South Africa – Ruling on alternative documentary proof for VAT purposes

On 19 September 2016, the South African Revenue Service (SARS) issued a draft binding general ruling (draft BGR) on the circumstances prescribed by the Commissioner [for SARS] for the application of section 16(2)(g) for (second round of) public comment. The draft BGR prescribes the circumstances under which the Commissioner will allow a vendor to use alternative documentary proof to substantiate the vendor's entitlement to a deduction under section 16(3).

The BGR is made under the Value Added Tax (VAT) Act No. 89 of 1991, and covers the following:

(a) Circumstances prescribed by Commissioner where the vendor is unable to obtain the requisite documentation

A vendor may only apply for approval under section 16(2)(g) to rely on documentary proof, other than the documents prescribed under section 16(2)(a) to (f) if the vendor:

has sufficient proof that it made reasonable attempts to obtain the documentary proof required by the Commissioner under section 16(2)(a)-(f) from the supplier;
was unable to obtain the prescribed documentation due to circumstances beyond the vendor's control (see (b) below); and
no other provision of the VAT Act allows for a deduction based on the particular document in the vendor's possession.

(b) Circumstances beyond the vendor's control

The circumstances beyond the vendor's control may include, but are not limited to, the following:

the supplier fails to issue a tax invoice;
the supplier was contacted but failed to respond to the vendor's request(s) to be furnished with a complete tax invoice or correct document;
the supplier's place of business has suffered damage as a result of, for example, a natural disaster, vis major; criminal activity or fire, causing damage to its accounting records, with no possibility of the said records being retrieved or re-issued; and
the supplier has been deregistered as a vendor.

(c) The vendor's application for a VAT ruling

In order to obtain the Commissioner's approval to use alternative documentary proof in substantiating a deduction under section 16(2)(g), a vendor must apply for a VAT ruling or VAT class ruling under section 41B.

An application must be sent in prescribed format to the prescribed address and must demonstrate that the vendor falls under the circumstances prescribed under (a) above, together with the relevant proof and the details of the alternative documentary proof the vendor seeks to rely on in order to support the vendor's entitlement to make the deduction. In this regard, a clearly motivated application complying with the provisions of section 79 of the Tax Administration Act (TAA) No. 28 of 2011, excluding section 79(4)(f) and (k) and (6), must be submitted.

A deduction under section 16(2)(g) may only be made where the vendor is in possession of the relevant approval granted by the Commissioner as well as the relevant documents at the time the return is submitted in which the deduction is made.

(d) Validity

The BGR will apply in respect of tax periods commencing on or after 1 April 2016 until it is withdrawn, amended or the relevant legislation is amended.

Comments are invited to be submitted by 3 October 2016.

Note 1: This ruling constitutes a BGR issued under section 89 of the TAA.

Note 2: See South Africa-3, News 19 September 2016 for earlier reporting.

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