VDP applications: a taxpayer's chance for a new start

A taxpayer can make a VDP application if he is not aware of a pending or current audit or investigation into his tax affairs, but if an investigation or audit has commenced he can only make the application after first obtaining the approval of a senior SARS official.

In order for the application to be valid the disclosure must:

• Be voluntary.
  
• Involve a default, such as the taxpayer having failed to submit information to SARS, or submitting inaccurate or incomplete information to SARS, or having adopted a tax position which has resulted in an incorrect assessment being issued.
  
• Be full and complete in all material respects.
  
• Involve the potential imposition of an understatement penalty in respect of the default.
  
• Not result in any refund due by SARS.
  
• Be made in the prescribed form and manner.

VDP applications can only be submitted electronically via the SARS eFiling system. Once an application has been made a written agreement must be entered into with SARS. This agreement must state the material facts of the taxpayer's default, the amount payable to SARS, and the arrangements and dates for repayment. Only once this agreement has been concluded will the taxpayer qualify for the VDP relief.

No criminal prosecution

The relief given to the taxpayer will include SARS not pursuing criminal prosecution for tax offences arising out of the default. Interest and understatement penalties will, however, be payable by the taxpayer. This penalty is likely to be somewhere between 0% to 10% provided that no audit had commenced at the time of making the VDP application. If there has been no gross negligence or intentional tax evasion by the taxpayer a penalty will be levied at 0%.

It is essential that when submitting a VDP application the taxpayer makes a full and complete disclosure, failing which, SARS can still pursue criminal prosecution. Taxpayers should also keep in mind that the VDP relief is dependent on concluding an agreement with SARS for the repayment of tax. If taxpayers are uncertain about the VDP process they should first seek the assistance of a tax practitioner.