Proposed Taxation Law Amendments - What to expect
The National Treasury has published the 2019 draft Taxation Laws Amendment Bill (TLAB). It covers specific provisions that required additional consultation and feedback from various stakeholders.
Some of the notable proposed Value Added Tax (VAT) amendments relate to the inclusion of the transfer of ownership of long-term insurance policies, refinement of the VAT corporate reorganisation rules, and provisions dealing with arrangements and decisions by the South African Revenue Service (SARS) to overcome anomalies or incongruities caused by the application of the provisions of the VAT Act.
Other amendments relate to the VAT treatment of foreign donor funded projects.
Treatment of long-term reinsurance policies
Proposed amendments related to the treatment of financial services so that they include the transfer of ownership of long-term reinsurance policies is widely welcomed and no further commentary was provided to treasury and SARS.
Under the amendment, the transfer of a long-term reinsurance policy is specifically considered a ‘financial service’. The proposed amendment will remove all uncertainty that existed as to whether the transfer of such a policy is an exempt financial service.
On promulgation of the proposed amendments, all transfers of long-term reinsurance policies will be treated as an exempt supply.
VAT corporate reorganisation rules
The TLAB includes proposed VAT amendments related to the transfer of company assets between entities within the same group of companies. Under the proposals, there will be no VAT impact on transactions involving the transfer of fixed property that is leased back to the supplier of the property on completion of the transfer thereof. The supplier and recipient of the fixed property must agree in writing that immediately after the supply, the supplier will lease the fixed property from the recipient.
This amendment will address the unintended VAT cost that arises where a partially taxable business is transferred. No VAT would arise on the transaction in question as the supply is a non-event for VAT purposes.
This amendment, when promulgated, will address adverse cash-flow consequences within a group of companies with regard to fix property transfers.
Section 72 rulings
The Commissioner for SARS may issue a ruling under Section 72 of the VAT Act to provide guidance for a VAT vendor or class of vendors with respect to the appropriate VAT treatment of certain transactions. The proposed amendments include a requirement that the Commissioner may only issue a Section 72 VAT ruling or VAT class ruling if the Commissioner believes similar difficulties, anomalies, or incongruities have arisen, or may arise, for another vendor or class of vendors.
The impact of this proposed amendment with respect to all Section 72 decisions issued prior to the 2019 TLAB has not been clarified. All decisions the Commissioner for SARS has already issued contain a provision that the decision is valid for as long as there is no amendment to the applicable legislation. Therefore, the proposed amendment could have an undesirable effect in that all previous Section 72 decisions may become invalid from the date the proposed amendment is promulgated. This could result in many current business models and accounting systems not complying with the VAT legislation and it could be costly to comply with.
VAT treatment of foreign donor funded projects
Proposed amendments clarify who must register a foreign donor funded project (FDFP) for the purposes of VAT.
The FDFP definition is amended to provide that approval must be obtained from the Minister of Finance. This requirement could be problematic because with all ministerial approvals there will be anticipated delays, irrespective of the streamlined process involved. Delays in such approvals could place the FDFP in jeopardy.