The sale of a going concern for Value-Added Tax purposes with specific emphasis on lease agreements

Abstract

The study provides an in-depth analysis of the sale of commercial letting enterprise or a part of it as a going concern for Value-Added Tax (“VAT”) purposes with specific emphasis on lease and sub-lease agreements. The interpretation of the legislative wording by SARS as contained in Interpretation Note 57(“IN 57”) regarding the zero-rating of the disposal of an enterprise creates legal uncertainties that compromises the predictability and certainty of the VAT system. The study investigates the inherent uncertain concept of a going concern as well as the requirements that must be met for the zero-rating of the transaction to apply. Importantly, the IN 57 is not law. Moreover, IN 57 provides limited guidance in respect of a ‘leasing’ enterprise that is disposed of as a going concern. Specifically, neither the VAT Act 89 of 1991 nor IN 57 provides for the VAT treatment of a ‘leasing’ enterprise where a sub-lease agreement is in place. This study seeks to determine the proper VAT treatment of the disposal of a ‘leasing’ enterprise as a going concern where lease and sub-lease agreements are in place.