In a striking twist of tax policy, the 25 February 2026 Budget Speech announced a proposed legislative amendment that appears to directly contradict the position that the South African Revenue Service (Sars) pursued all the way to the Constitutional Court, at significant cost to the taxpayer, Medtronic International Trading S.A.R.L. and ultimately to the fiscus.

The Background

The Medtronic case arose from an extraordinary set of facts. Between June 2004 to May 2017, a senior accountant employed by Medtronic Africa, Ms Hildegard Steenkamp, embezzled approximately ZAR 537 million from the Medtronic Group. She did this by exploiting weak accounting systems and making repeated payments from the Group's bank accounts to her late husband's bank account. She concealed the embezzlement by submitting false VAT returns to Sars, resulting in Medtronic to underpay its VAT liabilities.

Around the time of Ms Steenkamp's arrest, Medtronic Africa and Medtronic International each applied to Sars' voluntary disclosure unit for relief under the Voluntary Disclosure Programme (VDP), with their voluntary disclosures relating to the VAT underpayments.

During the VDP negotiations, Medtronic Africa and Medtronic International made separate requests to Sars for the waiver of 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. The voluntary disclosure unit advised the Medtronic companies that they could either 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. In terms of its VDA, Medtronic International was to pay the VAT with interest.

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

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, a duty which Sars had irrefutably refused to discharge.

Rather than accepting this outcome, Sars escalated the matter to the Constitutional Court.

The Constitutional Court Reverses

The Constitutional Court was required to determine whether a taxpayer who has concluded a VDA with Sars can seek remission of interest under section 39(7) of the VAT Act where that taxpayer has agreed to pay the interest in terms of the VDA.

In a unanimous judgment delivered on 20 December 2024, the Constitutional Court found firmly in Sars' favour. The Court held that the object of the TAA 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. A request for remission in that section, after 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, at the same time, to allow the taxpayer subsequently to deal with issues relevant to interest separately. VDAs must bind both parties on all their terms, and the principle of pacta sunt servanda, agreements must be honoured, 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 the following 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, under the provisions of the relevant tax act, in respect of the defaults disclosed in the voluntary disclosure application." In other words, National Treasury now proposes to do precisely what Medtronic had been asking for, namely, to create a mechanism for interest relief to be sought alongside a VDP application.

Importantly, the proposed amendment will take effect from 1 March 2026, meaning Medtronic itself will derive no benefit whatsoever. 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, assuming it 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.

Written by Nina Keyser, Partner at Webber Wentzel