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Must a vendor agent charge VAT on artwork sold on behalf on a non-vendor principal?

Tuesday, 26 May 2015   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

Q: My client is a VAT Vendor. He has a high end jewellery store. An artist has consigned artwork to him to sell on her behalf. The artist is not a vat vendor. Is my client entitled to only account for VAT on the commission he earns when he sells the artist’s work? If he adds VAT to the full selling price, she can't deduct any input vat as the artist is not a vat vendor.

A: From the facts provided we accept that the agreement is in fact one whereby the client acts as an agent for the artist (the principal).  The parties bear the onus to prove this.  

The ‘sale of the consigned artwork’ is therefore not a supply by the client.  Section 54(1) of the Value-Added Tax Act deems the supply made by an agent of a principal to be made by the principal.  The parties can only agree otherwise if the principal is also a vendor (not applicable in this case).  

The client will therefore only levy output tax on the commission charged on the sale of the goods.  The client may have to indicate to recipients (customers) that the supply of the art work is not a taxable supply and that no output tax applies to that supply.  

Disclaimer: Nothing in this query and answer should be construed as constituting tax advice or a tax opinion. An expert should be consulted for advice based on the facts and circumstances of each transaction/case. Even though great care has been taken to ensure the accuracy of the answer, SAIT do not accept any responsibility for consequences of decisions taken based on this query and answer. It remains your own responsibility to consult the relevant primary resources when taking a decision.



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