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How to substantiate an input tax deduction without a tax invoice

20 October 2015   (0 Comments)
Posted by: Author: Anton Lockem
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Author: Anton Lockem (Shepstone & Wylie)

In some cases the court will allow for the deduction of input tax without a tax invoice 

The VAT process is fairly simple if you have a tax invoice to substantiate your entitlement to an input tax deduction.  However, if the supplying vendor fails to issue you with a tax invoice, the question then arises as to whether you, as the recipient vendor, can rely on section 20(7) or section 16(2)(f) of the Value-Added Tax Act No 89 of 1991 (the "VAT Act”) by using the contract between the parties to substantiate your entitlement to an input tax deduction?

This was the question posed in an appeal in the Western Cape High Court case of South Atlantic Jazz Festival (Pty) Ltd v CSARS 2015.  South Atlantic Jazz Festival(Pty) Ltd(the ''appellant'') held annual jazz festivals and had concluded sponsorship agreements with various companies (''sponsors'') in terms of which the sponsors paid money and provided goods and services to the festivals and, in return, the appellant provided branding and marketing.  All parties were registered VAT vendors.  The court had to answer whether or not the sponsorship contracts could be regarded as tax invoices.

Section 16(2)(f) of the VAT Act at the time of the assessment read as follows:

"No deduction of input tax in respect of a supply of goods or services…or any other deduction shall be made in terms of this Act, unless – the vendor, in any other case, is in possession of documentary proof, as is acceptable to the Commissioner, substantiating the vendor’s entitlement to the deduction at the time a return in respect of the deduction is furnished.”

The Court upheld the appeal and found that:

Where a recipient vendor is entitled to an input tax deduction but is not in possession of a tax invoice as envisaged in section 20(4), the recipient vendor may use any other document that has sufficient information to determine the particulars of the supply, to substantiate its entitlement to the deduction of input tax.  The document must however be a document that is acceptable to the Commissioner.  In this regard, Interpretation Note 83 provides direction as to when section 20(7) will be applicable. 

This judgment proves that it is worth fighting SARS if the law supports your argument. The court’s decision is a departure from previous decisions and thinking that no input tax credit may be claimed without a tax invoice.  The court also highlighted the fact that, where the wording of a statute is clear and unambiguous, the statute must be applied according to its purport. SARS may amend this judgement in light of the consequences it will bring. 

This article first appeared on the September/October 2015 edition on Tax Talk.    


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