Full dis­clo­sure cru­cial when tax re­lief needed

Business Day - Business Law and Tax Review - - BUSINESS LAW & TAX REVIEW -

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) [2016] 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.

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