Page 777 - SAIT Compendium 2016 Volume2

PN 10/1991 VALue-Added TAx ACT: pRACTICe noTeS PN 11/1992
goods as described in paragraphs (i) to (iii) above, and is supplied by the same supplier as those transport
services.
Where a fee is charged for arranging the transport of goods the fee will be zero-rated if it is charged for arranging
an international transport service or a local transport service which forms part of an international transport service supplied by the same supplier. In order for the fee to qualify for zero-rating the supplier of the service must therefore as a minimum arrange the international transport service. A fee for arranging a local transport service will only qualify for zero-rating in those circumstances where the local transport service is supplied by the contractual supplier of the international transport service as part of the same contract.
Example 1:
A seller of goods in Japan ships goods to an importer in South Africa on a CIF basis. The importer approaches a
forwarding agent to arrange the clearance, release and delivery of the goods from Cape Town to his factory in Bloemfontein. The services of the forwarding agent will be subject to VAT at the standard rate of 10 per cent as he merely arranges the local transport services and ancillary transport services. The forwarding agent is acting in his capacity as an agent.
Example 2:
An exporter approaches a forwarding agent to arrange for his goods to be exported. The forwarding agent enters the
goods for export and arranges their loading on board a ship and the transport of those goods to Antwerp. The forwarding agent’s services are subject to VAT at the rate of zero per cent as he is arranging an international transport service. The forwarding agent is acting in his capacity as an agent.
6 GOODS OR SERVICES ACQUIRED ON BEHALF OF A FOREIGN PRINCIPAL
The general rule is that any goods or services supplied to an agent on behalf of his principal are supplied to the principal and not to the agent. The implication of this rule is that the principal and not the agent is entitled to claim an input tax deduction in respect of the supply of those goods or services. An important exception to this rule exists in the case of the international transportation of goods and related services.
In terms of section 54 (6) (b) (i), provided certain conditions are met, the agent acting on behalf of a principal, who is not a resident of the Republic and is not a vendor, may treat the supply of goods or services made to him on behalf of his principal as if the supply had been made to him. The implication of this is that the agent may claim a deduction of input tax in respect of supplies in his own hands and pass the costs of those goods or services on to his principal without any VAT.
The conditions which must be met are—
• the supply to the agent must be a taxable supply charged with VAT at 10 per cent; and
• the supply must be directly in connection with—
(i) the exportation of goods from the Republic to any country or place outside the Republic (other than a speci ed country or a place therein); or
(ii) the arranging of such an exportation; or
(iii) the importation of goods to the Republic from any country or place outside the Republic; or
(iv) the arranging of such an importation; or
(v) the transportation of such goods within the Republic as part of an exportation or importation as described above; and
• the agent and principal agree that the agent is to act as principal in relation to the supplies.
This arrangement is not available where an agent is acting for a principal who is a resident of the Republic or is
registered as a vendor.
The goods or services contemplated include—
• clearing services;
• freight;
• storage;
• preparation of documentation essential to the movement of the goods;
• insurance;
• packing;
• cargo inspections;
• stevedoring.
PRACTICE NOTE 11 of 1992 — VAT: TRANSPORT RELATED SERVICES
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
Various services are rendered in the Republic or the speci ed countries which are related to the transportation of goods but which may be distinguished from the services of transporting goods from one point to another and ancillary transport services. Transport services and ancillary transport services are services which are rendered directly in connection with
SAIT CompendIum oF TAx LegISLATIon VoLume 2 769