This website uses cookies to ensure you get the best experience. If you continue to use this site without changing your cookie settings we assume you consent to the use of cookies on this site.

find an article

tax | 19 Nov 2019
BY Robert Gad , Megan McCormack AND Jo-Paula Roman
ENSight

tax


VAT implications of intra-group finance transactions

Recently, we have been asked to consider an often overlooked VAT exposure, namely, the potential taxable supplies involved in low or nil cost intra-group financing and security transactions.

Everyday intra-group financing arrangements such as, for example, provision of interest free loans, and the provision of intra-group guarantees, suretyships and/or subordination agreements, may constitute the supply of taxable services for VAT purposes, even if for no or low consideration.

These services may be deemed to be supplied for market value consideration in terms of section 10(4) of the VAT Act if:

  • the supplier and the recipient are “connected persons” in relation to one another; and
  • the recipient would not have been entitled to a full input tax credit in respect of the supply, had a market value consideration been charged (which is very often the case).

Careful, detailed analysis is required to determine the correct VAT treatment of affected intra-group financing transactions, having regard to the specific facts and profiles of the parties involved, in order to identify and mitigate potential leakage. This is an area which has thus far received surprisingly little and attention and guidance, and is an important area for consideration both in relation to existing, and future group finance arrangements.

 

Robert Gad
Executive | Tax
rgad@ENSafrica.com
+27 82 567 9082

 

Megan McCormack
Senior Associate | Tax
mmccormack@ENSafrica.com
+27 82 382 8963

 

Jo-Paula Roman
Associate | Tax
jroman@ENSafrica.com
+27 82 381 2069