Payment : the VAT and dividends tax magic bullet

• Pages: 13-19
• Author: Des Kruger
• DOI: 10.10520/EJC-13484d9db3
• Date: 01 December 2018
• Record Number: btclq_v9_n4_a4
• Published date: 01 December 2018

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Payment:

THE VAT AND DIVIDENDS TAX MAGIC BULLET

DES KRUGER*

ABSTRACT

The meaning of ‘paid’, both in relation to value-added tax (‘VAT’) and divi-

dends tax, is very important in determining a liability for the relevant tax. In

the case of VAT, a failure to pay the full consideration for a taxable supply

within a period of 12 months from the end of the tax period in which the

vendor has claimed an input tax deduction results in the vendor having to in

effect recoup the VAT claimed — by having to account for a similar amount of

output tax in respect of a deemed taxable supply.

In the case of a dividend that is not a dividend in specie, a listed company

must account for the relevant dividends tax when the dividend is ‘paid’, while

in the case of an unlisted company the tax must be accounted for on the

earlier of the date on which the dividend is ‘paid’ or the date on which it

becomes due and payable. In the case of a dividend in specie, the tax must be

accounted for on the earlier of the date on which the dividend is ‘paid’ or the

date it becomes due and payable.

Where payment is effected in cash or by means of set off, it seems clear

that the contractual obligation in respect of the purchase consideration is

discharged, that is, payment has been effected, once the cash has been paid

to the debtor or set off by operation of law has taken place. More problematic

has been the situation where the debt has been credited to a loan account in

favour of the creditor.

The author considers the various judicial pronouncements on the meaning

of ‘paid’ and concludes that the mere crediting of a loan account in favour

of a creditor is merely an acknowledgment of the indebtedness and should

not per se be regarded as ‘payment’ of the debt (i e the crediting of the

loan account does not discharge the indebtedness). However, the author

argues that it is clear from an analysis of the cases dealing with this issue that

where the parties consent that the debt obligation will be discharged by the

creation of a loan obligation in favour of the creditor (i e the debt obligation

is discharged by the crediting of a loan account), payment of the debt has

been made — both for VAT and dividends tax purposes. Absence such explicit

consent, the crediting of a loan account in favour of the creditor does not

constitute payment of the debt.

Introduction

A vendor who accounts for VAT on an invoice basis is generally entitled to

claim input tax deductions in relation to value-added tax (‘VAT’) incurred

on the acquisition of goods or services for the purpose of making taxable

supplies (def‌inition of ‘input tax’ in section 1(1), read with section 16(3)(a),

* Consultant, Webber Wentzel.