VAT and partnerships

• Jurisdiction: South Africa
• Author: Des Kruger
• DOI: 10.10520/EJC-b6a21e1cb
• Published date: 01 December 2017
• Date: 01 December 2017
• Record Number: btclq_v8_n4_a2
• Pages: 1-7
• Published By: Siber Ink

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© SIBER INK

VAT and Partnerships

DES KRUGER1

ABSTRACT

The question of whether a partnership constitutes a separate person under

the South African Value-Added Tax Act is a moot point. This article considers

the arguments for and against the treatment of a partnership as a separate

person for value-added tax (VAT) purposes and concludes that while the

answer may be that a partnership is in fact treated as a person separate from

its members where the partnership carries on any enterprise as defined in

South Africa, in all other cases the partnership is transparent — as in the case

under the Income Tax Act. While the South African VAT law may have tried

to mimic the New Zealand provisions relating to partnerships and VAT, the

author notes that in the New Zealand VAT law a partnership is specifically

included in the definition of ‘person’ — unlike the South African definition.

The determination of whether a partnership is transparent or a separate

person for purposes of the VAT Act is crucial in any analysis where the nature

of the recipient of a supply is determinant of the taxation of the supply made

to the partnership. The article considers the application of the zero rating

provisions of section 11(2)(l) of the Value-Added Tax Act in the context of a

partnership having both resident and non-resident partners, and notes that

the outcome may be very different if one considers whether the recipient of

the relevant supplies is the partnership or the individual partners.

Introduction

It is trite law that a partnership is a legal relationship based on contract

and is at common law not a separate legal entity distinct from the partners.

From an income tax perspective, a partnership is transparent (a partner-

ship does not fall within the definition of ‘person’ in section 1(1) of the

Income Tax Act, 1962 (‘the IT Act’ — see below), and the tax treatment of

the partners is in effect provided for in section 24H of the IT Act. From an

income tax perspective, the common receipts and accruals of the partner-

ship are treated as having been received by or accrued to each partner indi-

vidually, and any deductions or allowances which may be granted under

the IT Act are deemed to be granted to each partner on the same basis

(subject to a limitation in the case of limited partners).

‘Person’ is defined in the IT Act as including an insolvent estate, the

estate of a deceased person, any trust and any portfolio of a collective

investment scheme. It is apparent therefore that the starting point in deter-

mining whether a partnership constitutes a person under the IT Act is a

consideration of the definition of ‘person’ in the Interpretation Act 33 of

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Consultant, Webber Wentzel Attorneys.