The intention of the 2019 amendments to the Value-Added Tax (VAT) Legislation was to broaden the scope of the regulation dealing with electronic services, and to remove some uncertainties created by the legislation in place at that point in time. Whilst the 2019 amendments achieved the widening of the application of the regulation to apply to all “services” which are provided by means of electronic agent, electronic communication or the internet, the practical application of the new provisions as a whole proved to be challenging.
The policy intention of the widening of the ambit of the legislation, as stated in the explanatory memorandum, is to subject to VAT those services that are provided using minimal human intervention. As the term “human intervention” is not incorporated into the legislation, is not a defined term, and is only noted in the explanatory memorandum and the South African Revenue Service (SARS) FAQ Guide briefly; it has raised questions regarding the application thereof. Where there is a component of human intervention in the service being provided, for example, a livestream training session facilitated by a presenter, the service is clearly to a very large extent dependant on human involvement. In instances such as these where there is significant human intervention, but the content is provided electronically, arguments have been advanced that the service falls within the ambit of the legislation. The SARS FAQ Guide provides anexample of an architect in an export country, designing plans for a house andsubsequently emailing these to a person in South Africa. The response in theguide is that this does not constitute an electronic service as the service involvessubstantial human intervention. The supply is therefore seen to not be dependent on information technology or automation. The email merely constitutes the means of communication.
The 2019 amendments introduced an exclusion of certain supplies within a group of companies as a way of limiting the administrative burden. Electronic services that are supplied by a non-resident company itself, to a resident company that forms part of the same group of companies, are excluded from the regulation if the services are supplied exclusively for the purpose of consumption by the resident company. The interpretation of when the non-resident company “itself” supplies the service, and the extent to which the local group company has to consume such a service, requires more clarity.
A number of uncertainties in the interpretation of the electronic services legislation, such as the above, can be addressed as part of the 2021 amendments in order to provide clarity to non-residents, which in turn is likely to enhance voluntary compliance.