Understanding the VAT Consequences of the Agent-Principal Relationship in South Africa

• The common law relationship between a principal and an agent determines the VAT consequences of their legal relationship.
• When a person acts as an agent and supplies goods or services on behalf of a principal, the supply is deemed to be made by the principal.
• When a third-party supplier makes a supply to an agent acting on behalf of a principal, that supply is deemed to be made to the principal.
• The principal, not the agent, is responsible for accounting for VAT on the supplies.
• In a recent case, a vendor was allowed to apply a zero VAT rate to the commission it charged to foreign tour operators for assembling tour packages.
• The court ruled that it was sufficient for the vendor to show that keeping commissions confidential is common practice in the industry.
• The court criticized the South African Revenue Service’s approach and granted an order for the vendor’s legal costs.
• It can be difficult to determine whether a person acts as an agent or a principal, especially in cross-border supplies and services provided by tour operators and travel agents.
• Amendments have been made to clarify the VAT status of supplies by tour operators, but courts are still ruling on whether local travel agents’ supplies to foreign tour operators qualify for the zero rate.

Source: cliffedekkerhofmeyr.com

Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.

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