Purveyors South Africa Mine Services (Pty) Ltd v Commissioner for the South African Revenue Services

Purveyors South Africa Mine Services (Pty) Ltd (Purveyors) entered into a dry lease agreement on 12 January 2015 with Freeport Minerals Corporation (Freeport), a US tax resident, to operate an aircraft for air charter services in the Democratic Republic of Congo (DRC). The aircraft was kept at O R Tambo International Airport when not in use. Purveyors commenced provision of air charter services on 19 January 2015 to Tenke Fungurume Mining SARL (Tenke), a non-resident mining company in the DRC. On 16 November 2016, Purveyors' share ownership changed from Freeport to CMOC DRC Limited (Hong Kong incorporated). On 30 January 2017, Purveyors contacted SARS via email seeking to "regularize the VAT that was supposed to be paid over," having received a technical opinion from PwC that import VAT should have been paid. SARS official Mr Du Preez responded on 1 February 2017 advising that the aircraft was subject to penalty implications. In subsequent correspondence through March 2017, Mr Du Preez explained that VAT and penalties were payable, with no waiver of penalties. Purveyors acknowledged its understanding of these liabilities. Despite warnings from SARS and confirmation from PwC that VAT, penalties, and interest were due, Purveyors took no further action until 4 April 2018, when it submitted a Voluntary Disclosure Relief Application under section 226 of the Tax Administration Act 28 of 2011 (TAA). SARS rejected the application on grounds it was not voluntary under section 227 of the TAA, as SARS already had knowledge of the default and had prompted Purveyors to comply. The Tax Court upheld SARS' rejection, and Purveyors appealed to the Supreme Court of Appeal with leave.

• Whether Purveyors' voluntary disclosure application met the requirements of section 227 of the Tax Administration Act 28 of 2011, specifically whether the disclosure was 'voluntary'
• Whether prior knowledge by SARS of the taxpayer's default, obtained through exchanges between SARS officials and the taxpayer before the formal application, precludes the disclosure from being voluntary
• The proper interpretation of 'voluntary' and 'disclosure' in section 227 of the TAA
• Whether a taxpayer can make a valid voluntary disclosure application after having already disclosed the relevant information to SARS informally and having been warned about penalties and liabilities
• Whether the disclosure application was prompted by SARS' compliance action

The appeal was dismissed with costs, including the costs of two counsel. The decision of the Tax Court upholding SARS' rejection of Purveyors' Voluntary Disclosure Relief Application was confirmed.

For a voluntary disclosure application to be valid under section 227 of the Tax Administration Act 28 of 2011, the disclosure must be truly voluntary - made of the taxpayer's own free will and volition, without being prompted by SARS compliance action or warnings. Prior knowledge by SARS of the taxpayer's default, particularly where such knowledge was obtained through the taxpayer's own prior disclosure followed by warnings about tax liabilities, penalties and interest, precludes a subsequent voluntary disclosure application from being voluntary. A disclosure cannot be voluntary where: (1) SARS officials already had knowledge of the default before the formal application was submitted; (2) The taxpayer was prompted or warned by SARS about the consequences of the default; (3) The application was motivated by a desire to avoid penalties and interest rather than a genuine desire to come clean; (4) The application does not disclose information that is new to SARS. The requirement of voluntariness means that the taxpayer must take SARS into their confidence voluntarily and make a proper and frank disclosure which is neither prompted nor made as a result of fear or compulsion, and of which SARS must be unaware. The onus rests on the taxpayer to establish on a balance of probabilities that all requirements of section 227 have been fully met. Whether a voluntary disclosure has been prompted by compliance action is a question of fact to be determined by examining all the circumstances in which it was made.

The Court made several non-binding observations: (1) The Court noted that section 227 is not a penalty section, and if it were, there would be justification for construing its provisions strictly, but the contrary is true - any valid voluntary disclosure redounds to the benefit of the taxpayer under section 229 of the TAA; (2) The Court observed that the legislature has made it extremely easy for taxpayers to comply with the Voluntary Disclosure Programme by enabling them to comply with their tax obligations through making a full and complete voluntary disclosure in prescribed form and manner, instead of avoiding or postponing payment of taxes; (3) The Court commented that there is no particular mystic about tax law and that ordinary legal principles and terms are involved, approving the approach that tax legislation should not be regarded as a respectable contest between fiscus and taxpayer, but rather that careful consideration should be given to the language and purpose of provisions; (4) The Court cited with approval academic commentary on the importance of voluntariness as a key policy objective, noting that if disclosures prompted by compliance actions were accepted, there would be no incentive for taxpayers to correct past deficiencies until they were about to be held accountable; (5) The Court rejected the academic argument by Van Zyl & Carney that 'disclosure' is not restricted to 'new' or 'secret' information, finding this interpretation would defeat the purpose of the section and produce anomalous results; (6) The Court observed that Purveyors' contention regarding the absence of notice of audit or criminal investigation under section 226(2) was misconceived, as the rejection was based on non-compliance with section 227, not section 226(2).

This judgment provides important guidance on the interpretation and application of section 227 of the Tax Administration Act 28 of 2011, specifically the requirement that a voluntary disclosure must be 'voluntary'. The case establishes clear principles regarding what constitutes a voluntary disclosure and clarifies that: (1) Prior knowledge by SARS of a taxpayer's default, particularly when obtained through the taxpayer's own disclosure and followed by warnings about liability, precludes a subsequent formal application from being voluntary; (2) A disclosure prompted by SARS compliance action cannot qualify as voluntary; (3) The disclosure must be of information of which SARS was previously unaware; (4) Informal exchanges and correspondence with SARS prior to a formal voluntary disclosure application are relevant and cannot be disregarded; (5) The onus rests on the taxpayer to establish on a balance of probabilities that all requirements of section 227 have been met. The judgment reinforces the policy objectives underlying the Voluntary Disclosure Programme - to incentivize proactive compliance and enable SARS to use its resources efficiently by encouraging taxpayers to come forward of their own volition before SARS becomes aware of defaults. The case demonstrates that the voluntary disclosure provisions are to be given a purposive interpretation that prevents abuse and ensures that relief is only granted to taxpayers who genuinely and proactively seek to regularize their affairs without prompting. This decision is significant for tax practitioners advising clients on voluntary disclosure applications and clarifies the boundaries of what constitutes acceptable conduct in seeking voluntary disclosure relief.