SARS victory lap cut short

After winning at the Constitutional Court of South Africa to block interest relief under voluntary disclosure agreements, SARS now faces a proposed law change that would allow such relief going forward.

Webber Wentzel partner Nina Keyser explained that the 2026 Budget quietly remedied the very gap the South African Revenue Service (SARS) fought tooth and nail to preserve.

In a striking twist of tax policy, the 2026 Budget announced a proposed legislative amendment that appears to directly contradict the position that SARS pursued all the way to the Constitutional Court in its case against Medtronic International Trading.

Notably, SARS defended this position at a significant cost to the taxpayer, Medtronic and ultimately to the fiscus. Keyser said the Medtronic case arose from an extraordinary set of facts.

Between June 2004 to May 2017, a senior accountant employed by Medtronic Africa, Hildegard Steenkamp, embezzled approximately R537 million from the Medtronic Group.

She did this by exploiting weak accounting systems and repeatedly making payments from the group’s bank accounts to her late husband’s account.

She concealed the embezzlement by submitting false VAT returns to SARS, thereby causing Medtronic to underpay its VAT liabilities.

Around the time of Steenkamp’s arrest, Medtronic Africa and Medtronic International each applied to SARS for relief under the Voluntary Disclosure Programme (VDP).

Medtronic’s voluntary disclosure applications were specifically made in relation to the VAT underpayments.

During the VDP negotiations, Medtronic Africa and Medtronic International separately requested SARS to waive the interest arising from the VAT underpayment.

SARS’ response was that it would waive penalties, but that it lacked the power to waive interest under the VDP, Keyser explained.

The taxman’s voluntary disclosure unit advised Medtronic that it could proceed to the conclusion of voluntary disclosure agreements (VDAs) and pay the full agreed amounts, including interest, or withdraw from the VDP.

The companies elected to continue. Under its VDA, Medtronic International was required to pay the VAT with interest.

After the conclusion of the VDA, Medtronic International submitted a request for remission of interest under section 39(7) of the VAT Act.

However, SARS refused to consider this request on the basis that section 39(7) of the VAT Act did not apply to VDAs.

The courts divide

Keyser said Medtronic challenged the refusal and succeeded in the High Court. SARS appealed to the Supreme Court of Appeal (SCA), where the bench split three to two in Medtronic’s favour.

The SCA majority held that SARS bore a statutory duty, reinforced by section 33 of the Constitution, to at the very least consider and decide Medtronic’s request for remission of interest on its merits.

Notably, SARS had irrefutably refused to discharge this duty. Rather than accepting this outcome, SARS appealed to the Constitutional Court.

The Constitutional Court was required to determine whether a taxpayer who has concluded a VDA with the revenue service, and agreed to pay interest, could seek remission of that interest under section 39(7) of the VAT Act.

“In a unanimous judgment delivered on 20 December 2024, the Constitutional Court found firmly in SARS’ favour,” Keyser said.

“The court held that the object of the Tax Administration Act was that, once concluded, a VDA could not be undone by a remission of interest in terms of section 39(7) of the VAT Act.”

Keyser pointed out that a request for remission in that section, made after the conclusion of a VDA, is legally incompetent.

The court concluded that it would lead to a glaring absurdity to permit a taxpayer to conclude a VDA which makes provision for interest and to subsequently allow the taxpayer to deal with issues relevant to interest separately.

VDAs must bind both parties on all their terms, and under the principle of pacta sunt servanda, agreements must be honoured, which requires that the interest provision in the VDA remain enforceable.

The Budget Speech bombshell

Just over a year after that hard-won Constitutional Court victory, the 2026 Budget Speech announced a surprising proposed amendment.

“It is proposed that provision be made to specifically permit applicants for voluntary disclosure relief to simultaneously apply for the separate remission of interest,” the Treasury stated.

In other words, Keyser said the National Treasury now proposes to do precisely what Medtronic had been requesting – create a mechanism for seeking interest relief alongside a VDP application.

“Importantly, the proposed amendment will take effect from 1 March 2026, meaning Medtronic itself will derive no benefit whatsoever,” she explained.

“Its hard-fought litigation has served only to clarify the legal position under the old framework, a position that is now, paradoxically, being legislatively reversed. The practical irony is stark.”

Had the legislative amendment been in place before Medtronic’s VDP application, it may have been able to seek interest remission simultaneously with its VDP application.

That is assuming its VDP application could meet the requirements for remission under section 39(7) of the VAT Act.

“Instead, Medtronic spent years litigating through three levels of court, only for the law to be amended in a manner that may benefit future applicants in materially similar circumstances,” Keyser said.