South African Value-Added Tax: Place of supply rules for cross border supplies of consulting services

The South African Value-Added Tax Act, 89 of 1991 does not contain any explicit place of supply rules to determine the jurisdiction where a cross border supply of services should be taxed, except in respect of foreign electronic service providers. Inferred place of supply rules are however interwoven into various provisions of the VAT Act. The OECD developed a set of recommended rules to determine the place of taxation for cross border supplies of services and intangibles. This serves as a reference point for jurisdictions when implementing their VAT legislation, and are described in Chapter 3 of the OECD’s International VAT/GST Guidelines. The primary objective of this article is to determine whether the inferred place of supply rules in the VAT Act are in harmony with the aforementioned recommended rules in the OECD Guidelines in respect of various scenarios of cross border supplies of consulting services. The conclusion is that the inferred place of supply rules in the VAT Act are not in harmony with the recommended rules in the OECD Guidelines in all scenarios of cross border supplies of consulting services. Recommendations are made how the VAT Act can be amended to bring the aforementioned inferred place of supply rules in harmony with the OECD’s recommended rules. This article however does not consider whether the OECD Guidelines are appropriate for developing countries such as South Africa and accordingly, whether South Africa should adopt the recommended rules as proposed in the OECD Guidelines. The recommended changes should thus only be considered if it is found that the OECD model is, in fact, appropriate for South Africa.