Recently promulgated tax law amendments, court cases and other changes in Value-Added Tax for the year 2019
Various amendments to the Taxation Laws Amendment Bill (TLAB) and the Tax Administration Amendment Act (“TAA”) was promulgated in January 2019. Some of the notable Value-Added Tax (VAT) changes relates to the amendments to section 20 of the VAT Act pertaining to the issuing of tax invoices, the insertion of the definition of “face value” dealing with irrecoverable debts and other.
The mid-term budget speech in 2018 proposed the zero-rating of sanitary products and the subsequent issue of Binding General Ruling 49 issued on 25 March 2019 (“BGR49”). There was also the inclusion of additional items to the schedules pertaining to the zero-rating of certain goods.
Other amendments to legislation in 2018 relates to the updated legislation pertaining to Electronic Services. The amendments focuses on the consolidated regulations for the purpose of the definition of “Electronic Services” as defined in section 1.
A recent court case which were under the spotlight relates to the correct VAT treatment in respect of the supply of student accommodation.
Here is an overview of the TLA, TAA, inclusion of additional items for the purpose of zero-rating certain goods, Electronic Services and recent court cases:
Material error on Tax Invoices – amendment to section 20 of the VAT Act:
The amendments to section 20, where tax invoices contain errors in the particulars required in terms of the VAT Act and it is not appropriate to issue a credit note or debit note in respect thereof, the supplier must issue a corrected tax invoice within 21 days from the date the error was identified or the request for correction has been received.
In terms of the amendment, the correction will not constitute a contravention of the prohibition to issue more than one tax invoice for the same supply. This amendment also states that the correction will not affect the time of supply as contemplated in section 9 of the VAT Act.
The supplier should also obtain and retain information sufficient to identify the transaction to which the original tax invoice and the corrected invoice refers to.
This might seem like a very insignificant amendment which came into effect on 17 January 2019, but is a very welcome amendment. It creates the certainty with suppliers regarding the correcting of tax invoices already issued and provides a remedy to the recipient.
Insertion of the definition of “Face Value” under the provisions dealing with irrecoverable debt:
Section 22 of the VAT Act was amended, where definition of “Face Value” was inserted in the provision dealing with irrecoverable debts. A VAT registered vendor is in terms of section 22(1) of the VAT Act, permitted to claim a deduction for VAT on taxable supplies of goods or services that have been written off if provided on credit.
If the debt becomes irrecoverable and the vendor cedes or sells the debt book in respect of the written off debt on a non-recourse basis to another vendor (i.e. banks, collecting agents), for an amount less that the amount owing, the sale thereof is exempt from VAT. The vendor is therefore required not to make any adjustments to the previous VAT deduction.
The reason for the amendment was as a result of Government identifying an anomaly and the double deduction of VAT which is against the intention of the current legislation. Some vendors (the collecting agents or banks) that buy the book debts in terms of the above arrangement attempt to claim a further deduction if they write off all or part of the irrecoverable debt acquired off in future.
The “Face Value” of a debt transferred is for the purpose of section 22(1), the net value of the account receivable at time of transfer, after tax adjustments have been made for debit and/ or credit notes and taking into account the input tax already claimed of the debt amount already written off.
Credit notes in the context of a going concern:
The new amendment clarifies the VAT implications for the purchaser of an enterprise as a going concern.
Where the purchaser subsequently accepts goods returned previously supplied to customers and which the seller of the enterprise as a going concern supplied. The purchaser is allowed to issue credit notes in terms of section 21 of the VAT Act, in respect of the goods previously supplied by the seller.
This amendment will ease compliance for purchasing vendors and VAT will not be a cost to the purchaser.
Inclusion of joint ventures
The arrangement. concept of a joint venture is not defined in the VAT Act, but is recognised in law as having a legal persona. A joint venture is only identifiable based on the contractual
The inclusion of the word joint venture under section 51 of the VAT Act, aimed to provide legal certainty that all member of an unincorporated joint venture, registered as a VAT vendor could be jointly and severally liable for VAT liabilities.
Due to the critical impact of this inclusion could have on the parties involved it was recommended in the comments to the TLAB to insert a definition in the VAT Act.
Consolidated regulations pertaining to electronic services
The updated regulation is intended to substantially widen the scope of services which qualifies as electronic services. Ultimately, this means that all services supplied for a consideration, which are provided by means of an electronic agent, electronic communication or the internet subject to a few exceptions, are electronic services and VAT must be levied at the standard rate.
Furthermore, the updated regulations do not make a distinction between business to business (B2B) and business to consumer (B2C) supplies, as a result B2B supplies will be charged at the standard rate.
This however is a main concern, as majority of electronic services transactions are predominantly B2B.
BDO’s indirect tax and customs professionals could provide advisory services if there is an uncertainty pertaining to these types of transactions.
Residential vs commercial accommodation
In a recent court case the Supreme Court of Appeal delivered an interesting judgement in a matter pertaining to the VAT treatment of the supply of a building and the related goods or services to an educational institution.
The outcome of the court case, it was found that the student accommodation did not meet the first requirement of the definition of commercial accommodation and the taxpayer was therefore liable to account for output tax on the entire supply.
The court case placed immense emphasis on the treatment of “commercial accommodate” versus “residential accommodation” and what the VAT treatment should be.
Should there be an uncertainty on the type of supply and whether a company is engaged in the rental of units meeting the requirements of either “commercial accommodation” or “residential accommodation” it is advisable to approach our tax experts for advice.
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