Intermediaries – Funeral policies

It has been noted that vendors participating in the provision of services in the funeral industry are sometimes unsure of the VAT treatment of their supplies. In particular, vendors that provide selling and administrative services in connection with funeral policies supplied by long-term insurers, may be of the view that they make exempt supplies. The VAT legislation provides that the supply of a long-term insurance policy is exempt from VAT under section 12(a) read with section 2(1)(i). However, the supply by an intermediary, of administrative services in respect of funeral policies for a long-term insurer, is taxable and is subject to VAT at the standard rate under section 7(1)(a).

This principle was illustrated in the Tax Court case of IEA Taxpayer v Commissioner for the South African Revenue Service (VAT 1908 (21 June 2021)). In this case, it was found that the services supplied by an intermediary to a long-term insurer in administering funeral polices, do not qualify for an exemption. Section 2(1) lists certain supplies that qualify as exempt financial services under section 12(a). However, the proviso to section 2(1) states that if the consideration payable in respect of those listed financial services is “any fee, commission, merchant’s discount or similar charge…” then, to that extent, the service is not deemed to be an exempt financial service.

The appellant argued that since the proviso to section 2(1) does not refer to section 2(1)(i), it should follow that the fees it charged for administering the funeral polices for the long-term insurer should be exempt and not taxable as contemplated in the proviso to section 2(1). The court found that, whilst the appellant advances the services of the long-term insurer, it does so as an independent contractor. It was agreed that the VAT consequences must be determined with reference to the agreement between the appellant and the long-term insurer. In terms of that agreement, it was clear that the appellant’s services were merely administrative in nature. The services of the intermediary did not involve the supply of long-term insurance policies as those were supplies made by the long-term insurer. The activities of the appellant could therefore not be deemed to be financial services as contemplated in section 2.

Based on the above, it is important to have regard to the relevant contractual arrangements and identify who is supplying the long-term insurance policy. Intermediaries operating in the funeral industry should take note of this decision and check that they are treating their supplies correctly for VAT purposes. Qualifying taxpayers seeking to regularise their affairs are also encouraged to apply directly to the unit responsible for the Voluntary Disclosure Programme.



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