ENHANCING THE CERTAINTY AND CONSISTENCY OF THE VAT TREATMENT OF SUPPLIES MADE FOR NO CONSIDERATION

Abstract

Value-Added Tax (VAT) is a key revenue stream and plays a pivotal role in the South African fiscus. Although consideration is crucial to determine the VAT treatment of any supply, it is common practice for vendors to also make supplies for no consideration. Despite the South African Revenue Service issuing Interpretation Note 70 (already in its second issue) to provide guidance to vendors regarding the VAT treatment of supplies made for no consideration, uncertainty regarding the practical application of the South African VAT legal framework to supplies made for no consideration continues to prevail. This paper reports on a study that sought to identify criteria required in support of a clearer, more consistent and regulated VAT treatment of three types of supplies made for no consideration, namely (i) dividend distributions, (ii) corporate social responsibility expenditure and (iii) donations to welfare organisations. A qualitative research approach was adopted, whereby a literature review and comparative research were employed to analyse the South African VAT treatment of the three types of supplies for no consideration in comparison with the United Kingdom and Australia. Two VAT aspects were identified to correctly determine the VAT treatment of supplies made for no consideration, namely whether the supplying vendor obtains any benefit or advantage (i.e., any consideration) in return for the supply and whether the supply is made in the course or furtherance of any enterprise. The analysis highlighted a lack of existing criteria to assist with distinguishing between a supply made for consideration and a supply made for no consideration, and how to classify each supply as a taxable supply or a change in use supply for VAT purposes. Criteria deduced from the United Kingdom and Australia are recommended for implementation by the South African tax regulator that might assist in correctly determining the South African VAT treatment of supplies made for no consideration in a clearer, more consistent and regulated manner.