Archive for category: News & Articles

The South Atlantic Jazz festival case (“Jazz festival case”) put into a motion a series of changes to the VAT legislation, more specifically, as to when an input tax claim can be made without a proper tax invoice. In short, the taxpayer in the South Atlantic Jazz festival case was successful in a dispute against SARS to claim an input tax credit without a valid tax invoice.

It came as no surprise when the legislation was subsequently changed in 2015 by section 25 of the 2015 Taxation Laws Amendment Act to effectively delete the provision successfully relied upon by the taxpayer in the Jazz Festival case. Not all was however lost – consolation was left for taxpayers seeking the same relief as was offered to the taxpayer in the Jazz Festival case. The consolation, however, came on SARS’ terms as taxpayers seeking an input tax deduction without a valid tax invoice can continue to seek an input tax deduction, provided:

• Certain circumstances prescribed by SARS exists; and
• The taxpayer is in possession of certain documents prescribed by SARS.

During 2016, SARS published two draft binding general rulings setting out (a) what the circumstances are that must be present and (b) what the prescribed documents are to claim an input tax credit without a proper tax invoice.

The circumstances under which taxpayers could seek this special relief would, based on the draft binding general ruling exist if:

• The taxpayer exhausted all remedies to obtain a valid invoice;
• All taxes and returns must be up to date; and
• The period in which the claim is sought falls on or after 1 April 2016

The documents prescribed per the other draft binding general ruling were essentially documents allowing all elements of a valid tax invoice to be identified.

The 2016 Draft Tax Administration Laws Amendment Bill however proposed to delete the above consolation and replace it with, what is arguably, a more restrictive one.

Per clause 24(1)(b) of the Draft Taxation Laws Amendment Bill, a taxpayer seeking an input tax deduction without a valid tax invoice must apply for a ruling from SARS before the taxpayer can claim an input tax credit and further states that SARS can only issue a ruling if:

• The taxpayer has taken reasonable steps to obtain a valid tax invoice; and
• No other provision in the VAT Act allows a deduction of the input VAT.

If the proposed change makes it into the final Act, which seems likely at this stage, it is evident that taxpayer’s will, with effect from 1 April 2016, need to apply for a ruling to get an input tax deduction if not in possession of a valid tax invoice.

Comments submitted on the proposed section to the effect that rulings are often administratively burdensome and the ruling process takes long were met with reassurance in the SARS and National Treasury Response Document that SARS has capacity to deal with applications in this regard. In addition, it would appear that rulings of this nature will be processed by SARS within 2 months, a somewhat shortened period.

Given our experience with ruling applications, we are skeptical that a ruling process will be practical in this space, however, we understand the policy rationale for the proposed change.

Taxpayers will be well advised to seek professional advice should they wish to rely on the new provision going forward.

In the case of VAT 1247:  XYZ Company (Pty) Ltd v The Commissioner for The South African Revenue Service, the court was faced with interpreting section 22(3) of the VAT Act, notably, in relation to a period before 22(3A) was introduced. Section 22(3) of the VAT Act in essence requires a person who has claimed an input tax deduction to make an output VAT adjustment if the invoice on which the input was claimed has not been settled within a period of 12 months.

The facts of the case are briefly that a supply was made from company A to Company B. Company B proceeded to claim an input tax credit back from SARS and once refunded, paid the Vat portion for the supply to Company A. Company A subsequently paid the VAT on the supply across to SARS and credited the loan account in respect of the invoice and debited a long term liability.  The long term liability was not settled by Company B within 12 months.

The taxpayer argued that crediting the loan account of Company A constituted payment of the invoice and accordingly, section 22(3) should not find application and in addition, there was no prejudice to SARS. SARS, in turn, argued that the debt still existed and was not settled within 12 months and that section 22(3) should apply.

The court in arriving at its decision that section 22(3) does not find application in casu stated that the purpose of section 22(3), per the Explanatory Memorandum to the amendment bill that introduced same, was to prevent abuse of the irrecoverable debt provisions in section 22 that resulted in prejudice to SARS. As there is no prejudice for SARS in this case, the court ruled that section 22(3) does not find application.

It will be interesting to see if SARS appeals this decision as taxpayers may be tempted to henceforth merely move liabilities around on the balance sheet to prevent the application of 22(3). Such temptation should however preferably be resisted without consulting an expert as the judgment is fact specific and the intention of Company A and Company B ostensibly played a vital role in the court’s conclusion together with the fact that there was no prejudice to SARS.

The issue is however mostly moot in relation to group transactions where such transactions fall within the carve out created for same in section 22(3A), introduced with effect from 10 January 2012.

[button url=”http://www.sars.gov.za/AllDocs/LegalDoclib/Rulings/LAPD-IntR-R-BPR-2016-24%20-%20BPR239%20Cash%20Contributions%20made%20to%20a%20special%20purpose%20vehicle.pdf” target=”” size=”small” style=”black” icon=”icon: cloud-download” popup=”” title=””]Download: Irrecoverable debts and VAT[/button]

 

This Binding Private Ruling deals with the reinstatement of a deregistered company in order to complete a transfer of immovable properties, pursuant to an amalgamation transaction. It concerns section 44(13) of the Income Tax Act, section 8(25) of the VAT Act, and section 9(1)(l)(iB) of Transfer Duty Act.

Click on the button below to view and download the SARS Binding Private Ruling: BPR 237 Document:

[button url=”http://www.sars.gov.za/AllDocs/LegalDoclib/Rulings/LAPD-IntR-R-BPR-2016-22%20-%20BPR237%20Reinstatement%20of%20a%20deregistered%20company%20to%20transfer%20immovable%20properties.pdf” target=”” size=”small” style=”black” icon=”” popup=”” title=””]BINDING PRIVATE RULING: BPR 237[/button]

The tax dispute resolution process, contained in the Tax Administration Act, No. 28 of 2011 as well as the rules promulgated under section 103 of that act was designed to ensure efficient and simple resolution of tax disputes. Of late, however, our experience has been quite the opposite.

It is evident that the current economic climate has taken its toll on the tax dispute resolution process within SARS as well. SARS are, no doubt, inundated with objections, requests for reasons and appeals from taxpayers trying to save where they can and unfortunately, based on the responses being received from SARS over the last few months in relation to tax disputes,  the wheels appear to be coming off!

Objections are being declared invalid for invalid reasons, disallowed on incorrect reasons, and sometimes just figuring out what SARS is trying say in response to an objection can be challenging with the response being, plainly, an incoherent blabber, that is if a response is received at all.   Similarly, concerns raised from the tax industry with the introduction of the alternative dispute resolution process on appeal also now seems to be coming to a head with either no facilitation taking place at alternative dispute resolution hearings or failure by SARS to try and amicably resolve the dispute to close the matter.

While SARS should indeed be commended for the massive strides forward on the tax dispute resolution process to date, the current status, in our experience, does not compliment their hard work in the past.

In the current, unfortunate status of the process, taxpayers and tax practitioners may feel powerless and frustrated resulting in disputes being abandoned or otherwise not being resolved.  Having a competent team of professional tax dispute resolution experts is now more important than ever to ensure disputes are resolved fairly, efficiently and within reasonable amount of time.

SARS recently changed their dispute process on e-filing to include additional functions such as allowing taxpayers to request suspension of payments online or submitting a request for remission of interest and admin penalties.

The system furthermore compiles the DISP01 on your behalf and only requires the taxpayer to select the amounts under dispute and to provide descriptions in the ‘Grounds for Dispute’ and ‘Reasons for Late Submission’ blocks where applicable.

We herewith list some issues experienced with the new system on a practical level:

Grounds for Dispute to be completed in full

Generally together with the DISP01 form the taxpayer or tax practitioner acting on behalf of the taxpayer, will submit a comprehensive Grounds for Objection letter together with the supporting documents.

As the grounds on which the objection is based are described in detail in the accompanying grounds for objection letter, taxpayers often only refer to the latter referenced letter in the ‘Grounds for Dispute’ field on the form. SARS has however indicated that the taxpayer should in short include the reason for the objection as well the grounds on which it is based and cannot only make reference to the supporting document. Where taxpayers do not comply with the request, SARS have warned that such objections may be declared invalid.

Assessment Results

When making the selection of which amounts the taxpayer is objecting to on the prescribed DISP01 form, the system collects these amounts as well as their SARS source codes from the latest assessment. This amount is referred to as the ‘Dispute Amount’ on the DISP01 form. On a practical level, the system often either does not display any values under the relevant SARS source codes, despite income disclosed under the source codes on the assessment or displays the incorrect amount.

As taxpayers are unable to change the incorrect ‘Dispute Amount’ blocks on the DISP01, the objection is to be submitted as is. Despite bringing the system error to SARS’ attention on the DISP01 form, SARS declares the dispute as invalid due to the incorrect amount displayed in the ‘Dispute Amount’ blocks and steps need to be taken for SARS to treat the objection valid.

Limitation on Number of Objecting Source Codes

The taxpayer is only allowed to object to five items per objection as the new system limits the number of SARS source codes when completing the DISP01 form. Where there are more than five items in dispute, the taxpayer should wait for the finalisation of the first objection and only thereafter submit another objection against the remaining incorrect source codes. This often results in the later objection being declared invalid as a result of being late and steps need to be taken to for SARS to treat the objection as valid.