TEI comments on South African VAT registration requirements.

• Position: Value-added tax

On July 14, TEI submitted a letter to the South African Revenue Service (SARS) addressing new rules affecting foreign-based supplies of electronic services. The letter identified several areas where further guidance or amendments to the rules would assist businesses and SARS.

The letter was prepared under the aegis of TEI's European Indirect Tax Committee, whose chair is Jean-Francois Turgeon of Caterpillar SARL. Materially contributing to the development of TEI's comments were Julien Brugere of Time Warner Inc. and Lynne Clare of Sony Corporate Services Europe Ltd. Daniel B. De Jong, TEI Tax Counsel, coordinated the preparation of TEI's letter.

Amendments to the definition of "electronic services" in section 1(1) of the Value-Added Tax Act 1991 (act No. 89 of 1991) ("VATA 1991") went into effect 1 June 2014. The new rules will significantly change the current treatment of these supplies and will present challenges for both businesses and the South African Revenue Service ("SARS"). Tax Executives Institute ("TEI" or the "Institute") welcomes the publication of regulations and Binding General Rulings and, in particular, the Electronic Services Regulations R.221 published on 28 March 2014. This guidance clarified the scope of the digital products and services covered by the definition of "electronic services" and postponed the implementation of the new provisions until 1 June 2014. We remain concerned, however, that significant uncertainty and complexity still surrounds the practical implementation of the rules, which will adversely affect businesses using their best efforts to comply. This letter identifies areas where further guidance would assist businesses and SARS.

Founded in 1944 to serve the professional needs of business tax professionals, TEI is the preeminent association of in-house tax professionals worldwide. The Institute's 7,000 professionals manage the tax affairs of over 3,000 of the leading companies across all industry sectors around the world. TEI members are accountants, lawyers, and other corporate and business employees responsible for the tax affairs of their employers in an executive, administrative, or managerial capacity.

Many of these companies are involved in the sale, distribution, and purchase of digital products and services on a global basis. TEI members working for those companies, and other businesses, constantly monitor VAT developments around the world, including in South Africa. In respect of those rules, TEI espouses organizational values and goals that include integrity, effectiveness and efficiency, and dedication to improving the tax system for the benefit of taxpayers and tax administrators alike.

TEI believes it is critical to maintain a dialogue between businesses and revenue authorities to ensure release of necessary guidance on VAT rule changes before their effective dates. That guidance should focus on practical implementation and clearly describe how the rules should be applied. This ensures that businesses and SARS are interpreting the legislation in a similar fashion, thereby facilitating compliance, collection, and enforcement of the tax.

Recently, the European Union ("EU") developed systems and rules governing the VAT treatment of electronically delivered goods and services. Many of those rules will go into effect on 1 January 2015. TEI worked extensively with the European Commission on guidance interpreting amendments to the law that will make it easier for businesses to comply with the new rules and for EU Member States to administer them.

TEI's work with the European Commission was informed by experience with other jurisdictions in which TEI members already comply with similar rules. In particular, since 1 July 2011 Norway has been taxing sales of electronic services made by foreign (non-established) vendors to Norwegian customers through a simplified registration and collection system. The Norwegian system has generally been viewed as satisfying the demands of both the Norwegian tax administration and businesses. Unlike the EU, the Norwegian system was devised to deal with a single country, rather than a trading block, and it was even recommended as a model for taxing digital sales to final consumers during a plenary session of the OECD Global Forum on VAT held in Tokyo this past April.

References to the EU and Norwegian rules should not be read as inferring South Africa should simply duplicate regulations that have been designed for...