Extending Export Regulations

Interpretation Note 30 (“IN 30”) by the South African Revenue Service (“SARS”) explains the requirements that need to be adhered to and prescribes the documentary proof, acceptable to the Commissioner, that must be obtained and retained by a vendor in order to levy value-added tax (“VAT”) at zero rate on a supply of movable goods, where those goods are consigned or delivered to a recipient at an address in an export country. Should these requirements not be adhered to, exports could potentially be accounted for at the standard VAT rate of 15%, which will result in adverse tax (and commercial) consequences for vendors.

Binding General Ruling 52 (“the BGR”) extends the periods to export movables, apply for a VAT refund and obtain relevant documentary proof of export as per the Export Regulations and IN 30.

The default position

The Export Regulations and IN 30 prescribe specific periods for exportation of goods, applications for VAT refunds and obtaining the relevant documentary proof of export for the process. The Export Regulations and IN 30 allow for an extension of the periods where they cannot be met due to circumstances beyond the control of the vendor. These circumstances include, amongst others, natural or human-made disasters and serious illness of a vendor, a qualifying purchaser, or a person duly authorised to represent these parties.

In light of the global Covid-19 pandemic, many vendors will have difficulty in meeting the timeframes as required. This is a situation that is considered to be beyond the control of the vendor, or qualifying purchaser or duly authorised representative as per the Export Regulations and IN 30.

The BGR

The BGR only applies to supplies of movable goods in respect of which the original timeframes in the Export Regulations and IN 30 have not been exceeded and prescribe for extended periods as follows:

  • Indirect exports

The time periods prescribed under regulation 3(a) of the Export Regulations have been extended by an additional three months.

The time period to apply for a refund as prescribed in regulation 3 of the Export Regulations is extended by 6 months from the date of export.

  • Direct exports

The time period to export movable goods is extended by an additional 3 months.

Period for which ruling is valid

The ruling applies from the date of issue on 26 March 2020, and is valid until it is withdrawn, amended or the relevant legislation is amended.

If the BGR does not provide for a specific scenario in respect of exporting movable goods, vendors or qualifying purchasers may apply for a VAT ruling.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your adviser for specific and detailed advice. Errors and omissions excepted (E&OE).

Rescission of judgments by SARS: Barnard Labuschagne Inc v SARS

The judgment deals with an application for rescission of a judgment by Barnard Labuschagne (Applicant), where SARS took judgment under the provisions of chapter 11 of the Tax Administration Act (TAA).

SARS filed a certified statement in terms of Section 172 of the TAA with the Registrar of the Court, setting out an amount of liquid debt due by the Applicant in respect of PAYE, VAT, UIF and SDL, and payable to SARS.

The Applicant is a law practice in the Western Cape and brought an application to rescind, based on various contentions. Over an extended time, the Applicant had various issues with incorrect allocations of taxes paid to the correct accounts. The dispute occurred over the years, and it was evident that the Applicant left this dispute unresolved. This occurred various times between 2009 and 2017. SARS had issued penalties and raised interest, and threatened judgment on various occasions. SARS even went as far as to make employees available to the Applicant, to allocate funds correctly. SARS eventually applied for judgment, based on a tax debt owed by the Applicant from the Applicant’s self-assessment.

The Applicant refused to object to the assessment, as it contended that SARS had not issued an objectionable assessment, and stressed that it was entitled to bring these proceedings, in terms of section 105 of the TAA, for a rescission of the judgment granted in terms of section 172 and 174 of the TAA. The Applicant further tested the constitutionality of the sections, if the Court did not find agreement with the Applicant, as these sections would then infringe his Constitutional rights to approach a court for relief when a judgment is granted. SARS countered this, stating that the judgment in terms of these sections was not judicially granted, as it lacks determining characters of judicially issued judgments.

In its judgment, the Court refuted the Applicant’s constitutionality arguments, stating that they held no weight. The High Court further confirmed that there must be a civil judgment in existence and that sections 172 and 174 constitute law enforcement mechanisms. These statements can be filed irrespective of whether an objection or appeal is in play, or an amount has been suspended. The benefit to the Applicant. Though. is that it is not a formal civil judgment and cannot be accorded the status of such.

In finality, the Court found that as this is not a civil judgment ordered by a court, one could not follow this route to have the judgment rescinded and as a result dismissed the application for rescission of judgment, and declared that the relevant provisions are not unconstitutional.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

A single supply of services: which VAT rate applies?

On 3 April 2020, the Supreme Court of Appeal delivered a judgement against Diageo South Africa (Pty) Ltd (“Diageo SA”) in a value-added tax (“VAT”) matter relating to the supply of advertising and promotion (“A&P”) services to various non-South African brand owners in the group.Diageo SA entered into an agreement with the foreign brand owners for the A&P of their products in South Africa. The brand owners invested in A&P to build and maintain brand recognition and generate sales by way of enhanced brand equity. The brand owners relied on Diageo SA to build their brands locally through A&P services in return for a fee. The A&P activities consisted of a range of activities, such as advertising across various channels, brand building promotions, events, sponsorships, and market research. Services that were rendered by Diageo SA included advertising media, website design, website building, social networking, and sponsorship of, amongst others, sports events.

To render the A&P services, Diageo SA made use of promotional merchandise and packaging, sample products, and branded giveaway items. These were given away free of charge to third parties for use or consumption within South Africa for the purpose of promoting the products. Two categories of goods were used. Firstly, the products of the brand owners (stock that has been taken out of the trading stock and used for product sampling or tasting); secondly, point-of-sale items were given to third parties and employees, for no consideration.

The fee charged by Diageo SA to the brand owners represented the cost incurred by Diageo SA in rendering the A&P services, which comprised the supply of both goods and services, to the brand owners. However, the tax invoices rendered by Diageo SA to the brand owners reflected a single total feefor services rendered. It did not differentiate between goods and services.

Why is this an issue? While the services to the brand owners are an exported service that can be zero-rated, the goods were consumed locally in South Africa and should have been standard rated (the principle of VAT being a tax imposed where the product is consumed). Part of the single fee charged to the brand owners should, therefore, carry VAT at the standard rate of 15%, and only a part thereof can be zero-rated.

Diageo SA took the view that the fee was charged on the basis that it constituted a zero-rated supply of the A&P services, since “exported services” in South Africa constitute zero-rated supplies. According to Diageo SA, there was only a single supply of A&P, not a separate supply of services and a separate supply of goods.

The court found that the single supply provided by Diageo SA to the brand owners consisted of both goods and services that were distinct and clearly identifiable from each other. There is no artificial and insensible result or commercially unreal outcome if that view is followed. The fee should, therefore, have been split between a zero-rated service, and goods at the standard rate.

The purpose of Section 8(15) of the VAT Act (in terms of which the decision was made) is to ensure that, in a case like this, Diageo and “other similarly positioned VAT vendors fulfil their obligation to pay VAT at the standard rate on the goods that they have supplied.”

Diageo’s appeal was dismissed and the assessments issued were maintained.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

The different VAT supplies

There are a few instances where VAT is not charged at the standard rate of 15%. In the following newsletter, we distinguished between the different supplies that attract VAT but does not necessarily have the impact of a standard rate supply.

  1. Denied Supplies

    The VAT Act provides for certain expenses where input VAT is denied, even if the expense is incurred in the course of conducting an enterprise and if there are no input VAT consequences there will ultimately be no output VAT consequences. The following circumstances are common instances where input VAT will be denied:


    • Acquisitions of a motor vehicle:

      When a motor vehicle is purchased by a vendor, who is not a motor car dealer or car rental enterprise, the input VAT on the purchase will be considered a denied supply.

      The definition of “motor vehicle” includes all vehicles designed primarily for the purposes of carrying passengers. This definition covers ordinary sedans, hatchbacks, multi-purpose vehicles and double cab bakkies. A single cab bakkie or a bus designed to carry more than 16 persons will qualify for input VAT purposes.  Any repairs and maintenance to vehicles, irrespective of the type of vehicle, will also qualify for the claiming of input VAT, as long as the cost is separately identified and invoiced.

    • Fees and Club Subscriptions:

      Input tax in terms of subscriptions/membership fees to sport, social, recreational and private clubs are denied supplies. Input VAT may, however, be deducted on subscriptions to magazines and trade journals which are related in a direct manner to the nature of the enterprise carried on by the vendor.

      However, fees for membership of professional bodies and trade organisations paid on behalf of employees are not denied supplies and SARS allows an input VAT to be claimed. Trade unions are exempt in this regard.

    In the case of denied supplies, no VAT may be claimed, and no output VAT needs to be declared, thus these supplies don’t need to be declared on your VAT return.

  2. Zero-Rated Supplies

    A zero-rated supply is a taxable supply, but VAT is levied at 0%. Vendors who make zero-rated supplies are still able to deduct input tax on goods or services acquired in making of the zero-rated supplies.

    Zero-rated supplies include certain basic foodstuffs such as brown bread and maize meal, certain services supplied to non-residents, international transport services, municipal property rates and more.

    Although a zero-rate supply is levied at 0%, it is still a taxable supply and should be declared separately on the VAT return.

  3. Deemed Supplies

    A vendor may be required to declare an amount of output tax even though they have not actually supplied any goods or services. Deemed supplies will generally attract VAT at either standard rate or zero rate.

    Two common examples of deemed supplies at standard rate are trading stock taken out of the business for private use and certain fringe benefits received provided to employees.

    The deemed supply will be declared on the VAT return under either your standard rate or zero-rate codes.


  4. Notional input VAT

    A VAT vendor may in certain circumstances deduct a notional input VAT credit in respect of secondhand goods acquired from non-vendors where no VAT is actually payable to the supplier.  Second-hand goods exclude animals, certain mineral rights and goods containing gold or consisting solely of gold.

    The following requirements must all be met for a notional input credit to be deductible in respect of secondhand goods:

    • Goods must be previously owned and used (as per the second-hand good definition in section 1 of the Act) and
    • Goods must be used to generate taxable supplies and
    • The seller must be a resident non-vendor and
    • Goods must be located in South Africa and
    • There must be no actual VAT levied on the transaction.

    It is important to keep all the documentation for all types of supplies for VAT purposes and to have it available as SARS may require it to confirm VAT transactions.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Value-added Remarks on Value-added Tax (VAT)

VAT is an integral part of our economic society and is something that influences everyone, especially businesses in South Africa. In this article, we will discuss a few do’s and don’ts regarding VAT.

 

  1. Valid tax invoices

 

In South Africa’s current tax system, vendors that are registered for VAT are allowed a deduction for the tax they pay on eligible goods or services (input tax) from the tax you collect on the sales made (output tax). Tax invoices are therefore very important to vendors as failure to provide valid documentation during VAT audits will cause the vendor to lose all the input tax being claimed on the invoice. The following requirements will overcome the challenges that may be encountered because of SARS scrutinising the validity of VAT invoices.

 

When the tax invoices exceed R5 000, a full tax invoice needs to be provided. For invoices of  R5 000 or below they may issue an abridged tax invoice. There will be no tax invoice needed if the consideration is R50 or less. However, documents such as a sales docket or till slip will be necessary to verify the input tax deducted.

 

As from 8 January 2016, the following information must be reflected on a tax invoice for it to be considered valid:

 

  1. Contains the words “Tax Invoice”, “VAT Invoice” or “Invoice”
  2. Name, address and VAT registration number of the supplier
  3. Serial number and date of issue of invoice
  4. Accurate description of goods and/or services (indicating where applicable that the goods are second-hand goods)
  5. Value of the supply, the amount of tax charged and the consideration of the supply
  6. Name, address and where the recipient is a vendor, the recipient’s VAT registration number
  7. Quantity or volume of goods or services supplied

 

Note that an abridged tax invoice will only need to meet criteria 1 to 5, whereas the full tax invoice (tax invoices exceeding R5 000) must meet all criteria.

 

  1. When to declare output VAT/claim input VAT

 

The date on which VAT becomes due on a transaction is the earliest of either the payment date or the invoice date. For example, if a payment is received in advance of the invoice issued for the supply, the VAT will be due on the date of receipt of payment. It is important to note that output VAT should be declared in the period in which the invoice has been issued or the payment has been received. With regards to input VAT, here the 5-year rule applies.

 

This rule provides that any amount of input tax which was deductible and has not yet been deducted can be claimed in a following period but is limited to a tax period 5 years after which the tax invoice should have been issued.

 

  1. Overpayments by the customer

 

When a vendor receives an overpayment from a customer, that vendor will not declare VAT on the overpayment. If a vendor fails to refund the overpayment within 4 months of the date of the invoice, the excess amount is deemed to be a consideration and therefore output VAT should be declared on the last day of the VAT period during which the 4-month period ends at a tax fraction of 15/115.

 

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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