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Group reorganisations: How does the Vat relief work?

by , 03 January 2014
Planning to enter into a groupreorganisation transaction? If so, read on to find out how Vat relief works.

Did you know that the group reorganisation rules in the Income Tax Act (ITA) allow group companies, partnerships and connected persons to enter into restructuring transactions amongst themselves without adverse tax consequences?

That's right. In fact, you can find these rules in Sections 42, 44, 45 and 47 of the ITA.

Section 8 (25) of the Vat Act was introduced to give Vat relief where these group reorganisation rules are used.

Here's what you need to know about Vat relief when entering into a groupreorganisation transaction

The Practical Vat Loose Leaf Service explains that where a supplier and recipient elect to apply the group reorganisation rules to the disposal of assets, then for Vat purposes the supplier and recipient will be deemed to be one and the same person, provided they are both Vat vendors.

Since the supplier and recipient are deemed to be one and the same person, the disposal won't be a supply in the course or furtherance of a vendor's enterprise.

In other words, there will be no Vat consequences!

For this to apply, both the supplier and recipient must be vendors for Vat purposes.

Keep in mind that the term 'vendor' is not limited to persons registered for Vat but also includes persons who are liable to register for Vat.

Caution: Where Section 8(25) applies to the disposal of a business as a going concern, Section 11(1) (e) of the Vat Act (which zero rates a business sold as going concern) won't apply.

If you're planning to enter into a groupreorganisation transaction, make sure you know how Vat relief works. This will help ensure you're on the right side of Vat law.

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