Purveyors South Africa Mine Services (Pty) Ltd v Commissioner for the South African Revenue Services (135/2021) [2021] ZASCA 170; 2022 (3) SA 139 (SCA); 84 SATC 215 (7 December 2021)

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Purveyors South Africa Mine Services (Pty) Ltd v Commissioner for the South African Revenue Services (135/2021) [2021] ZASCA 170; 2022 (3) SA 139 (SCA); 84 SATC 215 (7 December 2021)

THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case
No: 135/2021
In
the matter between:
PURVEYORS SOUTH
AFRICA
MINE SERVICES
(PTY)
LTD
APPELLANT
and
COMMISSIONER FOR
THE SOUTH AFRICAN
REVENUE
SERVICES
RESPONDENT
Neutral
Citation:
Purveyors
South Africa Mine Services (Pty) Ltd v Commissioner for the South
African Revenue Services
(135/2021)
[2021] ZASCA 170
(7 December 2021)
Coram:
PETSE AP, MATHOPO, SCHIPPERS,
MOKGOHLOA JJA and MOLEFE AJA
Heard:
16 November 2021
Delivered:
This judgment was handed down
electronically by circulation to the parties' representatives by
email, publication on the Supreme Court
of Appeal website and release
to SAFLII. The date and time for hand-down is deemed to be 15h00 on 7
December 2021.
Summary:
Voluntary
disclosure – whether taxpayer met the requirements of
section 227
of the
Tax Administration Act 28 of 2011
– Commissioner for the
South African Revenue Services had knowledge of information
subsequently disclosed and prompted taxpayer
to comply – disclosure
not voluntary – requirements of
section 227
not satisfied –
appeal dismissed.
ORDER
On
appeal from
: The
Tax Court of South Africa, Pretoria (Fabricius J sitting as court of
first instance):
The appeal is
dismissed with costs, including the costs of the two counsel.
JUDGMENT
Mathopo JA (Petse
AP, Schippers, Mokgohloa JJA and Molefe AJA concurring):
[1]
This is an appeal from the decision of the Tax Court of South Africa,
Pretoria (the
Tax Court) upholding the rejection by the respondent,
the Commissioner for the South African Revenue Services (SARS), of
the Voluntary
Disclosure Relief Application (the application)
submitted by the appellant, Purveyors South Africa Mine Services
(Pty) Ltd (Purveyors),
under s 227 of the Tax Administration Act 28
of 2011 (TAA). Purveyors disputes the decision of SARS to reject the
application. On
the other hand, SARS submits that its decision is in
accordance with the provision of s 227.
[2]
Section 227, which is headed ‘Requirement for valid voluntary
disclosure’, provides:
‘
The
requirements for a valid voluntary disclosure are that the disclosure
must –
(a)
be
voluntary;
(b
)
involve a ‘default’ which has not occurred within five years of
the disclosure of
a similar ‘default’ by the applicant or a
person referred to in section 226(3);
(c)
be
full and complete in all material respects;
(d)
involve
a behaviour referred to in column 2 of the understatement penalty
percentage table in section 223;
(e)
not
result in a refund due by SARS; and
(f)
be
made in the prescribed form and manner.’
[3]
The facts are uncomplicated and common cause between the parties. On
12 January 2015,
Purveyors entered into a dry lease agreement with
Freeport Minerals Corporation, a company incorporated and tax
resident in the United
States of America (Freeport), in respect of an
Embraer 135 LR Aircraft registered in the United States of America.
The dry lease
agreement allowed Purveyors to operate air charter
services for the benefit of Tenke Fungurume Mining SARL (Tenke), a
non-resident
company that owns and operates a mine located in the
Democratic Republic of Congo (the DRC). At the date of conclusion of
the dry
lease agreement, Freeport held 100% of the ordinary shares in
Purveyors and 80% of the shares in Tenke. The remaining 20% of the
issued share capital of Tenke was and is still held by La Gécaminés
Des Carriérés Et Des Mines S A.
[4]
Purveyors entered into an aircraft management agreement with Air
Katanga, a company
incorporated in the DRC, to provide air charter
services for the benefit of Tenke. Based on the aircraft management
agreement, Air
Katanga serves as manager of the aircraft and is
engaged in the business of managing, operating and maintaining the
aircraft.
[5]
On 19 January 2015, Purveyors commenced with the provision of air
charter services to
Tenke under a usage agreement. The aircraft
transports employees, sub-contractors, suppliers, and business guests
from Johannesburg
to Lubumbashi and Kinshasa in the DRC generally
three times a week, namely on Mondays, Wednesdays and Fridays. Tenke
pays a fee in
United States dollars to Purveyors per flight hour in
exchange for operating the aircraft on a monthly basis subject to an
annual
reconciliation of costs as per the terms of the usage
agreement. Whilst the aircraft is not in use, it is kept at a leased
hangar
at O R Tambo International Airport. The hangar is owned by
Fireblade Aviation, a company incorporated in the Republic of South
Africa.
[6]
On 16 November 2016, Purveyors ceased to be a wholly owned subsidiary
of Freeport by
way of a disposal of its entire issued share capital
by Freeport to CMOC DRC Limited, which is a company incorporated and
tax registered
in Hong Kong.
[7]
CMOC DRC Limited is affiliated with a sister company named CMOC
Mining USA Limited (CMOC
USA). CMOC USA is a company incorporated and
tax resident in the United States. The initial dry lease agreement
was subsequently
assumed by CMOC USA and a new dry lease agreement
(the agreement) was concluded. All other agreements, including the
usage agreement
and the aircraft management remain in effect between
Purveyors and Tenke and other service providers.
[8]
On 30 January 2017, Purveyors requested, via e-mail, a meeting with
SARS ‘to regularize
the VAT that was supposed to be paid over.’
In the e-mail, Purveyors informed SARS that: ‘We have just received
a VAT technical
opinion from PwC that we were supposed to pay the VAT
over to SARS upon the import of the aircraft’. On the 1 February
2017, SARS
responded in an e-mail from Mr Johannes Du Preez in which
he indicated that the aircraft was subject to penalty implications.
He
also requested to see documentation in terms of s 101 of the
Customs and Excise Act 91 of 1964.
[9]
On 2 February 2017, Mr Kgotso Thakgudi of Purveyors acknowledged
receipt of Mr Du Preez’s
email and indicated that he would revert
as soon as possible with the requested information. On 29 March 2017,
Mr Du Preez wrote
to Purveyors explaining the reasons why VAT and
penalties were payable. Mr Du Preez further indicated that Purveyors
needed to appoint
a clearing agent to assist it with an import permit
to regularise its continued default. Purveyors responded on the same
day, indicating
that it understood from Mr Du Preez’s e-mail and
from their telephone discussion that VAT output and custom duties
were applicable,
as well as fines and penalties.
[10]
Mr Du Preez responded in an e-mail dated 30 March 2017, in which he
sought to clear any misunderstanding
and indicated that there existed
no waiver of potential penalties, and that if the tax to SARS was
late, Purveyors would be liable
to pay penalties and interest.
[11]
On 16 May 2017, Mr Du Preez wrote a further e-mail to Purveyors
indicating that it had to address the
matter as he had allowed
Purveyors sufficient time to regularise its tax affairs. Purveyors
responded and indicated that it was still
awaiting a response from
its head office. Purveyors approached its auditors, Price Waters
Coopers (PwC), for an opinion as to whether
it was liable to pay
import VAT. PwC agreed with SARS that Purveyors was obliged to pay
import VAT as well as penalties and interest.
This was against the
backdrop of PwC’s earlier opinion, given in January 2017, advising
Purveyors to honour its tax obligation
in relation to its historical
tax liability.
[12]
Purveyors took no further steps to regularise its liability for VAT
and penalties until 4 April 2018
when it applied for voluntary
disclosure relief in terms of s 226 of the TAA. This was
approximately a year after the last letter
from Purveyors to SARS.
Relying on s 227, SARS rejected the application on the grounds that
it was not voluntary; and did not contain
the facts of which SARS was
unaware as those facts had already been disclosed to it prior to the
voluntary disclosure application.
[13]
The Tax Court agreed with SARS and dismissed Purveyors’ case. It
found,
inter alia
, that the application was not voluntary as
there was an element of compulsion on the part of Purveyors when it
submitted the application.
This further appeal by Purveyors is with
the leave of the Tax Court.
[14]
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.
[15]
As regards the interpretation of the word ‘disclosure’ in the
section, Purveyors contends that there
is no requirement that
disclosure ought to be new or something of which SARS had not been
previously aware. To shore up its argument
it aligned itself with the
writings of S P Van Zyl & T R Carney, who opined that ‘. . .
“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.’
[1]
More
about this later.
[16]
SARS argues that the application did not comply with the requirements
of s 227 of the TAA because, on
a proper construction of s 227,
Purveyors did not disclose information or facts of which SARS was
unaware. It submits that the application
was not voluntary as
Purveyors was prompted by SARS. In essence, the application was
brought because Purveyors was warned that it
will be liable for
penalties and interest arising from its failure to have paid the
relevant tax.
[17]
SARS further contends that the Customs Officials had already gained
knowledge of the default and had
advised Purveyors on 1 February 2017
that the aircraft should be declared in South Africa and VAT paid
thereon. The argument advanced
is that Purveyors was prompted by the
actions of SARS to submit the application.
[18]
What is implicated in this appeal is a proper interpretation of s 227
of the TAA. The first and perhaps
the most important question to
consider is the approach to be adopted by this Court in construing
the section. There are
dicta
in many judgments which are open
to the construction that, construing tax legislation should be
regarded as a respectable contest
between the fiscus and the taxpayer
concerned. At the same time, careful consideration should be given to
the language of the section
to ascertain its purpose and avoid a
superficial assessment of the facts. One must read the words used in
the section in their context,
with regard to the apparent purpose of
the section. In interpreting the section, I borrow largely from
Commissioner for South African Revenue Services v United Manganese
of Kalahari (Pty) Ltd
, where this Court stated:
‘
It
is unnecessary to rehearse the established approach to the
interpretation of statutes set out in
Endumeni
and approved by the Constitutional Court in
Big
Five Duty Free
.
It is an objective unitary process where consideration must be given
to the language used 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. The approach is as applicable to
taxing statutes as to any other statute. The inevitable
point of
departure is the language used in the provision under
consideration.’
[2]
We
should bear in mind that there is no particular mystic about tax law;
ordinary legal principles and terms are involved.
[3]
[19]
The starting point to notice about the section is that it relates to
‘voluntary disclosure’. Each
of these words is of wide and
general import. Cardinal among words to which meaning ought to be
given is ‘voluntary’. According
to the Shorter Oxford English
Dictionary on Historical Principles, the word ‘voluntary’ means:
‘performed or done of one’s
own free will, impulse or choice; not
constrained, prompted, or suggested by another’.
[4]
An
equally important word to attribute meaning is the word ‘disclosure’
which appears twice in the section. Disclosure means ‘to
open up to
the knowledge of others, to reveal’.
[5]
In
his article titled ‘Tax Amnesties in Africa: An analysis of the
voluntary disclosure Programme in Uganda’, Solomon Rukundo
stated
the following:
‘“
Voluntary
disclosure occurs when a taxpayer, unprompted and of their own
volition, comes forward to disclose their tax liabilities,
misstatements or omissions in their tax declarations in order to
return to a fully compliant status with respect to legal
obligations”’.
The taxpayer must not have been prompted by any
compliance action by URA such as: initiation of a tax investigation,
request for
tax information, tax advisory letter, tax health
check/review, notice of audit, tax query, or compliance visit by URA
officers (URA
2020c). Voluntariness of a disclosure is a key policy
objective of the programme. If disclosures made by taxpayers prompted
by compliance
actions were to be accepted, there would be no
incentive for taxpayers to correct past deficiencies until it was
clear that they
are going to be held accountable. The requirement of
voluntariness is in line with the model tax amnesty described
earlier.’
[6]
The words
‘voluntary’ and ‘disclosure’ in the section require that the
voluntary disclosure application must measure up fully
to the
requirements of the section. This appears from the textual
interpretation of the section. These requirements apply with equal
force in South Africa. It is clear that the onus rests on the
taxpayer to establish, on a balance of probabilities, that it has
fully
met the requirements of the section.
[20]
The language used in the section clearly indicates the legislature’s
intention to arm the Commissioner
with extensive powers to prevent
taxpayers from disclosures which are neither voluntary nor complete
in all material respects. The
fact that the section provides that the
disclosure application must be made in the prescribed form or manner
rather than obtaining
ad hoc
advice from SARS is a clear
indication that the mischief sought to be prevented is one where a
taxpayer discloses information to
SARS and later on makes a voluntary
disclosure application. The purpose of the application is designed to
ensure that errant taxpayers
who are not compliant must come clean,
out of their own volition and without any prompting, to make amends
in respect of their defaults
by informing SARS. No purpose would be
served if the TAA enables errant taxpayers to obtain informal advice
and when it does not
suit them, to then apply for voluntary
disclosure relief. Whether a voluntary disclosure has been prompted
by a compliance action
is a question of fact to be determined by
examining the circumstances in which it was made.
[21]
Applied to the present case, the facts show that from the outset –
and well before the submission of
its VDP application – Purveyors
knew that it was liable for the import VAT on the aircraft and
penalties, which were not going
to be waived. That much is plain from
the e-mail sent on 29 March 2017 by its Office Manager, Ms Amina
Mumba, to Mr Du Preez. She
said:
‘
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.’
[22]
This e-mail makes three things clear. First, the VDP application by
Purveyors was prompted by compliance action
on the part of SARS which
was aware of the default following interactions between Mr Du Preez
and Purveyors’ representatives.  Second,
Purveyors itself
appreciated that it was liable for fines and penalties which had to
be paid before it would be tax-compliant. Third,
the VDP application
was not motivated by any desire to come clean, but rather to avoid
the payment of fines and penalties. This is
underscored both by the
absence of any evidence that Purveyors had been contemplating a VDP
application; and its failure to follow
the process referred to in Ms
Mumba’s e-mail. Simply put, Purveyors’ application was not
voluntary.
[23]
The contention by Purveyors that it had been advised by an official
of SARS (Mr Tsebe) that no import
VAT was payable cannot assist it.
In his affidavit Mr Tsebe confirmed that he had not been provided
with any documentation relating
to the relevant transaction, and it
was a general inquiry. But what is clear from the evidence is that
the Purveyors did not act
on the advice of Mr Tsebe: the inference is
inescapable that it had indeed charged the import VAT. In January
2017 Mr Thakgudi, its
senior accountant, advised SARS that PwC had
advised Purveyors that it was ‘supposed to pay the VAT over to
SARS’. What is more,
Purveyors failed to produce any invoice
relating to the lease of the aircraft to show that VAT had not been
charged. And confronted
by Mr Du Preez about its tax default,
Purveyors did not protest that it had not received any import VAT on
the aircraft.
[24]
The disclosure of Purveyors to SARS was not in the context of a
voluntary disclosure relief application.
It is unconscionable to
treat a disclosure by a taxpayer to SARS any different. This
especially so where SARS had warned the taxpayer
about the
implications of its tax obligation. Purveyors wants us to disregard
the discussions and interactions it had with SARS’
officials.
[25]
It is difficult to understand on what conceivable basis a taxpayer
can obtain a voluntary disclosure
relief in circumstances where SARS
had prior knowledge of the default, regardless of the source of such
prior knowledge, and had
in addition, warned the taxpayer of the
consequences of its default. To grant relief in these circumstances
would be at odds with
the purposes of the Voluntary Disclosure
Programme – to enhance voluntary compliance with the tax system by
enabling errant taxpayers
to disclose defaults of which SARS is
unaware, and to ensure the best use of SARS’ resources.
[26]
I endorse the opinion that the application must comply with the
provisions of the section in all material
respects. Moreover, the
taxpayer must take SARS into their confidence and voluntarily make a
proper and frank disclosure which is
neither prompted nor made as a
result of any fear or compulsion. SARS must undoubtedly not be aware
of the default. The architecture
of the section is such that it is
designed, by the use of wide and comprehensive language, to dispel
any doubt as to what is required
of a taxpayer. The section is not a
penalty section. If it were, there would be justification for
construing its provisions strictly.
On the contrary, any valid
voluntary disclosure will redound to the benefit of the taxpayer in
terms of s 229 of the TAA.
[7]
[27]
In short, the legislature has endeavoured to make it extremely easy
for the taxpayer to comply with the
requirements of the Voluntary
Disclosure Programme by enabling taxpayers to comply with their tax
obligations, by making a full and
complete voluntary disclosure in
the prescribed form and manner, instead of avoiding or postponing
payment of taxes. A sensible interpretation
of the voluntary
disclosure provisions, their context and purpose show that the
drafters of the provisions clearly had in mind that
a taxpayer who
elects to inform SARS of its default runs the risk that any
subsequent disclosure might not be treated as being voluntary.
[28]
There is, in my view, considerable force in the contention by counsel
for SARS, that on a proper interpretation
of s 227 of the TAA, there
is no room for Purveyors’ submission that the section must be
construed as excluding any prior knowledge
on the part of SARS. The
purpose of the application is to incentivise taxpayers to make a
clean break so that SARS can give them
immunity. This can only happen
if there is a full and proper disclosure, of which SARS was unaware
and which disclosure was not prompted
by SARS. This is a conclusion
which arises by necessary implication from the terms of the
provisions as a whole. Clearly it is not
the intention of the
legislature to reward involuntary conduct with exemptions conferred
by the section.
[29]
I am of the opinion that upon a true analysis of the facts of the
present case, Purveyors’ application
does not pass the test. The
application was not voluntarily made. Purveyors, in its application,
did not disclose information of
which SARS was unaware. The
submission that the application should be treated as if no exchanges,
approaches or contact was made
with SARS representative is without
merit. To construe 227 in the way for which Purveyors contended would
defeat the purpose of the
section and produce an anomalous result.
Such an interpretation would produce the result that a taxpayer who
has not complied with
his tax obligations would ask SARS for an
opinion, disclose his transgressions and, upon receipt of that
opinion, thereafter apply
for a relief under ss 226 and 227. This is
the very mischief which the legislature sought to avoid.
[30]
In conclusion, the contention by Purveyors that the decision by SARS
falls to be reviewed and set aside
because notice of an audit or
criminal investigation as contemplated in s 226(2) of the TAA had not
been given, is misconceived.
It is not the case of SARS that
Purveyors has been subjected to an audit or criminal investigation.
The application was rejected
on the basis of non-compliance with s
227 and not s 226(2). Its VDP application was prompted by compliance
action by officials of
SARS and the advice it received from its
auditors, PwC. In the light of the aforegoing, it is clear that in
order to escape payment
of penalties and interest, Purveyors
submitted the VDP application. I agree with the Tax Court that the
application by Purveyors
was not voluntary and did not meet the
requirements of s 227 because SARS knew of its default and warned
that it would be liable
for VAT plus penalties and interest. Nothing
new was disclosed in the application. That said, the appeal must
fail.
[31]
In the result, the appeal is dismissed with costs, including the
costs of the two counsel.
R S Mathopo
Judge of Appeal
APPEARANCES
For
appellant:
P A Swanepoel SC
Instructed
by:

R M Partners Incorporated, Pretoria
Michael
du Plessis Attorneys, Bloemfontein
For
respondent:
M A Chohan SC (with him T Chavalala)
Instructed
by:

Vezi & De Beer Incorporated, Pretoria
McIntyre & Van
Der Post, Bloemfontein
[1]
S P
Van
Zyl & T R Carney ‘Just How Voluntary Is “Voluntary” for
Purposes of a Voluntary Disclosure Application in Terms of
Section
226
of the
Tax Administration Act 28 of 2011
– Purveyors South
Africa Mine Services (Pty) Ltd v Commissioner: South African Revenue
Service (61689/2020) [2020] ZAGPPHC 404
(25 Aug 2020)’2021
THRHR
84 at 95-110.
[2]
Commissioner
for South African Revenue Services v United Manganese of Kalahari
(Pty) Ltd
2020
(4) SA 428
(SCA);
82 SATC 444
para 8.
[3]
Secretary
for Inland Revenue v Kirsch
[1978]
3 All SA 308
(T);
1978 (3) SA 93
(T) para 94D.
[4]
The
Shorter
Oxford English Dictionary on Historical Principles (1) 3 ed 1973.
[5]
Ibid volume 2.
[6]
S
Rukundo ‘Tax Amnesties in Africa: An analysis of the voluntary
disclosure Programme in Uganda’ (2020)
International
Centre for Tax and Administration; African Tax Administration Paper
21
at
25.
[7]
Section
229
of the TAA reads as follows:
‘
Despite
the provisions of a tax Act, SARS must, pursuant to the making of a
valid voluntary disclosure by the applicant and the
conclusion of
the voluntary disclosure agreement under section 230 –
(a)
not pursue criminal prosecution for a
tax offence arising from the ‘default’;
(b)
grant the relief in respect of any
understatement penalty to the extent referred to in column 5 or 6 of
the understatement penalty
percentage table in section 223; and
(c)
grant 100 per cent relief in respect
of an administrative non-compliance penalty that was or may be
imposed under Chapter 15 or
a penalty imposed under a tax Act,
excluding a penalty imposed under that Chapter or in terms of a tax
Act for the late submission
of a return.’