“ The primary issue in this appeal is whether SARS was correct in rejecting Purveyors’ voluntary disclosure application for non-compliance with s 227, more specifically on the ground that it was not made voluntarily. The issue therefore resolves itself into this: does the exchange or discussions between the representatives of SARS and the officials of Purveyors have any material bearing on the application? Purveyors contends that the prior information disclosed to SARS in the process of ascertaining its tax liability is irrelevant and should not preclude it from making a valid voluntary disclosure application. Purveyors’ case is that the exchanges have no formal or binding effect on the views expressed by the taxpayer. Essentially, it argues that the application must not be considered at the historical point but crucially at the time when the application is made. In other words, prior knowledge disclosed by the taxpayer is no bar to a valid voluntary disclosure application and does not affect the validity and voluntariness of the application.”
This is the nub of the recent judgment of the Supreme Court of Appeal (SCA) in Purveyors South Africa Mine Services (Pty) Ltd v CSARS Case No 135/2021 (not yet reported) and delivered on 7 December 2021.
In January 2015, Purveyors entered into a dry lease agreement with a USA company, Freeport Minerals Corporation, for the lease of an aircraft to operate air charter services for Tenke Fungurume Mining SARL, a non-resident company owning and operating a mine in the Democratic Republic of Congo. At the date of the agreement, Freeport owned 100% of the equity of Purveyors and 80% of Tenke. Purveyors entered into an air charter agreement with Air Katanga to manage, operate and maintain the aircraft on behalf of Purveyors.
The aircraft transported employees, sub-contractors, suppliers and business guests from Johannesburg to Lumumbashi and Katanga, generally three times a week. When it was not in use, the aircraft was kept in a hangar leased to Purveyors OR Tambo International Airport.
In November 2016, Purveyors became a subsidiary of CMOC DRC Limited, a company incorporated and tax registered in Hong Kong. A sister company of CMOC DRC assumed the initial dry lease agreement and concluded a new one with Purveyors. The agreement between Purveyors and Tenke remained undisturbed.
In January 2017 Purveyors received an opinion from PwC stating that Purveyors ought to have paid value-added tax on the importation of the aircraft into South Africa. On 30 January Purveyors then approached SARS with a view to regularising its VAT obligation. On the following day a SARS official responded in an e-mail that the aircraft was subject to penalty implications. On 29 March 2017 the official wrote to Purveyors explaining the reasons for the penalties and informing the taxpayer of the need to appoint a clearing agent. Purveyors replied immediately, indicating that it understood that VAT and customs duty were payable, as well as fines and penalties. On 30 March the SARS official responded in order to clear any misunderstandings and indicated that there existed no waiver of potential penalties and that if the tax payable to SARS was late, penalties and interest would arise. On 16 May 2017, in response to a further request from Purveyors, PwC confirmed its earlier opinion.
Purveyors took no further steps for nearly a year, until on 4 April 2018 it applied for voluntary disclosure relief under section 226 of the Tax Administration Act (TAA). SARS countered with reference to section 227, which provides that an application falls to be rejected if it is not voluntary and contains facts of which SARS was aware prior to the application.
Purveyors appealed unsuccessfully to the tax court, which found that the application had not been voluntary as there was an element of compulsion on the part of Purveyors when it made the application.
On appeal to the SCA, following an unrewarding appeal to the High Court, the issue was whether the earlier exchanges or discussions between SARS and Purveyors had any material bearing on the application. Purveyors contended that the prior information disclosed to SARS in the process of ascertaining its tax liability was irrelevant and should not preclude it from making a voluntary disclosure application. The application should not be considered at the historical point but only when the application was made. In other words, prior knowledge disclosed by the taxpayer is no bar to a valid voluntary disclosure obligation.
Purveyors relied on a comment in an article by SP van Zyl and TR Carney where the learned authors state in relation to the Purveyors case a quo: “…‘disclosure’ is neither restricted in its denotation nor does its context in the TAA limit its meaning to ‘new’ or ‘secret’ information explicitly. To argue this would be precarious in the least”. SARS contended that the application did not disclose information or facts of which SARS was unaware, and was not voluntary as Purveyors had been prompted by SARSs with the warning that it would be liable for penalties and interest arising from its failure to pay the tax due. The Customs officials had already gained knowledge of the default and had advised Purveyors as early as 1 February 2017 that the aircraft should be declared and VAT paid.
The court proceeded to interpret section 227 in terms of the definitive Endumeni judgment, that “consideration must be given to the language in the light of the ordinary rules of grammar and syntax; the context in which the provision appears; the apparent purpose to which it is directed and the material known to those responsible for its production”. According to the Oxford English Dictionary on Historical Principles, “voluntary” means “performed, or done of one’s own free will, impulse or choice; not constrained, prompted or suggested by another”. “Disclosure” means “to open up the knowledge of others, to reveal”.
These two words required, according to the court, that the application must measure up fully to the requirements of section 227. No purpose would be served if the TAA enabled errant taxpayers to obtain informal advice from SARSs and then, when the advice did not suit them, apply for voluntary disclosure relief.
On 29 March 2017 Purveyors’ office manager sent an e-mail to the responsible SARS official, stating:
“We understand from your mail and our telephonic discussion that a VAT output is applicable and customs duties are applicable as well. However the VAT input is claimable back. Fines and penalties are applicable, however, based on the fact that the company might have been misinformed at the inception of the operation of the aircraft, you are willing to advance that as mitigating circumstances in order to waive the applicable fines and penalties. Furthermore, if we follow the process outlined below we will be in compliance with all the laws and regulations and you (SARS) will award a document of compliance.”
The court found that this e-mail made three things clear: the application was prompted by compliance action by SARS, which was aware of the interaction between Purveyors and SARS officials; Purveyors appreciated that it was liable for fines and penalties which had to be paid before Purveyors became tax compliant; and the application was to avoid the payment of fines and penalties rather than a desire to come clean. To grant relief in circumstances where SARS had prior knowledge of the default would be at odds with the purposes of the programme, which was to enhance voluntary compliance with the tax system by enabling errant taxpayers to disclose defaults of which SARS was unaware and to ensure the best use of SARS’ resources.
On a true analysis of the facts, Purveyors’ application did not pass the test. It disclosed no information of which SARS was unaware. The submission that the application should be treated as if no exchanges, approaches or contact were made prior to the application was without merit.
Purveyors attempted one further argument, namely that SARS had not given notice of an audit or investigation as contemplated in section 226. Had SARS done so, Purveyors would have been precluded from applying under the programme. Because there had been no such notice, Purveyors was at large to apply. The court rejected this contention by pointing out that it was under section 227, not section 226, that SARS had correctly rejected the application.
It is difficult to take issue with this judgment. The court, with respect, arrived at the only tenable interpretation of the voluntary disclosure programme in the TAA.
