The devil is in the detail – New VAT requirements for certain contracts
27 July 2015
Posted by: Author: Tender da Gama
Author: Tender da Gama (Grant Thornton)
To claim an input tax deduction, the VAT Act requires vendors to issue a tax invoice containing a prescribed set of information about the product or service supplied and the parties to the transaction. However, in circumstances when this requirement is waived to claim the input VAT deduction, SARS has clarified their requirements. Do you comply?
Under certain circumstances, SARS may relax their requirements so that one or more of the information fields can be excluded on the tax invoice, or that another document, such as a contract, may replace a tax invoice. The contract or other document will then be regarded as sufficient documentary proof to entitle the recipient vendor to claim an input tax deduction for VAT charged on all future supplies related to the contract.
For a contract to suffice as replacement for a tax invoice, the Commissioner needs to be satisfied that there are sufficient records available to establish the full details of a supply or category of supplies. Additionally, that it is impractical to require a full tax invoice, credit or debit note to be issued or that the relevant document is not required to be issued. Therefore, the vendor’s unique circumstances must demonstrate why it is impractical to issue a full tax invoice, credit or debit note, or to exclude some information that is usually required, or not issued at all.
These circumstances will generally be evidenced in, but not limited to, the nature of the vendor’s supplies, confidential agreements that require certain details to be disclosed in code form or accepted industry practice.
SARS issued Binding General Ruling (VAT) No. 27 and Interpretation Note No. 83, which provide that the Commissioner’s direction to waive the need for a vendor to issue tax invoices, debit notes or credit notes, is on condition that the recipient is in possession of the contract. This contract must contain the names, addresses and VAT registration numbers of both the supplier and recipient (if applicable), a description of the goods or services supplied and the applicable tax rate charged. Similar to an abridged tax invoice, the requirements for this arrangement are slightly less onerous where the amount in question is less than R5 000. The supplier and the recipient should also retain proof of payment of each amount paid where the relevant contract does not contain the amount payable.
At face value, these requirements are similar to previous conditions, but there is an important new twist. An additional requirement was added that the contract should contain a statement that confirms the contract complies with the Commissioner’s direction under either section 20(7) or 21(5) of the VAT Act. It is therefore important that vendors ensure this clause is included when the contract is concluded.
As always, vendors must retain all the relevant information for a minimum period of 5 years.
Grant Thornton’s Instinct
It is almost safe to assume that SARS issued BGR 27 and IN 83 their view on the specific requirements in response to a recent case where SARS assessed a taxpayer on its income only based on a specific contract but the court accepted the appellant’s argument that SARS should then also allow the taxpayer to claim an input tax deduction based on the same contract.
This article first appeared on gt.co.za.