CATEGORIES
- (47)Accounting & Financial Reporting
- (1)Accounting for Income Tax
- (1)Application of tax rates, s6(2) rebates
- (1)Assessed losses
- (10)Blogs
- (1)Business Advisory
- (8)Capital Gains Tax
- (1)Capital Gains Tax - Individuals Tax
- (1)Capital Gains Tax Implications of Trusts
- (2)Case study: Home office expense
- (1)Case study: Travel allowances
- (1)Company Formations
- (136)Corporate Tax
- (10)Customs and Excise
- (2)Deceased Estate
- (1)Deductions Pre-trade and prepaid expenses
- (1)Deregistration
- (2)Employer and Employee (PAYE and UIF Specific)
- (1)Estate Duty
- (1)Events / Webinars
- (11)Faculty News
- (2)Farming
- (168)Individuals Tax
- (1)Input - Customs Duty
- (3)Interest
- (18)International Tax
- (1)Nature of the rights of beneficiaries
- (1)Notional input tax
- (9)Payroll
- (2)Practical Payroll
- (2)Provisional tax (Link with other Taxes)
- (4)SARS Issues
- (156)Tax Administration
- (2)Tax Administration Part 2B: Resolving Problems with SARS using the Tax Ombud
- (1)Tax Administration Part 3B Dispute Resolution - Objection and appeal
- (3)Tax Dispute Resolution
- (1)Tax Opinions
- (3)Tax Update
- (1)Tax implications of loans to trusts
- (1)Tax residence
- (1)Tax returns and payments
- (3)Transfer-Pricing
- (1)Trust Income / Gain Allocations
- (1)Trust types and income allocations
- (10)Trusts
- (84)VAT
- (3)VAT periods
- (1)Wear and tear allowances
- (13)Wills, Estates & Succession
- (1)Zero Rated
- (2)eFiling
- Show All
Value-added tax: SARS takes away on take-away
- 06 May 2020
- VAT
- Ben Strauss
Thursday, 28 July 2016
Important:
This article is based on tax law for the tax year ending 28 February 2017.
Author: Ben Strauss
Recently the Cape Tax Court handed down an important judgment about value-added tax (VAT).
The taxpayer (D) was a registered VAT vendor. It operated a foods delivery business. D contracted with food outlets and restaurants to advertise their menus in booklets which D had printed and delivered to households.
Customers who wished to place orders for food phoned an operator at D’s premises who took the orders. D’s staff would then pass the details of the order to the relevant food outlet and despatch a driver to collect and pay for the food that had been ordered. The driver then delivered the food to the customer. D’s branding was on the drivers’ uniforms.
In the process, two amounts were charged:
- First, D charged the food outlets a commission calculated as a percentage of the price of the food bought by D for the customers.
- Second, on delivery, the drivers charged the customers a charge called "driver’s petrol money”. The drivers essentially were entitled to keep that money for themselves.
D duly charged VAT to the food outlets on the commission.
However, D charged no VAT on the delivery charges. The South African Revenue Service contended that D was obliged to charge VAT on the delivery charges on the basis that the delivery of the food was a supply of services by it.
D’s case was that it was not making the supplies for VAT purposes; the supplies were made by the drivers who were independent contractors and not employees of D. It contended that the only supplies it made were the administrative services of receiving the call, placing the order with the food outlet, and communicating the order to the drivers. D’s clients were not the customers who placed the orders; D’s clients were the food outlets to whom it charged the commission.
The court carefully analysed a number of foreign VAT cases that dealt with similar issues. The court then held that, based on the facts, a contract did arise between D and the customers who placed the orders. The position was not affected by the question of whether or not the drivers were independent contractors. The customers expected delivery by D, not a third party. The driver had no legal right to exact payment of the delivery charge from the customer; only D had that right. D provided the delivery services to the customers using sub-contracted drivers. It financed the delivery by recouping the delivery charges from the customers.
Accordingly, the court found that D had supplied services to the customers in the course of its enterprise for consideration and, so, was liable to charge VAT on the delivery charges.
The judgment particularly affects franchisees who often sub-contract drivers to do deliveries. However, it also sounds a warning to VAT vendors generally to ensure that they account for VAT correctly on all supplies, even if the ultimate consumer is removed from the vendor’s operations.
This article first appeared on cliffedekkerhofmeyr.com.