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Warranty payment from an offshore supplier

Monday, 03 March 2014   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

The answer to this query is based on legislation as at 2014/03/03.

Q: A South African vendor imports flooring and decking from a supplier in China.  After the shipment arrived in SA and some of the product was sold and installed at a customer's premises it was discovered that it was defective. The product was removed and discarded, and the vendor refunded the customer's payments. After lengthy correspondence the Chinese supplier refunded +/- R100 000 to the South African vendor.

Would you please let me know whether this +/- R100 000 "warranty" payment from the offshore supplier is considered to be a taxable supply for the South African vendor ie does the SA Vat vendor have to declare and pay Vat on this receipt? The only information which I have been able to find in this regard is an article which is more than ten years old. 

A: Section 8 of the VAT Act also provides for certain "deemed supplies”. These are events or transactions which are regarded as being included in the meaning of "supply”, for example – the receipt of an indemnity payment under a contract of insurance; the supply of the use, or right to use any goods; and the supply of goods or services under a warranty agreement. The South African Revenue Service (SARS) is of the view that where a RSA vendor supplies warranty repair services (including goods) in the RSA and the vendor receives a warranty payment from a foreign manufacturer/warrantor in terms of a warranty given by such foreign manufacturer, the warranty payment will be subject to standard-rate VAT.

I am not 100% certain that a service was supplied but rather that it is a repayment of the cost price of goods. I am of the view that one would have to be familiar with the agreement between the two parties before one can properly determine the nature of the transaction for VAT purposes. 



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