Full disclosure crucial when tax relief needed
ON APRIL 29, SA gained insight into what the South African Revenue Service (SARS) regards as a “full disclosure”. It was argued on behalf of SARS in the case of (Julius) Malema v Commissioner: South African Revenue Service (76306/2015)  ZAPPHC 263 (April 29 2016) (Malema) that a full disclosure of all material facts and information must be read to include all facts and information which the applicant did not disclose, as well as all correct facts or information provided by the taxpayer.
The meaning and scope of a “full disclosure” is crucial in the context of prescription and reopening of assessments, and is an essential requirement for any tax settlement or voluntary disclosure relief.
The Tax Administration Act, No 28 of 2011 provides tax relief, in the form of agreements between SARS and the taxpayer, to taxpayers who, inter alia, have defaulted on the payment of their tax and to taxpayers who are unable to satisfy their tax debt. Such tax relief agreements are given effect to by the voluntary disclosure programme and by compromise agreements. A critical requirement for the validity of both the former and the latter tax relief agreements is the full disclosure by the taxpayer to SARS of all material facts and information pertaining to the relevant tax default or tax debt. In other words, SARS’ leniency in such circumstances is conditional, inter alia, on the taxpayer providing an accurate and complete disclosure.
For example, a disclosure for purposes of concluding a voluntary disclosure programme agreement must be full and complete in all material respects and SARS may, inter alia, withdraw any relief in terms of a voluntary disclosure programme agreement and pursue criminal prosecution if the taxpayer failed to disclose all material facts and information with regard to the default. Furthermore, SARS is not bound by a compromise agreement if the taxpayer failed to disclose a material fact to which the compromise relates.
In the recent Malema case essentially, the court had to decide whether SARS, as a result of alleged nondisclosures and misstatements made by the taxpayer, who expressly warranted the truth of the facts furnished by him, was no longer bound by the compromise agreement in terms of the Tax Administration Act.
As mentioned above, SARS argued that the term “material”, within the context of a compromise agreement, must be read to include all facts and information which the applicant did not disclose, as well as any incorrect facts or information provided by the taxpayer. The court, however, did not make a final judgment in this regard, but referred the matter to trial.
It is therefore clear that a full disclosure by a taxpayer is necessary when entering into tax relief agreements, so as to protect SARS from being misled into concluding such an agreement with a taxpayer, as well to remove any burden on SARS of ensuring that a taxpayer has disclosed all material facts and information before entering into such an agreement. What is not as clear is precisely what disclosures are required to be made by the taxpayer.
Ruling shows disclosure is an essential requirement for any tax settlement
Peter Dachs and Bernard du Plessis are directors and joint heads of ENSafrica’s tax department.