An interesting case relating to claiming input VAT was recently adjudicated on by the Western Cape High Court (ABC (Pty) Ltd vs Commissioner for SARS [2015] ZAWCHC 8) relating to the use of sponsorship agreements as a basis for claiming input VAT without tax invoices from the sponsor (despite having asked for it), when the same sponsorship agreement is used to determine the value of output VAT payable by the vendor.
Claiming input VAT
This case was an appeal against the judgment of the tax court dismissing the taxpayer’s appeal to that court brought in terms of Section 33 of the Value Added Tax Act 89 of 1991 (‘the VAT Act’) against certain assessments made by the Commissioner in respect of its liability to pay value added tax.
The appellant was liable to declare and pay output tax on the goods and services provided to the sponsors in terms of the aforementioned sponsorship agreements. Its failure to have done so was identified in the course of a tax audit. This resulted in the assessments in issue.
The appellant does not dispute its liability for output tax on the transactions. The matter in contestation is whether claiming input VAT should be allowed. Should it be entitled to offset that VAT liability with a deduction in respect of the input tax in respect of the ‘supplies’ made to it by the sponsors. The Commissioner had declined to allow any deduction of input tax in the particular circumstances.
Section 16(2) of the VAT Act sets out the principle underlying the right to claim input tax, as well as a series of circumstances where documents other than a tax invoice may be accepted by SARS.
The court found that SARS did not act reasonably by insisting that tax invoices from the sponsors are required to claim input tax, while it on the other hand uses the sponsorship agreements to determine output tax.
The court came to the conclusion that these sponsorship agreements were in the nature of barter transactions and that the value the parties attributed to each sponsorship transaction could be taken as its market value, when no other details are available. Although moneys and/or goods changed hands in the case, the input and output VAT values were assumed to be equal, creating a VAT neutral position for the VAT vendor.
A VAT-related article we also published recently:
Numerous interest articles on the issue of VAT and specifically Input VAT can be found on the internet. Here are only a few: