taken based on this query and answer. It remains your own responsibility to consult the relevant primary resources when taking a decision.



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