Foreign branches and VAT : eish!

• DOI: 10.10520/EJC-18c02472f7
• Date: 01 September 2019
• Published date: 01 September 2019
• Author: Des Kruger
• Pages: 10-17
• Record Number: btclq_v10_n3_a3

10 © SIBER INK

Foreign Branches and VAT:

EISH!

DES KRUGER*

ABSTRACT

South Africa would appear to be the only VAT jurisdiction that does not have

place-of-supply rules. Place-of-supply rules in essence determine whether a

supply by a taxable person (‘vendor’ in South African VAT parlance) is subject

to VAT in the jurisdiction where the taxable person is situated. For example,

the charge to tax in the New Zealand VAT law is on the supply of goods or

services in New Zealand. The New Zealand place-of-supply rules then deter-

mine in what circumstances a supply will be regarded as having been made

in New Zealand. By contrast, in South Africa one is required to determine

when and where a supply subject to South African VAT has been made, based

on whether the supply constitutes a supply by a vendor in the course or

furtherance of an enterprise carried on by that taxable person. Registration

for South African VAT is also dependent on whether a person can be said to

be carrying on an enterprise or not. The def‌inition of ‘enterprise’ is very broad

and may result in a South African vendor being required to account for VAT

on its worldwide supplies, which could be standard, zero rated or exempt

depending on the facts.

To complicate matters further, any branch or main business of an enter-

prise permanently situated at premises outside South Africa is deemed to be

carried on by a person separate from the vendor. In essence this means that if

a foreign branch of a local vendor is regarded as carrying on the local vendor’s

enterprise outside South Africa as a separate person, the supplies made by

the foreign branch are not those of the local vendor (main business) and as

a result no South African VAT implications arise in the local vendor’s hands.

However, while simple at f‌irst blush, the treatment of the foreign branch

as carrying on an enterprise as a separate person to the local vendor (main

business) gives rise to many complex issues. One of the most important of

these is the circumstances in which the foreign branch can be said to be

permanently situated at premises in the foreign jurisdiction, such that it is

regarded as a separate person. Does the foreign branch require staff and

equipment, or is it suff‌icient that the local vendor’s foreign enterprise activi-

ties are carried on by third-party suppliers or dependent agents? May supplies

made by local third-party vendors to the foreign branch that is regarded as

a separate person be zero rated? What of supplies made by local third-party

vendors to the foreign branch that is not regarded as a separate person to

the local vendor? These and many more complex issues are addressed in this

article.

* Consultant, Webber Wentzel.