In February 2015 the South Atlantic Jazz Festival (Pty) Ltd successfully appealed a judgment of the Tax Court to the Full Bench of the Western Cape High Court (reported as ABC (Pty) Ltd v CSARS  ZAWCHC 8). That judgment dealt with documentary proof required by the Commissioner for SARS to substantiate input tax claims submitted by taxpayers for VAT purposes, and specifically the scope of the provisions of section 16(2)(f) of the Value-Added Tax Act, 89 of 1991.
Since the judgment documentary proof linked to VAT input claims have been a focus of Government, with both the subsequent amendment of section 16(2)(f) as well as the introduction of section 16(2)(g). Especially the latter provision is important here and deals primarily with what documentary evidence will suffice as substantiating proof for VAT input claims submitted by a VAT vendor in the absence of for example an invoice received from the supplier, a bill of entry or credit note. The question in ABC above for example was whether a signed agreement could under these circumstances suffice as substantiating proof for an input tax claim submitted.
Section 16(2)(g) now reads that “… in the case where the vendor, under such circumstances prescribed by the Commissioner, is unable to obtain any document required in terms of [section 16(2)] (a), (b), (c), (d), (e) or (f), the vendor is in possession of documentary proof, containing such information as is acceptable to the Commissioner, substantiating the vendor’s entitlement to the deduction at the time a return in respect of the deduction is furnished…”
SARS has now released a binding general ruling (BGR36) on 24 October 2016 dealing with those circumstances under which the Commissioner will allow a VAT vendor to use alternative documentary proof to substantiate the vendor’s entitlement to an input tax deduction as contemplated in section 16(2)(g). In order to obtain the Commissioner’s approval to use alternative documentary proof in substantiating a deduction under section 16(2)(g), a VAT vendor must apply for a VAT ruling or VAT class ruling.
In terms of the ruling, a VAT vendor may only apply for approval under section 16(2)(g) to rely on documentary proof, other than the documents prescribed under section 16(2)(a) to (f), if the vendor –
- has sufficient proof that it made reasonable attempts to obtain the documentary proof required by the Commissioner under section 16(2)(a) to (f);
- was unable to obtain and maintain the documentation prescribed under section 16(2)(a) to (f) due to circumstances beyond the vendor’s control (see below); and
- no other provision of the VAT Act allows for a deduction based on the particular document in the vendor’s possession.
BGR36 continues to list those circumstances when it would be considered to have been beyond the VAT vendor’s control to provide the otherwise required documentation:
- When the supplier has failed to issue a tax invoice, debit note or credit note to the VAT vendor;
- Where the supplier was contacted but failed to respond to the vendor’s request to be furnished with a complete tax invoice or correct document;
- The supplier or vendor’s place of business has suffered damage as a result of for example a natural disaster, causing damage to its accounting records, with no possibility of the said records being retrieved or re-issued; or
(d) The supplier has been deregistered as a vendor.