Commissioner for the South African Revenue Service v Medtronic International Trading S.A.R.L

Medtronic International Trading S.A.R.L, a Swiss company and registered VAT vendor in South Africa, was defrauded by its accountant Ms Steenkamp, who embezzled over R537 million from June 2004 to May 2017. Ms Steenkamp submitted false VAT returns to SARS seeking reimbursements to conceal her embezzlement. After her arrest on 13 December 2017, Medtronic International applied to SARS for relief under the Voluntary Disclosure Programme (VDP) pursuant to sections 225-233 of the Tax Administration Act 28 of 2011 (TAA). During negotiations in March 2018, Medtronic International requested waiver of interest payable on the default, but SARS advised it was not empowered to waive interest under the VDP. Medtronic International elected to proceed and on 18 June 2018 the parties concluded a Voluntary Disclosure Agreement (VDA) whereby Medtronic International agreed to pay capital VAT of R286,464,756.62 plus interest of R171,205,356.12, totaling R457,670,112.74. In exchange, SARS granted 100% relief from administrative non-compliance penalties and understatement penalties, and undertook not to pursue criminal prosecution. Medtronic International fully complied with the VDA and paid the post-relief amount in full. On 12 October 2018, Medtronic International's attorneys requested SARS to remit the interest pursuant to section 39(7) of the Value Added Tax Act 89 of 1991 (VAT Act) and SARS Interpretation Note 61. SARS refused, stating that remission of interest was not catered for in the VDP programme and that sections 39(7) of the VAT Act and 187(6) of the TAA did not apply to VDP agreements.

• Whether the provisions of Chapter 16, Part B, sections 225-233 of the TAA relating to voluntary disclosure programmes prohibit a request for remission of interest in terms of section 39(7) of the VAT Act notwithstanding a VDP agreement having been entered into and implemented
• Whether SARS has a statutory duty to consider, adjudicate and decide on a request for remission of interest in terms of section 39(7)(a) of the VAT Act notwithstanding a prior VDP agreement
• Whether SARS's refusal to consider the request for remission of interest constituted reviewable administrative action under PAJA
• Whether the Commissioner's decision was lawful, reasonable and procedurally fair
• The proper interpretation of section 227 of the TAA read with section 39(7) of the VAT Act
• Whether section 39(7) of the VAT Act remains in force and applicable notwithstanding the TAA

The appeal was dismissed with costs, including the costs of two counsel. The decision of the Gauteng Division of the High Court, Pretoria (Hughes J) was upheld. The high court's order had: (1) declared that the TAA provisions do not prohibit a request for remission of interest in terms of section 39(7) of the VAT Act notwithstanding a VDP agreement; (2) declared that SARS has a statutory duty to consider such requests; (3) reviewed and set aside SARS's decisions refusing to consider the request; (4) ordered SARS to consider, adjudicate and decide on the application within 15 days; and (5) granted Medtronic International leave to approach the court for further relief if SARS failed to comply. The SCA majority upheld this order and dismissed the Commissioner's appeal with costs.

The binding legal principle is that the provisions of Chapter 16, Part B (sections 225-233) of the Tax Administration Act 28 of 2011, relating to voluntary disclosure programmes, do not prohibit a request for remission of interest in terms of section 39(7) of the Value Added Tax Act 89 of 1991, notwithstanding that a voluntary disclosure agreement has been concluded and implemented. SARS has a statutory and constitutional duty to consider, adjudicate and decide upon such a request on its merits. The refusal by SARS to even entertain and consider an application for remission of interest after conclusion and discharge of obligations under a VDP agreement constitutes a failure to take a decision that is reviewable under section 6(2)(g) read with sections 6(3) and 8(2) of the Promotion of Administrative Justice Act 3 of 2000 (PAJA). Such refusal violates the constitutional right to lawful, reasonable and procedurally fair administrative action enshrined in section 33 of the Constitution. Section 39(7) of the VAT Act remains in force and is not displaced by the TAA in relation to interest on VAT debts, as the Legislature's repeal of section 39(7) has not yet come into operation. In the absence of express or implied statutory language precluding remission of interest after a VDP agreement, and given that the Legislature was aware that section 39(7) would remain in force, it must be concluded that the Legislature intended to preserve the availability of interest remission even after conclusion of a VDP agreement. Organs of state, including SARS, are constitutionally bound under sections 7(2) and 8(1) of the Constitution to respect, protect, promote and fulfill the rights in the Bill of Rights, including the right to just administrative action. SARS Interpretation Notes constitute 'practice generally prevailing' under section 5 of the TAA and bind SARS to consistent interpretation and application of tax legislation.

The court made several non-binding observations: (1) The question of whether remission of interest should actually be granted, and to what extent, does not arise in this appeal and is not within the court's remit, as the only issue was whether SARS was obliged to consider the application; (2) The voluntary disclosure programme under the TAA is designed to ensure that errant taxpayers who are not compliant come forward voluntarily to make amends for their defaults by informing SARS, citing Purveyors South Africa Mine Services (Pty) Ltd v Commissioner for SARS; (3) The 'normal course' of remedying a default outside the VDP would not ordinarily be cost effective from a taxpayer's perspective as it would expose the taxpayer to liability for penalties of up to 200% of the capital amount plus interest; (4) The VDP programme does not, in principle, preclude simultaneous consideration of interest remission under section 39(7) of the VAT Act or section 187(6) of the TAA, albeit that different jurisdictional facts and criteria may apply, though this issue did not require final determination in this case; (5) SARS's contention that Interpretation Note 61 was not binding on it was ill-conceived; (6) When a taxpayer is assessed in accordance with a 'practice generally prevailing', SARS must be consistent with its interpretation and application of legislation and cannot make a determination contrary to a prevailing practice; (7) As a general rule under PAJA, a court reviewing and setting aside an administrator's decision must remit the matter to the decision-maker for reconsideration, with substitution of the court's own decision only occurring in exceptional circumstances where it is just and equitable to do so; (8) The court would only substitute its own decision if it is in as good a position as the administrator to make the decision or the administrator's decision is a foregone conclusion, otherwise judicial deference and separation of powers must predominate; (9) The delay in finalizing the judgment was due to various factors and was deeply regretted. The minority judgment (Goosen AJA, Makgoka JA concurring) expressed dissenting obiter views that: the voluntary disclosure agreement determines the tax liability and both parties are bound by its terms; once a taxpayer agrees to quantum of tax debt, there is no basis to remit interest included in that debt; liability to pay tax debt does not arise except by assessment or in the VDP context, by agreement; the VDA is the centerpiece of the VDP programme serving three purposes: establishing liability without assessment; obviating need for investigation and audit; and protecting both parties' interests; and that to permit remission after conclusion of VDA would undermine legal consequences attaching to such agreement.

This case is significant in South African tax law as it clarifies the relationship between the voluntary disclosure programme under the TAA and the power to remit interest under the VAT Act. The majority decision establishes that: (1) Section 39(7) of the VAT Act remains in force and applicable despite the enactment of the TAA; (2) The TAA does not expressly or impliedly preclude requests for remission of interest after conclusion of a VDP agreement; (3) SARS has a constitutional and statutory duty to consider such applications on their merits, as a refusal to do so violates the fundamental right to just administrative action under section 33 of the Constitution and PAJA; (4) Organs of state must respect, protect, promote and fulfill the rights in the Bill of Rights, including the right to administrative justice; (5) SARS's Interpretation Notes, as 'practice generally prevailing', bind SARS and require consistent application. The case demonstrates judicial willingness to enforce taxpayers' constitutional and administrative law rights in the tax context. It establishes important precedent regarding the interaction between contractual arrangements (VDP agreements) and statutory powers (interest remission), with the majority favoring a less restrictive interpretation that preserves taxpayer rights. The dissenting judgment's alternative analysis provides useful insight into the competing interpretive approaches. The case has implications for tax administration, particularly regarding the scope and finality of VDP agreements and the continuing availability of other statutory relief mechanisms.