Abstract
The issue, allotment or transfer of ownership of shares in a company is specifically included in the activities listed in the Value-Added Tax Act as financial services, which are exempt from VAT. Securities lending transactions involve the transfer of securities into the name of the borrower and are therefore also exempt from VAT. Similarly, the issue of debentures or similar debt instruments, the issue, allotment or transfer of ownership of units under a collective investment scheme and the transfer of debts, whether transferred under a securitisation arrangement, financing agreement or a commercial contract, constitute financial services exempt from VAT. Any consideration payable in the form of an explicit fee or commission in relation to such activities is deemed not to be a financial service and is subject to VAT. The provision or transfer of ownership of a long-term insurance policy or the provision of reinsurance for any such policy constitutes an exempt financial service; and so is the buying and selling of derivatives and the granting of options, but the supply of the underlying goods or services under a derivative are deemed to be a separate supply at the open market value thereof. Ancillary services rendered in relation to the supply of financial services, such as brokerage and advisory fees, are subject to VAT. Input tax may be deducted only to the extent that taxable supplies are made in terms of a prescribed revenue-based apportionment formula, unless written approval is granted to apply a different method.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Similar content being viewed by others
Notes
- 1.
See, for example, Standard Bank of South Africa Ltd and others v. Ocean Commodities Inc and others 1983 (1) SA 276 (A) at 288H, in which Corbett JA said: ‘A share in a company consists of a bundle, or conglomerate, of personal rights entitling the holder thereof to a certain interest in the company, its assets and dividends’. See also Kommissaris Van Binnelandse Inkomste v. Sive se Boedel 1963 (3) SA 847 (A) at 849A.
- 2.
Randfontein Estates Ltd v. The Master, 1909 TS 978, at 981; Liquidators, Union Share Agency v. Hatton, 1927 AD 240, at 250–251.
- 3.
Companies Act 71 of 2008 (SA), s. 1, definition of ‘shareholder’.
- 4.
Value-Added Tax Act 89 of 1991 (SA), s. 2(1)(d).
- 5.
Value-Added Tax Act 1991, s. 12(a).
- 6.
Value-Added Tax Act 1991, s. 2(2)(iv). The Securities Transfer Tax Act, 2007 calls for securities transfer tax to be levied on the transfer of securities. The Securities Transfer Tax Administration Act, 2007 contains the administration provisions governing the payment of securities transfer tax.
- 7.
The Companies Act, s. 1, defines the term ‘share’ as meaning one of the units into which the proprietary interest in a profit company is divided; and the term ‘shareholder’ as the holder of a share issued by a company and who is entered as such in the certificated or uncertificated securities register, as the case may be.
- 8.
It is submitted that there is no real difference between the terms ‘equity security’ and ‘equity share’, which is defined in the Income Tax Act 58 of 1962 as a share in a company, excluding any share that, neither as respects dividends nor as respects returns of capital, carries any right to participate beyond a specified amount in a distribution.
- 9.
Case No. VAT 382, Tax Court (Cape Town) 13 June 2011, paras. 63 and 71.
- 10.
See also the Explanatory Memorandum on the Taxation Laws Amendment Bill, 1996, p. 9.
- 11.
A partnership, in terms of the definition of ‘person’ in section 1, is a separate legal persona in its own right, distinct from the partners, and thus a separate registrable entity for VAT purposes. The disposal by a partner of his or her interest in a partnership and the concomitant transfer of the partnership interest, however, will not constitute a supply in the course or furtherance of any enterprise he or she may be carrying on, since the partnership is regarded as a distinct enterprise and can therefore not form part of the partners’ other enterprises.
- 12.
See TCT Leisure (Pty) Ltd v. C: SARS (2010) 3 All SA 325 (SCA), 72 SATC 187.
- 13.
Wessels ACJ in Kilburn v. Estate Kilburn 1931 AD 501 at 507.
- 14.
See, e.g., Value-Added Tax Act 1991, s. 73.
- 15.
(2010) 3 All SA 325 (SCA), 72 SATC 187.
- 16.
TCT Leisure (Pty) Ltd v. C: SARS (2010) 3 All SA 325 (SCA), 72 SATC 187 at 190.
- 17.
TCT Leisure (Pty) Ltd v. C: SARS (2010) 3 All SA 325 (SCA), 72 SATC 187 at 191.
- 18.
A ‘cheque’ is defined in section 1(1) of the Value-Added Tax Act to mean a bill drawn on a bank payable on demand, a postal order, a money order, a traveller’s cheque, or any order or authorisation (whether in writing, by electronic means, or otherwise) to a financial institution to credit or debit any account.
- 19.
Section 43 of the Companies Act 2008 defines the term as follows:
‘43. Securities other than shares.—(1) In this section—
(a) “debt instrument”—
(i) includes any securities other than the shares of a company, irrespective of whether or not issued in terms of a security document, such as a trust deed; but does not include promissory notes and loans, whether constituting an encumbrance on the assets of the company or not’.
- 20.
Bacal Contracting Ltd v. Modern Engineering (Bristol) Ltd and others [1980] 2 All ER 655.
- 21.
Coetzee v. Rand Sporting Club 1918 WLD 74.
- 22.
1923 AD 576.
- 23.
Value-Added Tax Act, 1991, s. 22(1)(c) proviso (iv)(bb).
- 24.
Value-Added Tax Act, 1991, s. 22(1)(c) proviso (iv)(aa).
- 25.
Value-Added Tax Act, 1991, s. 22(1) proviso (1A).
- 26.
Entitled ‘Banking Services Provided and Fees which may be Charged in Connection With Such Services’, prepared by the Indirect Tax Standing Committee of the Banking Association South Africa, and approved by SARS, revised and agreed on 2 March 2006 and effective as from 1 March 2006. Any such document issued in the future will have the status of a binding class ruling in terms of s. 41B of the Value-Added Tax Act which will have the same binding effect as a binding class ruling issued under s. 78 of the Tax Administration Act 28 of 2011.
- 27.
(61 SATC 91), 23 March 1999.
- 28.
Act 45 of 2002.
- 29.
GN 141 GG 38503 of 25 February 2015: Declaration of hedge fund business as a Collective Investment Scheme.
- 30.
Value-Added Tax Act, 1991, s. 2(2)(iiiA).
- 31.
Value-Added Tax Act, 1991, first proviso to s. 22(1)(k).
- 32.
Value-Added Tax class ruling entitled Management of Superannuation Schemes: Long-term Insurers issued on 11 September 2011.
- 33.
Section 2(1)(h), repealed by s. 19(1)(c) of the Taxation Laws Amendment Act 37 of 1996.
- 34.
VAT is charged on the supply of goods or services in the course or furtherance and termination of a registered ‘enterprise’. Section 7 calls for the tax:
‘… [to] be levied and paid … [and] to be known as the value-added tax—
(a) on the supply by any vendor of goods or services supplied by him … in the course or furtherance of any enterprise carried on by him’.….
- 35.
See Ch. 7 of the Tax Administration Act 28 of 2011.
- 36.
That is, a VAT class ruling or a VAT ruling.
- 37.
Binding General Ruling 16 (Issue 2) entitled ‘Standard Apportionment Method’ and dated 30 March 2015. Since April 2000, SARS has prescribed one standard method of apportionment (the turnover-based method) in the Guide for Vendors VAT 404, to be used with effect from 1 November 2000. SARS confirms that the formula in respect of the turnover-based method of apportionment as set out in Binding General Ruling 16 constitutes a binding general ruling, issued in accordance with s. 89 of the Tax Administration Act.
- 38.
This de minimis rule does not apply in reverse: if the exempt use of a particular input amounts to, for example, 96% of overall use, 4% of the VAT incurred may be claimed as a credit.
- 39.
The ratio taxable expenses incurred wholly for the purpose of making taxable supplies to the total of taxable expenses incurred wholly for the purpose of making taxable supplies plus taxable expenses incurred wholly for the purpose of making exempt supplies.
- 40.
Section 17(1)(iii) of the Value-Added Tax Act. All rulings issued before 1 January 2007 have been withdrawn, unless the vendor applied for reconfirmation within the required period. If SARS did not reconfirm a ruling by October 2011, the ruling is no longer valid.
- 41.
Section 17(1)(ii) of the Value-Added Tax Act.
- 42.
(2002) 65 SATC 154.
- 43.
[1996] 1 WLR 174.
- 44.
Case C-465/03; [2005] STC 1118; [2005] 1 WLR 3755.
- 45.
Case C-29/08.
- 46.
Case No. VAT 382, Tax Court Cape Town, 13 June 2011, paras. 63 and 71.
- 47.
Commissioner for SARS v. De Beers (503/2011) [2012] ZASCA 103 (1 June 2012).
- 48.
(VAT 711) [2009] ZATC 2 (14 August 2009).
Author information
Authors and Affiliations
Corresponding author
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2017 Springer Nature Singapore Pte Ltd.
About this chapter
Cite this chapter
de Koker, A., Badenhorst, G. (2017). Financial Investments: South Africa. In: van Brederode, R., Krever, R. (eds) VAT and Financial Services. Springer, Singapore. https://doi.org/10.1007/978-981-10-3465-7_16
Download citation
DOI: https://doi.org/10.1007/978-981-10-3465-7_16
Published:
Publisher Name: Springer, Singapore
Print ISBN: 978-981-10-3463-3
Online ISBN: 978-981-10-3465-7
eBook Packages: Law and CriminologyLaw and Criminology (R0)