VAT case #847
What were the facts of the case?
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Mr. X owns four companies which all traded from the premises company A owns.
Company B, C and D all entered into lease agreements with company A, and company A issued tax
invoices for all the rentals owing under the leases.
Company B paid its rent to A, but C and D didn't actually use the space.
They had no employees, didn't pay any rent and didn't claim the VAT shown on the tax
invoices from company A.
SARS issued an assessment, despite no payment
SARS held that company A should've declared VAT on the rent due, but not paid, by C and D.
It issued an assessment for close to R1 million in penalties and over R200 000 in interest.
What happened next?
The vendor appealed, but the Tax Court dismissed it on the ground that when A issued the tax
invoices, a supply took place, and it didn't matter if A enforced payment of the rentals or not.
It also stated that even though C and D didn't claim input tax
, this didn't excuse A from declaring output tax
on the rent.
What can you learn from this case?
There are 4 lessons you can learn from this case. They are:
You must account for VAT as soon as supply takes place;
Declare output tax
on intercompany charges;
. Don't just ignore tax
Be careful how you treat intercompany expenses.
*To learn each of those points in more detail, get out your Practical VAT Loose Leaf Service
handbook and page over to chapter I 15: Intercompany expenses and VAT: AT Case Law #847,
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