Most taxpayers and tax practitioners are by now familiar with the Voluntary Disclosure Program (VDP) process and the relief/incentive that the VDP offers. Since taxpayers often bargain on getting VDP relief when they apply, a rejection by SARS of the VDP application is often not well received by taxpayers.
If SARS rejects a VDP application, which they are entitled to do if the application does not satisfy the relevant requirements, it means SARS will not grant any relief from penalties. The question is – what to do next? Can the taxpayer decide not to disclose and “back out” of the entire process so as to avoid the penalties and the tax? Practically, no. SARS’ decision to reject a VDP application more often than not is only communicated to the taxpayer after the taxpayer has already submitted corrected returns and the relevant assessments raised. Stated differently, the decision to reject a VDP application is only communicated to the taxpayer after the taxpayer has already “struck its colors from the mast”. In fact, it is not uncommon for SARS’s VDP unit to call for the submission of the returns before they make their decision about whether to allow or reject the application. Whilst this practice may be perceived as somewhat of an ambush, suffice it to say that a taxpayer is obliged by legislation to disclose correctly. SARS’ decision to allow or reject an application for VDP is irrelevant to the fact that taxpayer must disclose correctly.
So, if the taxpayer cannot “back out”, what then? If SARS raised an assessment outside the auspices of VDP (which would be the case if the VDP application is rejected), the taxpayer can still challenge the penalties and the interest through one or more of the several dispute resolution mechanisms available under the Tax Administration Act, 28 of 2011 (“the TAA”). Such a challenge by the taxpayer will ultimately be aimed at achieving a similar result than what would have been achieved had VDP relief been granted by SARS (if not a better a result). The taxpayer’s ability to challenge the capital tax through the dispute resolution mechanisms in circumstances where SARS rejected a VDP application will be very difficult if not impossible.
Can the taxpayer object to SARS’ decision to reject a VDP application? No. There are only a few decisions that SARS make under the TAA that is subject to objection and appeal. A decision to reject a VDP application is not one of them. That does not mean though there is nothing a taxpayer can do about SARS’ decision to reject the application. For the less litigious taxpayer, an option might be to launch a request for an internal review by a senior SARS official of the VDP unit’s decision to reject the application. For other taxpayers, an option is to launch a review application in the High Court under the Promotion of Administrative Act, 3 of 2000.