SARS VAT Rulings Process Guide

Reference Acts and Guides

Income Tax Act
Taxation Laws Amendment Act
Rates and Monetary Amounts and Amendment of Revenue Laws Act Tax
Administration Amendment Act

SARS published a guide (Issue 3) in November 2021 providing information and guidelines on the value-added tax (VAT) rulings process.

It sets out the steps to be followed when applying for a VAT class ruling or a VAT ruling (collectively referred to as a VAT ruling, or a ruling, unless the context indicates otherwise) and explains certain terms.

This guide does not deal with the process to be followed when applying for an advance tax ruling (ATR) that is, a binding class ruling or binding private ruling issued by the ATR unit, which process is also published on the SARS website. This guide also does not deal with the process to be followed in applying for a decision under section 72. Refer to Binding General Ruling (BGR) 56: Application for a Decision under Section 72 and VAT Section 72 Decision Process Reference Guide on the SARS website in this regard.

The issuing of a VAT ruling is governed by section 41B of the Value-Added Tax Act 89 of 1991 (VAT Act) read with Chapter 7 of the Tax Administration 28 of 2011 (TA Act).

Some definitions to note:

Non-binding private opinion: A non-binding private opinion provides informal guidance on the VAT treatment of a particular set of facts and circumstances or transaction. A non-binding private opinion does not have “binding effect” upon SARS. A non-binding opinion is issued under the ATR rules.

POA: A Power of Attorney that should accompany an application where a representative applies for a VAT ruling on behalf of an applicant, granting the representative permission to act on behalf of the applicant. In the case of co-applicants, a POA must be completed and submitted on behalf of every applicant. A specimen POA is available on the SARS website.

VAT301 form: An application form that accompanies the detailed VAT ruling application that is applied for under section 41B of the VAT Act. The VAT301 form is available on the SARS website.

VAT class ruling: A written statement issued by the Commissioner upon an application submitted under section 41B of the VAT Act read with Chapter 7 of the TA Act to a class of vendors or persons regarding the interpretation or application of the VAT Act. A VAT class ruling is binding on the Commissioner.

VAT ruling: A written statement issued by the Commissioner upon an application under section 41B of the VAT Act read with Chapter 7 of the TA Act regarding the interpretation or application of the VAT Act to a specific set of facts. A VAT ruling is binding on the Commissioner.

Rejection letter: A letter issued informing the applicant that the application did not meet the pre-acceptance and compliance requirements, or contains an issue for which the Commissioner for SARS (Commissioner) may reject an application under the TA Act.

Value-added tax ruling or a decision

A decision should be distinguished from a VAT ruling, the main distinction being that a VAT ruling pertains to the interpretation of the VAT Act whereas a decision constitutes the exercising of a discretion (see section 9 of the TA Act). Certain decisions are subject to objection and appeal as set out in section 32 of the VAT Act and section 104 of the TA Act. The SARS Guide lists a few examples explaining the differences between a decision and a ruling.

Value-added tax rulings application process

The process for issuing a VAT ruling involves a number of steps, beginning with the submission of a VAT ruling application and ending with the issuing of a VAT ruling signed by a designated senior SARS official. This part deals with the acceptable form and content of a VAT ruling application.

Form and content of a valid value-added tax ruling application

A completed and signed VAT301 form must accompany the VAT ruling application letter. Additional annexes listed in the VAT301 form as well as any other relevant supporting documents must accompany the VAT ruling application.

A POA (Power of Attorney) must accompany an application made on behalf of an applicant. A representative submitting an application on behalf of a class, should provide one POA signed by that representative, a list of the class members, their VAT numbers and one VAT301 form. Ensure that the period for which the POA is valid is sufficient to accommodate the completion and issuing of the VAT ruling. A new POA will be required should the POA expire before the VAT ruling is ready to be issued. Applications made on a “no-name basis” will not be accepted.

The application must contain the minimum information prescribed under section 79(4) of the TA Act, excluding sections 79(4)(f), (k), (6) and 81(1)(b). The information required is set out below:

Requirements of the application letter

The VAT301 form requires the applicant to declare that, amongst others, the –

• rejections under section 80 of the TA Act do not apply.
• applicant has complied with all the relevant tax obligations; and
• details contained in the application are true and accurate.

An application to use an alternative method of apportionment, must include the following information:

• A complete description of all the business activities, including whether or not income was received from such activities.
• Details of specific transactions that may impact SARS’s decision-making process (for instance, where interest is earned from investment or lending activities, the interest rates applicable or alternatives to be used if necessary in specific circumstances).
• A list of all income streams, including the value thereof, and whether or not such income results from various business activities carried on by the business. Also indicate whether those income streams are treated as taxable, exempt or out-of-scope for VAT purposes.
• Any possible changes to the business activities or income streams in the past or near future that may have an impact on the apportionment ratio.
• Annual Financial Statements for the past three years.
• A list of all expenses (including the values thereof) that are –

 directly attributed (that is, being applied wholly) to the making of taxable supplies;
 directly attributed (that is, being applied wholly) to the making of exempt supplies or for other non-taxable purposes (including income received that does not result from a supply made);
 subject to the requested apportionment method, that is, mixed expenses.

• A detailed explanation as to why –

 apportionment is required, that is, why expenses are regarded as being for mixed purposes;
 the standard turnover-based method in Binding General Ruling (BGR) 16 “Standard Apportionment Method” is considered not to be fair and reasonable in the circumstances, or why it is inappropriate;
 the proposed alternative method or methods that are considered to be more fair and reasonable or appropriate taking into account the specific circumstances of the enterprise.

• A clear indication as to the preferred apportionment method and a detailed analysis of every inclusion or exclusion in that method.
• The outcomes and analysis of at least two other apportionment methods considered (other than the one in BGR 16) or an explanation as to why any other methods of apportionment commonly used by vendors cannot be applied.
• Detailed calculations of the apportionment ratio for three consecutive years (from the latest information available) for the standard turnover-based method and the two alternative apportionment methods that have been considered. The calculation must clearly indicate how the numbers or values used in the calculations are determined.
• A statement in the ruling application as to whether input tax has been deducted in past tax periods using any method other than the one prescribed in BGR 16, and if so, from when that method was applied.
• A copy of any previous ruling(s) issued within the past five years permitting the vendor to use an alternative method of apportionment.
In the case of an application for re-confirmation of a previous apportionment ruling, the applicant is still required to submit Annual Financial Statements and calculations for the last three years. Where the other points listed above are covered in previous applications, the current application should refer to the previous applications, and attach same.

However, should any of the points listed above not be covered in previous applications, the information must be submitted as part of the current application.

Note: Any taxpayer information submitted is subject to the secrecy provisions under section 69 of the TA Act and will be kept strictly confidential. Any taxpayer information submitted through this channel may be used by SARS in the course of administering any tax Act.

Submitting the application

All applications for VAT rulings and non-binding private opinions must be submitted via e-mail to VATRulings@sars.gov.za or facsimile to 086 540 9390. Submissions received by any other means, for example, submissions dropped off at SARS branch offices or e-mailed to any SARS official, will not be accepted. A VAT ruling or non-binding private opinion will only be issued in respect of the interpretation of the law, in respect of a specific set of facts, circumstances or transactions.

Receipt of value-added tax ruling applications

On receipt of a VAT ruling application, SARS will conduct certain pre-acceptance and compliance requirements to determine whether the application can be accepted, where after the allocation process can commence. The purpose of this process is to ensure that the required documentation has been submitted and that all requirements are complied with.

Rejections under section 80(1)

Applications pertaining to the general application of the law as opposed to an interpretation difficulty or uncertainty in relation to a specific set of facts will generally not be accepted. This also applies to matters already explained in official publications, unless the said publication does not cater for the issue in the application. The following must therefore be considered before applying for a ruling:
• Is the answer to your question not clearly stated in existing official publications?
• Is the issue uncertain or complex in nature?
• Is it necessary to have formal legal certainty in the form of a VAT ruling?

Allocation of a successful application

Categories of value-added tax rulings

Once a VAT ruling application passes the pre-acceptance and compliance requirements listed above, the allocation process will commence. The VAT ruling application will be placed in a
specific category, that is, Basic, Involved or Complex. These categories indicate the complexity level of the VAT ruling application as well as the estimated number of business days it may
take to issue the VAT ruling, and are as follows:

Category and estimated time to complete

Basic 23 business days
Involved 52 business days
Complex 69 business days

It is important to take note of the above time lines when applying for a VAT ruling. Also allow enough time for possible delays, for example, where your application does not meet the pre-acceptance and compliance requirements resulting in a rejection, or further particulars are required in addition to the information you submitted.

New VAT ruling applications received during the period 17 December to 15 January will only be considered from 16 January onwards.

Letter of acknowledgement

A letter of acknowledgement will be issued by SARS in the case of a successful application.

The letter of acknowledgement will include the following:

• A unique reference number for the application.
• The name of the allocated SARS official responsible for drafting the VAT ruling (the drafter).
• The category of the VAT ruling application and the estimated completion date.

All correspondence regarding the ruling application must be made with the SARS official responsible for drafting the ruling as indicated in the letter of acknowledgement, and copied to VATRulings@sars.gov.za to ensure efficiency in communication.

Substantive review

Once all the information has been received, the drafter will proceed with the substantive review of the application. During this process, the drafter may request further additional information or a meeting to clarify certain aspects of the application. As stated above, the additional information must be submitted within prescribed time lines. Failure to submit the required information within the period stipulated in the request for additional information may result in the application being rejected under section 80(3) of the TA Act.

Meetings

During the substantive review process, meetings may be required to discuss and clarify the issues pertaining to the application. The applicant may be requested to update the application with additional facts disclosed during these meetings.

No meetings will be held with applicants on the merits or facts of a matter, before a ruling application has been accepted and allocated (that is, before the applicant has received the letter of acknowledgement. It will also be premature for SARS to indicate whether a VAT ruling outcome will be positive or negative, until the internal review processes have been finalised).

Negative value-added tax rulings

SARS will provide an applicant with an opportunity to make representations, before issuing a negative VAT ruling. The purpose of the consultation is to allow the applicant to clarify any facts, or to provide additional information supporting the facts originally given, which may result in a different interpretation of the VAT consequences. If, during the negative ruling consultations, it becomes apparent that the facts are different from those originally submitted during the VAT ruling application process, the applicant may be required to submit a new ruling application. The original application will accordingly be rejected on this basis.

The negative VAT ruling will generally be issued subsequent to the representations made. In respect of past and on-going transactions, the applicant may not withdraw the ruling application, subsequent to these consultations and representations.

A person cannot appeal against a negative ruling, or request a different outcome based on –

• the same set of facts.
• a change in the law where the negative ruling was based on the law applicable at the time the negative ruling was issued.

NOTE:

A third party can therefore not rely on a VAT ruling issued to another party, even where the facts of the transactions are the same.

A VAT ruling may also not be cited in any proceeding before SARS or the courts, unless that proceeding involves the applicant, or class member.

A non-binding private opinion does not have the binding effect envisaged in section 88 of the TA Act, but may be cited by the person, to whom the opinion was issued in any proceedings, including court proceedings.

Value-added tax ruling ceasing to be binding

A VAT ruling may in certain instances, cease to be binding on the Commissioner and be ineffective, or become void from the outset.

Some examples of instances in which VAT rulings have no binding effect from the outset are –

(a) the facts pertaining to the transaction are materially different from those given during your application, and on which the outcome of the ruling is based;
(b) fraud, misrepresentation or non-disclosure of material facts; and
(c) a condition or assumption stipulated by SARS in the VAT ruling is not met.

Some examples of instances in which a VAT ruling will lose its binding effect are subsequent –

(i) changes in the relevant tax laws; and
(ii) judicial decisions which contradict or overturn the ruling or principle upon which the ruling is based (unless the decision is on appeal).
The VAT ruling loses its binding status if any of the events above occur, regardless of whether or not SARS publishes a notice of the withdrawal or modification.

Advance tax rulings (ATR)

The differences between a VAT ruling, a decision under section 72 and an ATR, are discussed at length in the Guide.

Advance tax rulings are issued under Chapter 7 of the TA Act. A dedicated ATR unit deals with ATR applications, including VAT-related ATR applications, which should be submitted via eFiling. A taxpayer cannot submit an application for an ATR and a VAT ruling on the same issue simultaneously. In this instance, the application for a VAT ruling will be rejected. Refer to the Comprehensive Guide on Advance Tax Rulings for more details relating to ATRs.

This article is merely a summary of the recently published Guide; the reader is advised to read all 23 pages of the Guide to gain a complete understanding.

Author Craig Tonkin

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