The South African Revenue Service (Sars) has mostly cleared the backlog of applications for the disclosure of offshore assets and income under the Special Voluntary Disclosure Programme (SVDP) and the normal Voluntary Disclosure Programme (VDP).
Sars recently held a meeting with interested stakeholders from industry and tax practitioners to discuss the ongoing challenges practitioners and taxpayers are experiencing. It advised of plans to implement an “end-to-end” administrative function within the voluntary disclosure unit.
This is expected to improve response times, assist with processing requests for payment plans, expedite the raising of assessments and improve communication regarding debt collections, which is to be welcomed.
The VDP is a permanent fixture and is administered under the Tax Administration Act (TAA). For the period October 1, 2016 until August 31, 2017 the SVDP was introduced to cater for non-compliant taxpayers, giving them an opportunity to regularise their unauthorised foreign assets and income by voluntarily disclosing this information.
Individuals and companies could apply during the SVDP window period. The SVDP was meant for individuals and companies that did not in the past disclose tax and exchange control defaults in relation to offshore assets.
Taxpayers who missed this deadline can still make use of the normal VDP process to disclose offshore income.
VDP applications can be made via eFiling and branch offices. However, the prevailing Sars Covid regulations should be taken into account.
Any errors made in the application will result in a rejection by the system, which will result in delays and additional interest.
According to Sars, 89.8% of the old inventory as at April 1, 2020 has been finalised. The balance of these cases (pre April 1, 2020) are delayed due to additional information and documentation still required.
Around 59% of cases received since January 2021 have been finalised, with an average turnaround time of 31 days.
Webber Wentzel partner Joon Chong and senior associate Wesley Grimm observed that progress in the Voluntary Disclosure Unit in reducing the backlog of cases is highly commendable.
This unit is prepared to engage directly with taxpayers to alleviate delays caused by not submitting the correct information. About 90% of pre- April 2020 cases concern individual income tax matters.
Taxpayers are encouraged to contact the case evaluator directly if information has been provided and but they have not heard from the Voluntary Disclosure Unit within 30 days of submission.
Submitting an application
The current VDP mechanism should deal with unintended errors and system calculations.
A SVDP or VDP disclosure will only be valid if all the necessary information has been submitted.
Full and complete disclosure of material facts relating to a SVDP or VDP disclosure includes the full disclosure of the source of funding of the assets and investment accounts, which remains a contentious point for SVDP applications.
The Voluntary Disclosure Unit has indicated that it will accept estimates of tax liabilities if the taxpayer is still in the process of calculating the tax defaults.
Capital losses going back more than three years
Sars has taken the view that capital losses dating back more than three years will not be taken into account, even if the overall effect is that the taxpayer is still liable for additional capital gains tax in multiple years.
“Capital losses are not considered defaults and does not result in an understatement. VDP may not override provisions of section 93 of the TAA regarding reduced assessments and section 99 in so far as prescription is concerned,” the revenue service says.
Section 93 sets out the requirements that govern a reduced assessment and Section 99 sets out the period of limitations for issuance of assessments.
The same position is taken for input value-added tax (VAT) claims against output VAT defaults.
Input VAT claims more than five years from time of supply will not be taken into account.
Examples of the above interpretation will be given in the updated guide.
Need for clarity
According to Chong and Grimm, some of the cases that have not been resolved have been due to taxpayers waiting for the outcome of a ruling application from Sars’s Legal and Policy Division (LAPD).
One of the key requirements of submitting a VDP application is that the disclosure must be “voluntary”. It is important to note that a voluntary disclosure application should be submitted before submitting the ruling application to LAPD.
A VDP application submitted after a ruling outcome that is not in the taxpayer’s favour is no longer considered voluntary by the Voluntary Disclosure Unit and will be rejected.
The existing guide for VDP can be accessed on the Sars website here.
Sars has committed to introducing a Service Charter within the VDP space and publishing an updated guide by January 2022. Taxpayers and practitioners will have the opportunity to comment on the draft guide before it is finalised.