Taxpayers participating in a voluntary disclosure agreement (VDA) under the voluntary disclosure programme (VDP) cannot request the South African Revenue Service (SARS) to waive the interest once the agreement has been signed.

The Constitutional Court (ConCourt) stated that allowing a taxpayer to finalize a VDA that includes interest terms and then later ask for them to be waived would create a “glaring absurdity.”

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The court indicated that such actions undermine the integrity of the VDP framework and jeopardize the finality of VDAs, referencing the appeal launched by SARS concerning a ruling by the Supreme Court of Appeal (SCA) involving SARS and Medtronic.

The issues for Swiss-registered Medtronic Africa and Medtronic International began in 2017 when it was discovered that former accountant Hildegard Steenkamp had embezzled an astonishing R537 million from the companies over a span of 12 years.

Steenkamp falsified value-added tax (VAT) returns to claim illegitimate refunds, which she then redirected to her personal account, working for both Medtronic Africa and also handling tasks for Medtronic International.

Medtronic reported the fraud to SARS and successfully applied for the VDP in December 2017, which led to an agreement. Subsequently, Steenkamp was arrested, convicted, and sentenced to 50 years in prison.

Both Medtronic Africa and Medtronic International requested that SARS waive the interest due to VAT underpayment. SARS replied that it lacked the authority to grant interest waivers under the VDP.

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Medtronic was told it could either proceed with the VDAs and pay the full amount due, including interest, or withdraw from the VDP.

The companies opted to continue with the VDP, resulting in the signing of two VDAs, one for each entity. Medtronic International agreed to pay approximately R457.6 million, which included the VAT, penalties for understatement, and interest.

The request

After completing the VDA, Medtronic International sought interest remission under the VAT Act, which SARS refused to consider.

Subsequently, Medtronic International approached the Pretoria High Court for a declaratory order asserting that the Tax Administration Act (TAA) does not prohibit requests for interest remission under the VAT Act. The case progressed to the SCA, which determined that SARS had a statutory obligation to evaluate the request for remission.

SARS then sought permission from the ConCourt to appeal the SCA’s decision. The ConCourt accepted the appeal, overturning the SCA’s majority ruling.

The issue

The central issue was whether a taxpayer who had executed a VDA under the TAA and agreed to pay interest could apply for interest remission under the VAT Act.

The SCA ruling did not address this question directly; the majority focused instead on whether SARS was legally entitled to deny reviewing Medtronic International’s request for interest remission.

The majority opined that neither the VAT Act nor the TAA explicitly nor implicitly barred a taxpayer who had finalized a VDA from seeking interest remission.

In a unified judgment, ConCourt acting deputy chief judge Mbuyiseli Madlanga expressed confusion regarding the primary issue.

“If there is no authority to address a request for interest remission under Section 39(7) of the VAT Act after concluding a VDA, then there is no basis to evaluate the request,” he remarked.

The minority opinion indicated that the VDP regulations “do not permit a taxpayer who has entered a voluntary disclosure agreement to seek remission of interest that was included in the calculated tax liability after the VDA’s finalization.”

The ‘centrepiece’

“I contend that the minority’s perspective illustrates that altering any substantive aspects of the ‘centrepiece’—including interest payment provisions in the VDA—effectively voids the VDA,” Madlanga noted.

Additionally, he highlighted that the TAA’s failure to address interest remission under the VAT Act does not inherently suggest that such remission is permitted post-VDA.

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The ConCourt concluded that by signing the VDA, a taxpayer unequivocally consents to its terms, including the interest provision, which is mandated by law.

It is illogical, if not contradictory, for a taxpayer to think that they could withdraw from obligations related to a specific interest rate and amount post-VDA, as per Mandlanga’s comments.

Standard wording

ENSafrica tax executive Charles de Wet emphasizes that SARS maintains that VDAs (and settlement agreements) use standard terms and do not negotiate individual clauses.

“Considering the court’s view that the signed agreement is binding on all parties—even with diverging provisions of the tax acts—taxpayers must ensure that each clause in their agreements with SARS aligns with their desired outcomes and should not just accept the standard phrasing from SARS,” he advises.

De Wet warns that this could discourage taxpayers from leveraging the VDP process to address tax issues, particularly as finalizing a VDA without the standard limitations and full interest obligations may become financially taxing.

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