VAT & Group Companies
03 February 2012
Posted by: SAIT Technical
Vat & Groups
by Michael Stein
The huge Taxation Laws Amendment Act 24 of 2012 effects many amendments, some of which affect value-added tax. Some of them are relevant to groups of companies.
First, s 22(3) of the Vat Act, in so far as it affects companies, applies when a vendor that is required to account for tax payable on an invoice basis has made a deduction of input tax for a taxable supply of goods or services made to it and has, within a period of twelve months after the expiry of the tax period within which the deduction was made, not paid the full consideration in respect of the supply. Subject to the application of certain provisos that are not relevant here, an amount equal to the tax fraction, as applicable at the time of the deduction, of the portion of the consideration that has not been paid is deemed to be tax charged on a taxable supply made in the tax period following the expiry of the period of twelve months There is therefore an effective ploughback of input tax deducted by a company when the amount owing to the creditor concerned remains unpaid for twelve months.
Section 22(3A) has been inserted in the Vat Act to change this rule when the debt is owing to another company in the same group of companies. It provides that s 22(3) will not apply to a taxable supply made by a vendor that is a member of a group of companies to another vendor that is a member of the same group of companies for as long as both vendors are members of the same group of companies. At the same time s 22(6) has been added to the Vat Act to limit the right of a company to claim a bad debt for an irrecoverable debt owing by another company in the same group of companies.
Section 22(6)(a) states that when a vendor that is a member of a group of companies makes a taxable supply to another vendor that is a member of the same group of companies, the vendor that made the taxable supply may not make a deduction of input tax for the amount of tax that has become irrecoverable for as long as both vendors are members of the same group of companies. Section 22(6)(b) provides that for the purposes of both s 22(3A) and s 22(6)(a) a ‘group of companies’ means a ‘group of companies’ as defined in s 1 of the Income Tax Act if a company would be part of the same group of companies as another company if the expression ‘at least 70 per cent of the equity shares of’ in paras (a) and (b) of that definition were replaced by the expression ‘100 per cent of the equity shares of’.
This means that in 100% group situations a company that is owed an amount by another company in the same group of companies may not claim a bad debt for Vat purposes if the debt proves to be irrecoverable.
These changes are effective as from the date of promulgation of the Taxation Laws Amendment Act 24 of 2011, that is, 10 January 2012.