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VAT and agency relationships · Tax Break: South African tax for professionals

• 0:11
  Welcome and thank you for joining me for Tax Break.
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  This is a podcast about South African tax for South African
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  tax professionals and practitioners.
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  My name is Peter Flanagan and in each episode I share my thoughts
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  with you on a topic or a recent development in South African
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  tax. And I try to keep the episode
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  short enough that you can listen to them whenever you've got a
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  few minutes to spare. Today we're talking about the
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  topic that comes up surprisingly often, and that is VAT and
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  agency relationships. So the idea is not to talk about
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  all the practical permutations and scenarios that can arise.
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  I would rather want to talk about just just look at the goal
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  provisions of the VAT Act and what the law says about this.
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  So if we look at the VET Act, Section 54 of the VET Act deals
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  with agents and auctioneers. If we delve into that a bit,
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  subsections one to three as well as six deal with agency, four
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  and five deal with auctioneers. That's a special type of agency
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  arrangement with its own rules and regime, and if we go into it
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  a bit more, a bit deeper, subsections 2A2B2C and six deal
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  with certain cross-border agency type of relationships that
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  exist. So the idea is not to go into
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  these, let's call it more specialised types of
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  arrangements, but rather to look at the basic principles that
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  would underpin agency relationships from a VAT
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  perspective. So I think there are a place to
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  start is to ask ourselves what exactly is an agent or when does
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  an agency relationship exist for that purposes.
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  Now importantly, this concept is not defined in Section 1 of the
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  VAT Act. It's also not defined in Section
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  54 of the VAT Act, which means that an agent would, whether
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  someone is an agent or not. With the paint on the normal
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  ordinary meaning of that term and seeing that it is a legal
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  concept whether someone is an agent or not, it is really to a
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  large extent the legal question. Now it is also important to bear
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  in mind that when it comes to whether an agency relationship
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  exists or not, that is one of the aspects where such may
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  reject a request for a ruling. I would suspect because it's
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  really a legal question and it it's a legal question that is
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  highly fact specific or fact factor dependent.
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  OK, assuming someone is an agent in the legal sense and there is
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  an agency relationship that can be proven, what are the bad
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  implications of that thing? Now the first implication we
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  found in Section 54, one which says that if an agent makes a
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  supply on behalf of a principle, the principle is deemed to make
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  the supply not the agent. Why is that important?
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  It means that the VET on that transaction must be accounted
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  for by the principle on its VET 201 return.
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  And related to this, any input tax that relates to this taxable
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  supply must be claimed by the principle, not by the agent.
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  Section 54 one then continues to say that if the supply that we
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  are looking at is a taxable supply and the agent is a
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  vendor, the agent may issue a tax invoice, a debit note or a
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  credit note with its own details on it, despite the supply being
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  deemed to be made by the principal.
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  And in that case, the principal may not issue the document
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  again. So from a documentation
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  perspective, it may seem as if the agent made the supply, but
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  Section 54 one been deems that the supply was made and should
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  be accounted for by the principal.
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  If we look at the other side of the equation, so goods or
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  services being supplied to a principal, Section 54 to the
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  specifies there that if a taxable supplies made to an
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  agent on behalf of a principle that supply is deemed to be made
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  to the principal. Again, the agent may request
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  that the documentation be prepared as if the supplier is
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  made to the agent. So you could have a scenario
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  where the supplies made to the principal or deemed to be made
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  to the principal because of the agency relationship, but the
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  documentation looks as if it was made to the agent.
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  So that then takes us to subsection 3 which specifies
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  that if the documentation. So in other words, the invoices,
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  the debit notes, the credit notes, the bills of entry has
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  got the details of the agent on it.
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  So it was issued by or to the agent.
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  The agent must maintain records with specific detail in it and
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  notify the principal within 21 days of the month following that
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  supply of these details. So in other words, if the
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  documentation is in the name of the agent, then there must be a
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  notification by the agent to the principal of these transactions
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  that that were concluded with its name on the with the agents
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  name on the on the documents. So what that practically means
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  is that agency would typically not be something where one party
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  claimed input tax on an invoice with the details of another
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  person on it and then be able to claim agency when Sash starts
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  querying why did you claim the input tax unless you do have an
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  agency arrangement in place and all the notifications have
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  happened as as required. So the the notifications is
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  actually part of the the the audit trail.
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  To do that would evidence the existence of this agency
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  relationship. In reality, and in my
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  experience, there is this often quite a fine line and it becomes
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  a bit of a fuzzy distinction between an agency relationship,
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  recovery of costs from another person and sub contracting and
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  outsourcing arrangements. And I think that is often where
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  the, the, the VAT becomes quite complex.
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  So we haven't dealt with the latter 2 cost recoveries and sub
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  contracting or outsourcing. But hopefully I've given you
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  something to think about when it comes to the agency type of
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  transactions. So I think to close off, if
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  there is an agency relationship that exists, documentation would
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  become very important and it's important in a number of ways.
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  Firstly, to prove the existence of that relationship, that there
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  is in fact an agency relationship in place.
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  Do make sure you've got the correct documents for the
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  correct party. In other words, the principle to
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  account for, for, for the VAT or to claim the input tax.
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  And thirdly, then if the agents details are on the on the
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  documents to do, then do the required notifications within
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  the time period specified in the VAT Act, because that's part of
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  the documentation trail that you need to do comply with these
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  obligations for the principal to have the information to to do to
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  declare on its battery turns. That's it for today's episode.
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  If you've got any questions or comments, please send me an
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  e-mail. If you like the podcast, please
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  forward the link to this episode, or any other episode
• 8:11
  for that matter, to to someone else that you think might also
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  be interested. It's always nice to see the the
• 8:17
  listener base growing bit by bit every week, so I would very much
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  appreciate if you forward the link to someone else.
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  And just reminder, as always, nothing in this episode was
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  intended to be tax advice or a replacement for tax advice.
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  Until next time, goodbye.