“Consortium or Joint Venture” – Definition: an association of persons for the purpose of combining their expertise, property, capital, efforts, skill and knowledge in an activity for the execution of a contract. How should the VAT be treated, where an invoice was supplied for goods or services rendered by a joint venture, using only the VAT number and banking details of one of the vendors to the joint venture? * National Treasury published the draft Tax Administration Laws Amendment Bill, 2018 (TALAB) on 16 July 2018. The TALAB includes the legislative amendments for the more complex tax proposals that were announced in the 2018 Budget Review on 21 February 2018.

THE LAW: VAT Act No.89 of 1991 Section 1 – Definitions

“enterprise” means –

•   in the case of any vendor, any enterprise or activity which is carried on continuously or regularly by any person in the Republic or partly in the

Republic and in the course or furtherance of which goods or services are supplied to any other person for a consideration, whether or not for profit, including any enterprise or activity carried on in the form of a commercial, financial, industrial, mining, farming, fishing, municipal or professional concern or any other concern of a continuing nature or in the form of an association or club; “vendor” means – any person who is registered, or who is required to be registered under this Act: Provided that where the Commissioner has under section 23 or 50A determined the date from which a person is a vendor, that person shall be deemed to be a vendor from that date; In terms of Section 23(2), “Every person who is not a resident of the Republic, and who in terms of subsection (1) or section 50A, becomes liable to be registered in accordance with Chapter 3 of the Tax Administration Act, shall be deemed not to have applied for registration, in addition to section 22(4) of the Tax Administration Act, until such person has –

• opened a banking account with any bank, mutual bank or other similar institution, registered in terms of the Banks Act, 1990 (Act No. 94 of 1990), for the purposes of his or her enterprise carried on in the Republic and furnished the Commissioner with the particulars of such banking account.”

Where the Commissioner is satisfied that any person who has applied for registration in terms of subsection (3), is not eligible to be registered in terms of this Act, or should not be registered by reason of the fact that such person –

• has not opened a banking account with any bank, mutual bank, or other

similar institution for the purposes of any enterprise carried on by him, the Commissioner may refuse to register the said person as a vendor in terms of this Act and shall give written notice to that person of such refusal. * Amendment of section 51 of Act 89 of 1991 Section 51 of the Value-Added Tax Act, 1991, is hereby amended by the substitution of subsection (3) of the following subsection: 3) Subject to the provisions of section 46, every member of a partnership or joint venture shall be liable jointly and severally with other members of the partnership or joint venture for performing the duties of the partnership or joint venture in terms of this Act and paying the tax imposed by this Act on the partnership or joint venture in respect of supplies made by the partnership or joint venture while such member was a member of the partnership or joint venture…

APPLICATION OF THE LAW

Two joint ventures (comprising of bodily members) appointed by a Municipality, were not registered for VAT as a joint venture. With reference to sections 51(1) and section 1 of the VAT Act, No.89 1991, joint venture enterprises are regarded as separate entities for VAT. Accordingly, joint ventures should comply with the following requirements (as summarised):

• Retain its own records for accounting purposes;
• Have its own registered transacting bank account;
• Be registered for VAT in its own capacity as a joint venture;
• Issue and receive invoices in the name of the joint venture.

Furthermore, with specific reference to the definition of an Enterprise, two entities not meeting the abovementioned requirements, do not qualify to be jointly registered for VAT purposes. It should be noted that while appointing a joint venture to provide goods or services, where a Municipality effected payment to the bank account of one of the members of the joint venture as indicated on the relevant invoice, the VAT number for that Vendor should be used to recover VAT. By this token, the essence of the joint venture agreement was compromised and the VAT liability together with the corresponding input tax credit is in relation to the vendor of the joint venture and not the ‘joint venture’ itself.

CONCLUSION

With reference to the Draft Amendment to Section 51(3) of the VAT Act, it can be interpreted that SARS will recover the Output VAT from one of the Joint Ventures, or from both, should the Joint Venture fail to comply with Section 23(2) of the VAT Act. Written by Dano Wepener HOD: Public Sector MaxProf