THE VOLUNTARY DISCLOSURE PROGRAM II ITS PURPOSE, ADVANTAGES AND HOW TO MAKE USE THEREOF

“The purpose of the VDP is to enhance voluntary compliance in the interest of enhanced tax compliance, good management of the tax system and the best use of SARS resources. It aims to encourage taxpayers to come forward on a voluntary basis to regularise their tax affairs with SARS and avoid the imposition of understatement penalties and administrative penalties.”¹

Taxpayers often find themselves in a scenario where, for whatever reason, they have underdeclared their income to SARS. This happens when a return is filed but does not accurately reflect the full tax payable for that year of assessment. This can also lead to criminal prosecution, to the extent that directors of a company can be held criminally liable.

This results in fear and anxiety as, for most taxpayers, SARS is a labyrinth of vague rules and unclear policies. As a result, they keep quiet and hope the under-declaration goes away. Sadly, it never does. As such, it is always wise to be proactive with one’s tax affairs which in turn will avoid criminal sanctions.

In remedying this situation, taxpayers should not forget the option of an application under the Voluntary Disclosure Programme (“VDP”). The VDP is beneficial to taxpayers who want to regularize their tax affairs as they would obtain three distinct benefits: the absolution from criminal prosecution; the full remission of administrative penalties; and possibly the full remission of understatement penalties. Taxpayers who wish to utilise this process will have to pay the capital and the interest on the amount, which is far better than having to pay the additional penalties – often this can be between 50% to 200% of the under-declared amount.

In recognising the benefit, and in wanting to reward taxpayers for coming forward, SARS through the legislator, has outlined the requirements for a valid VDP: it must be voluntary; it must involve a “default”; be full and complete; involve a behaviour as detailed in the table found in section 223 of the Tax Administration Act 28 of 2011 (“TAA”); not give rise to a refund and, be on the prescribed form.

In our experience, SARS considers “voluntariness” to be the main basis to deny VDP applications. SARS considers that if it knows about any default, albeit unrelated to the disclosed default, then the VDP is not voluntary. This view is an incorrect approach by SARS. The test is whether any action by SARS caused the taxpayer to approach the VDP unit and apply for VDP relief. If the taxpayer approached SARS without any action by SARS prompting them to come forward, then the VDP would be considered voluntary.

Every VDP requires a “default”. This default is simply the nature of the under-declaration. It could be an omission or failure to file a return. The VDP application must be full and complete in all its material respects. This means that all the necessary documents or reasons for the default must be disclosed, as well all the periods in question even if it goes further than the prescriptive veil contemplated in section 99 of the TAA.

The default must involve a behaviour as identified in the table found in section 223 of the TAA. This means that the nature of the default ought to be classified: was it reasonable care not taken in completing a return or was it an instance of intentional tax evasion? Whether the full understatement penalties are remitted is determined by the correct classification of the default from the table found in section 223 of the TAA.

Finally, the VDP cannot give rise to a refund, and it must be in the prescribed form. This is usually done online via SARS’ e-Filing platform.

The VDP process can be complicated and nuanced in its drafting and representations. In many cases the decision made by the VDP unit is subject to the tenets of the Promotion of Administrative Justice Act, 2000. This means that the decision taken must be reasonable, lawful and procedurally fair, failing which it can be challenged.

VDP applications demands a strategic approach and the guidance of seasons professionals. TRM Tax Attorneys offers expert VDP assistance, giving taxpayers peace of mind regarding both their tax affairs and the risk of criminal prosecution. Reach out to us if you require any VDP assistance.

Intellectual property disclaimer:
The contents of any article published by Pieterse Sellner Erasmus should not be construed as professional legal advice.