Restriction on nominee clauses in VAT transactions

Restriction on nominee clauses in VAT transactions

Private Property South Africa

Is the restriction on nomination clauses caused by S16 of the Transfer Duty Act applicable to VAT transactions?

Section 16 of the Transfer Duty Act, 1949 was amended to read as follows:

"16. Persons who acquire property on behalf of others shall disclose names of their principals.

(1) Where property is sold to a person who is acting as an agent for another person, the person so acting as agent shall disclose to the seller or his/her agent the name and address of the principal for whom he/she acts, and furnish the seller or his/her agent with a copy of the documents appointing him/her as agent—

(i) if the sale is by auction, on the day of acceptance by the auctioneer of his/her offer; or

(ii) if the sale is other than by auction, on the day of conclusion of the agreement of sale.

(2) Any person who has been appointed as an agent, but fails to furnish the documents contemplated in subsection (1) and the name of the person on whose behalf he/she is acting to the seller or his/her agent on the date specified in subsection (1) shall, for the purpose of the payment of the duty payable in respect of the acquisition of the property in question, be presumed, unless the contrary is proved, to have acquired the property for him/herself."

The effect of this amendment was that if nominations are not made on the same day of the sale (i.e. by midnight on the same day of the sale), then the sale would attract double transfer duty. This amendment was primarily introduced to prevent people avoiding transfer duty through the use of nomination agreements.

The question however arises as to whether this restriction on nomination clauses is applicable to transactions that attract VAT.

The starting point is to note that the amendment was made to section 16 of the Transfer Duty Act and no similar provision or amendment was introduced into the Value Added Tax Act, 89 of 1991 (the VAT Act).

Furthermore, the South African Receiver of Revenue Service (SARS) VAT Guide does not contain any reference to the amendment of clause 16 of the Transfer Duty Act which may substantiate the amendment's applicability to the VAT Act. In addition to the above, the Explanatory Memorandum issued by SARS explaining the purpose of the amendment to section 16 of the Transfer Duty Act does not make any reference to the VAT Act which would have been an indication that it was the legislature's intention to make it applicable to VAT transactions.

As consequence it can be said that the section 16 amendment of the Transfer Duty Act has no applicability to the VAT Act, and as a result has no applicability to those transactions that fall within the ambit of the VAT Act (as apposed to those transactions falling within the ambit of the Transfer Duty Act).

If therefore one is dealing with an agreement of sale that attracts VAT (as opposed to Transfer Duty), then it could be said that the restriction that a nomination be made by midnight on the same day of the sale is not applicable and consequently parties are free to negotiate the period within which the purchaser is obliged to make his/her nomination.


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