Page 344 - Juta's Indirect Tax

IN 39 (2) VaLue-added tax act: InterPretatIOn nOtes IN 39 (2)
Government Gazette No. 22219 dated 9 April 2001 and Government Gazette No. 23463 which came into effect on 27 May 2002 de nes ‘division of revenue grants’ as:
‘allocations from the national government to provinces and local government as listed in the schedules to the
annual Division of Revenue Act, including transfers in terms of that Act.’
It followed from these provisions, that a ‘transfer payment’ (as de ned), did not include a grant, ‘equitable share’ distribution, ‘Municipal Infrastructure Grant’ or any other appropriation paid in terms of the DOR Act before 1 April 2005. Note, however, that section 40A was introduced to provide relief in the case of certain assessments raised because of this incorrect treatment. A similar provision in the form of section 40B was also introduced later to provide similar relief for payments made in terms of the DOR Act before 1 April 2005. (For more information on section 40B, refer to the VAT 419: Guide for Municipalities which is available on the SARS website).
In summary, a transfer payment which was zero-rated in terms of section 11 (2) (p) could be described as follows:
• It was an amount which had been budgeted for, and paid over to other institutions or persons by a public authority (i.e.
a payment is made by an entity in national or provincial government to a vendor); and
• The vendor receiving the payment did not provide any goods or services in return to the public authority itself. Instead,
it received the payment as nancial assistance from the state which was directed at supporting the enterprise activity
of that vendor as a whole so that the vendor could continue to make taxable supplies to its customers.
The term ‘transfer payment’ excluded –
• transfers to constitutional entities and individuals (non-trading entities);
• transfers in terms the DOR Act such as ‘equitable share’ distributions to provinces and local government as listed in
the schedules to the annual DOR Act, including transfers in terms of that Act;
• a transfer by a local authority or a public entity listed in the PFMA to a vendor (unless the local authority or public
entity is, in terms of an agreement, merely acting as the legal agent of the public authority concerned in disbursing that
payment); and
• payment for a speci c supply made to the public authority making the payment, or payment for a speci c (actual)
supply made at the instruction of the public authority to a third person.
Where a payment was made to a vendor by a public entity listed in Parts A & C of Schedule 3 to the PFMA in its capacity as the principal grant provider, that payment does not qualify as a ‘transfer payment’, and could therefore not be zero-rated in terms of section 11 (2) (p) in the hands of the recipient. Alternatively, it would not have been regarded as a receipt by that PFMA entity at all if it was merely acting as the agent as contemplated in section 54. Otherwise, if the public entity was not acting as agent on behalf of the public authority, it had to be established if the payment was in respect of an actual supply of goods or services in terms of section 7 (1) (a), or if the payment was unrequited. Refer to Annexure D for examples of transfer payments.
4.6 Section 8 (5) – Certain supplies of goods or services deemed to be made or not made upon receipt of payments
from public and local authorities
‘For the purposes of this Act ...’
The deeming provision contained in section 8 (5) is applicable only for the purposes of the VAT Act.
“...a vendor shall be deemed to supply services to any public authority or local authority...”
A vendor could under certain circumstances be deemed to supply a service to a public or local authority (that is, if any payment was received from the authority) where there is no actual supply of goods or services made in response to, or in respect of that payment in terms of section 7 (1) (a). Since ‘services’ means ‘anything done or to be done...’, the payment can relate to a taxable supply that had already taken place, or to a supply that was still to be made in the future.
“...to the extent of any payment made by the authority concerned...”
The services were deemed to be supplied when and to the extent that any payment was made by a public or local authority in respect of the taxable supply of goods or services by the vendor. This means, for example, that if a vendor quali ed for a grant for enterprise purposes which was payable in tranches over a period of time, the deemed supply only arises to the extent of the payments actually received by that vendor in the tax period and not the full amount of the subsidy at the time that it was approved or made available for payment by the public authority.
“... to or on behalf of the vendor...”
The payment did not necessarily have to be received by the vendor personally. The payment could also be made on that vendor’s behalf to the vendor’s agent, or other person who could have applied the payment for that vendor’s bene t. For example, payment could be made to another person to whom the vendor owed money, thus reducing or extinguishing that debt. Note, however, the earlier comments in 2.1 and at the end of this subparagraph about the uncertainty which was brought about by payments being made directly to third parties.
“... in respect of the taxable supply of goods or services by the vendor...”
There could only have been a deemed supply by a vendor to the public or local authority if there were two elements present, namely –
• the payment had to be made by a public or local authority; and
• there had to be a link between the payment and the purpose of making taxable supplies of goods or services by that
vendor to other persons.
In various income tax cases with regard to services rendered, the words ‘in respect of’ have been held to mean ‘...stands in a direct causal relationship to the services rendered by him’. In this context, there must have been a clear link between the purpose for which the payment was made by the public or local authority, and the application of those funds in the vendor’s enterprise which assists that person to make taxable supplies of goods or services to its customers. The payment could therefore not give rise to a deemed supply by the vendor in terms of section 8 (5) if the payment was in respect of exempt supplies, or other non-taxable supplies made by the vendor.
“... to any person”
The term ‘any person’ in this context means any person other than the public or local authority making the payment. In terms of section 6 of the Interpretation Act 33 of 1957, the term ‘any person’ (singular) could also mean ‘any persons’ (plural).
336 Juta’s IndIrect tax 2016