South African VAT Consequences on Foreign Rebates
By Graeme Saggers and Simphiwe Mili, Nolands
The VAT consequences on rebates received from international companies is an issue not often considered. Very little legislation and case law exists governing the treatment of rebates received from international entities. Currently only binding general rulings provide for the treatment of local rebates in the Fast Moving Consumable Goods and the Motor industries.
A recent matter required research into the VAT consequences on rebates received by a South African resident company from a foreign unrelated company. The South African company operates as a printer and ink products retailer. The company purchases goods for resale from a South African subsidiary of the aforementioned foreign company.
The South African company in turn receives a volume-based rebate from the foreign company for the number of printers and ink products purchased from the South African subsidiary. The contentious issue in this case was whether there was the existence of a supply as the rebate was provided by the foreign company directly to the South African resident company, whilst the exchange of the goods was between the South African resident company and the subsidiary. There was no direct transaction between the South African company and the foreign company. There were also no defined terms to the rebate and hence its existence did not provide any real incentive to sell more products.
The conclusion was that there was VAT payable on the rebates received. This was due to the fact that even though the rebate was received from the foreign company it subsequently (however indirectly) decreased the price of the printers and ink products purchased from the local supplier. This would then constitute a local supply for VAT purposes.
Graeme SaggersNolands, more than 10 offices throughout Africa
T: +27 21 658 6600
Graeme Saggers is the Head of Tax for Nolands. He holds a BCom (Hons) degree from Rhodes University and a MCom (Tax) degree from the University of Cape Town. Graeme qualified as a Chartered Accountant in 2009 after completing his articles at KPMG. He joined Nolands in 2011 as an Audit Manager and was appointed as a Tax Partner at Nolands in September 2014.
Nolands is an international auditing firm located in eleven offices in all major centres in Africa. Nolands employs almost 200 people and is focused on providing the best possible solutions for its clients. The company prides itself on being “not ordinary” and on its ability to integrate services and respond rapidly to clients’ needs.
Simphiwe MiliNolands, more than 10 offices throughout Africa
T: +27 21 658 6600
Simphiwe Mili is a trainee tax consultant at Nolands. Simphiwe holds a BCom (Hons) degree in Tax from the University of Cape Town and is currently completing her Masters in South African Income Tax at the University of Cape Town.
Published: Winter 2017 l Photo: michaeljung - Fotolia.com