SARS Voluntary disclosure program
VDP
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What is The SARS Voluntary Disclosure Program?
In short, the SARS Voluntary Disclosure Program incentives taxpayer to “come clean” by giving relief from penalties and criminal prosecution if a taxpayer voluntarily tells SARS about the tax skeletons in their closet that SARS did not know about already.
One might think SARS makes it very easy for taxpayers to do so and always welcomes money, effectively offered on a silver platter, with open arms.
The fact is, in our experience, they don’t always make it easy. Whilst it pains us to admit it, they are right for making it a “little bit” difficult with applications being more frequently rejected nowadays (or at least so we hear – we have never had one of our VDP applications being rejected) especially following the infamous SCA judgment in the Purveyors case. The program actually has a fairly limited scope and, as we understand SARS’ position, it is certainly not designed to give all and any non-compliant taxpayers more favorable treatment that compliant ones. We also assist clients with SARS objections and appeals.
Understanding the SARS Voluntary Disclosure Programme
The Voluntary Disclosure Programme (VDP) of SARS is a legislative tool that enables taxpayers to voluntarily reveal and regularise their tax affairs if they have any defaults or non-compliance.
Applicants who qualify for the VDP and complete the programme’s standards can receive immunity from penalties and protection from criminal prosecution. The VDP hopes to improve the level of voluntary compliance as well as the way the tax system is managed.
Benefits of Participating in the SARS VDP
Some benefits of participating in the SARS VDP are:
- a person can prevent criminal prosecution by SARS by regularising your tax affairs and bringing them up to date.
- Be eligible to receive a remittance of one hundred percent of certain administrative non-compliance fines and understatement penalties.
- Even if you have overseas assets or income that you have not reported, you are still able to transfer “clean” foreign monies back to South Africa after all affairs are correctly brought up to date through the VDP.
- Have the ability to improve your level of voluntary compliance and make a positive contribution to the efficient management of the tax system.
Eligibility Criteria for the SARS VDP
Any individual, company or trust that has a default or non-compliance in their tax affairs can apply for the SARS VDP, provided that the disclosure are, amongst a few other requirements:
- Voluntary – SARS must, for example, not be aware of the default or have started an audit or investigation on it.
- Relate to a default that has not occurred within five years of the disclosure of a similar default.
- Full and complete in all material respects.
- Not resulting in a refund due from SARS.
- Made in the prescribed form and manner.
The Process of Making a Voluntary Disclosure to SARS
Here are the steps of the VDP process in more detail:
- The applicant must complete and submit a VDP01 form via eFiling or at a SARS branch, providing all the relevant information and supporting documents about the default or non-compliance. The applicant must also indicate the tax type, tax period and amount involved in the default.
- The SARS VDP unit will review the application and check whether the applicant meets the requirements of the VDP, such as voluntary disclosure, full and complete disclosure, potential prejudice to SARS or the fiscus, etc. The SARS VDP unit may request additional information or clarification from the applicant if necessary. The VDP unit will also require the submission of the revised tax return to declare the defaults.
- If the applicant qualifies for the VDP relief, the SARS VDP unit will issue a draft VDP agreement that outlines the tax liability, interest and penalties (if any) that the applicant must pay. The applicant must sign and return the agreement to SARS.
- The applicant must pay the agreed amount of tax liability and interest within the time period set out in the agreement.
- Once SARS receives the payment or approves a payment arrangement, it will issue a letter of confirmation to the applicant that states that the VDP process is complete and that the applicant is granted relief from penalties and criminal prosecution.
The Role of SARS in the SARS VDP
The role of SARS in the SARS VDP can be summarised as follows:
Administration
SARS is in charge of running the VDP process, which includes receiving and processing the VDP applications, asking for and verifying the information and documents provided by the applicants, issuing and enforcing the VDP agreements, adjusting or raising the assessments as needed, granting relief from penalties and criminal prosecution, and sending letters of confirmation.
Assessment
SARS must figure out how much tax, interest, and penalties (if any) the applicants owe based on the information and documents they put in their VDP applications, applying the relevant tax laws and rules, and figuring out how much the applicants have to pay under their VDP agreements.
Decision Making
SARS decide whether to accept or reject the VDP applications, whether to ask the applicants for more information or clarification, whether to approve or deny the payment arrangements requested by the applicants, whether to change or cancel the VDP agreements if the applicants break the rules or commit fraud, and whether to take legal action against applicants that don’t follow the VDP agreements.
Case Studies
Here are a few examples of how Unicus Tax Specialists has effectively aided clients with the SARS VDP:
- A client with undeclared income from a foreign company was able to regularise their tax affairs and avoid penalties and prosecution by applying for the VDP.
- A client with undeclared income from trading in certain financial derivative was able to regularise their tax affairs and because full and comprehensive disclosure was made, the client avoided penalties and prosecution.
- A family who failed to comply with certain transfer pricing regulations that relate to international transactions were able to fully regularise their tax affairs with no exposure to penalties and interest.
Applications we Work on
Multi tax disciplinary disclosures
Applications where the disclosures to be made either stretch across multiple tax types or multiple disciplines of tax (for example corporate tax, VAT, CGT, STT, CFC imputation, tax residency, off-shore funds, normal income tax etc.)
Multiple year disclosures
Applications where there are multiple years/tax periods to be disclosed in the application
Evidence thin disclosure
These are typically disclosures that have to be made but where there is a limited amount of evidence and supporting documents available in respect of the tax defaults to be disclosed.
three steps to success
The Requirements
Whilst there are a number of requirements, the three main ones that often cause trouble are:
01
Undisclosed Default
SARS must not be aware of the default
02
Full and Complete
The disclosure must be full and complete in all material respects.
03
No Refund
The disclosure may not result in a refund.
To make a full and complete disclosure in the true sense of the word, taxpayers more often than not need to understand tax law. Inadvertently not disclosing something seemingly irrelevant prejudices the possibility of getting relief
What if it goes wrong?
- A rejected VDP application means penalties and interest will be fully payable and SARS may still pursue criminal action. In short, a rejected VDP application means the relief is no longer available.
- An accepted VDP application can also be detrimental even if you think you’ve won, so to speak. This is because once a VDP agreement has been signed with SARS, you cannot object – in other words, if you incorrectly apply tax law and you overstate your liability, there is really not much you can do to fix it.
important things you should know
SARS VDP FAQ:
What is the SARS Voluntary Disclosure Programme (VDP)?
The SARS VDP is a program that allows taxpayers to voluntarily disclose and regularise their tax affairs and receive relief from penalties and criminal prosecution.
Can I object to SARS’ decision to decline my VDP application?
No. One would have to institute an action in the High Court.
If I have not complied with my tax obligations, is there a way to come clean without facing penalties or jail time?
Yes, under the right circumstances.
Why would someone participate in the SARS VDP?
Someone would participate in the SARS VDP to avoid the consequences of non-compliance, such as audits, investigations, penalties, interest, criminal charges, or civil litigation.
Who is eligible to participate in the SARS VDP?
Any taxpayer who satisfies all the requirements for a valid VDP application.
How does the SARS VDP process work?
A taxpayer must apply online or at a branch, submit all the necessary information and documents, and wait for SARS to evaluate and respond to their application. SARS will then send a letter to the taxpayer, accepting or rejecting their application and stating the amount they owe under the VDP agreement. The taxpayer must either accept or reject the agreement and make payment within the stipulated time period.
What are the benefits of participating in the SARS VDP?
Benefits of participating in the SARS VDP are in general relief from certain serious penalties, criminal prosecution.
Are there any limitations or exclusions in the SARS VDP?
The SARS VDP is available for most types of defaults or taxes. It excludes customs and excise duties, levies, and taxes that are not under SARS’s jurisdiction. It also excludes defaults that are already under scrutiny or prosecution by SARS.