Page 301 - Juta's Indirect Tax

PN 7/1991 VaLue-added tax act: PractIce nOtes PN 10/1991
the exempt passenger transport service. If the fee is not apportioned, the full amount of the fee is subject to VAT at the standard rate.)
Where a transport operator ‘A’ furnishes a bus and driver to provide a bus tour packaged and sold by ‘B’, the consideration charged by both ‘A’ and ‘B’ will usually be exempt for apportioned). (See paragraphs 2.3 and 2.4.)
4.4 Airport/hotel transfer — the transport of patrons to and from, for example, an airport by a hotel or equivalent supplier, provided a speci c fee is charged for the service. Where the service is provided as a courtesy to patrons without a speci c amount being charged, the hotel will not be regarded as supplying exempt passenger transport.
Transport of employees/pupils — the transport of employees or pupils on behalf of an employer or school, irrespective of whether the consideration charged by the operator is a xed amount or a variable amount based on the number of employees actually transported. (This, of course, must be distinguished from the case where the employer hires the vehicle and undertakes the transport of the employees himself.) (See paragraph 2.2.)
PRACTICE NOTE 10 OF 1991 — VAT: INTERNATIONAL TRANSPORTATION OF GOODS AND RELATED ACTIVITIES
ISSUED BY
DEPARTMENT OF FINANCE
DIRECTORATE: INLAND REVENUE
OFFICE OF THE COMMISSIONER FOR INLAND REVENUE General Notice 722 published in Government Gazette 14210 of 14 August 1992 (SECTION 11 OF THE ACT)
1 INTRODUCTION
The supply of any international transport service usually involves more than one party and various goods or services are supplied in order to effect the movement of goods from one point to another. It is important for any person involved in the supply of transport services, ancillary transport services and the arranging thereof to determine what service he is rendering and in what capacity he is acting. The determination of what service is being rendered will determine at what rate VAT must be charged on that service, i.e. whether at the standard rate of 10 per cent or at zero per cent. The determination of the capacity in which he is acting will determine in which manner any VAT charged by other parties involved in the entire transport chain should be treated.
In order to determine what service is being rendered it is essential to examine the terms of the contract between the supplier of the service and the recipient of the service.
In order to determine the capacity in which a person is acting the contractual relationship between that person and his client must be examined. The person supplying transport services, ancillary transport services or arranging these services will often need to involve other parties in order to render his total service. He may contract with these parties as a principal or as an agent on behalf of his client.
The name or style under which such a person carries on his trade is irrelevant. The contractual relationship between his client and himself is the determining factor. Where the person enters into contracts with other parties in his own name and upon his own liability and responsibility he is acting as a principal. Any goods or services supplied to him in order to enable him to render his service will give rise to an input tax deduction in his hands. When, in addition to the charge for his own service, the costs of these goods or services are passed onto his client, whether a pro t margin is added to these costs or not, the rate of VAT applicable to his total service is determined by the nature of his own service. The itemising of the various goods or services acquired in order to render his service does not affect this principle.
Where the person acts as an agent on behalf of his client any goods or services acquired on half of his client will not give rise to an input tax deduction in his own hands and the costs of the goods or services, including any VAT charged by the supplier of those goods or services, will be passed onto his client. Depending on the client’s circumstances the VAT charged on the goods or services may give rise to an input tax deduction in the client’s hands. Where the person enters into contracts for the supply of goods or services to his client on his client’s behalf and upon his client’s liability and responsibility he is acting as an agent. There is one exception to the rule that an agent cannot obtain an input tax deduction in his own hands in respect of goods or services acquired on behalf of his principal. This exception is dealt with in paragraph 6 of this practice note.
2 INTERNATIONAL TRANSPORT SERVICES
In terms of section 11 (2) (a) of the Act, the supply of the service of transporting goods is zero-rated provided—
• the goods are transported from a place outside the Republic and the speci ed countries to another place outside the
Republic and the speci ed countries; or
• the goods are transported from a place in the Republic or a speci ed country to a place in an export country; or
• the goods are transported from a place in an export country to a place in the Republic or a speci ed country.
The afore-going provisions apply only to the service which comprises the transportation of the goods. Any other services rendered in connection with the transportation of goods such as packing, loading, stevedoring, container handling, cargo inspection, preparation of documentation etc. are incidental or subsidiary to the service of the transportation and are not covered by the rules in this paragraph.
2.1 Transportation of goods from a place outside the Republic and the speci ed countries to another place outside the Republic and the speci ed countries
In order to qualify for a zero-rating the point of origin of the transport of the goods must be located outside the Republic and the speci ed countries and the point of destination of the transport of the goods must be located
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