Abstract
The subject of valued-added tax (VAT) on cross-border telecommunication services has
been attracting global interest for quite some time. The challenges of VAT on cross-border
telecommunication services have been based on the nature of the services and the place
of taxation thereof. In the South African context, there have also been different
developments towards establishing sustainable solutions regarding the treatment of VAT
on these services, specifically where telecommunication services are supplied to a nonresident.
The latest developments regarding this subject was an insertion of a zero-rating
section, section 11(2)(y), into the South African VAT Act. The introduction of the section
was described as a way to align the VAT treatment of cross-border telecommunication
services to the provision of the Dubai ITR (a telecommunication services treaty to which
South Africa is a signatory since 2012). The only peer reviewed article that could be found
on the topic was a study conducted by Schoeman et al. in 2015. The authors concluded
their article with a future research suggestion, namely comparisons with other jurisdictions.
Hence, the main research question is to determine how South Africa’s VAT treatment of
cross-border telecommunication services differs compared to other jurisdictions.
This study sought to examine the different ways that VAT on cross-border
telecommunication services is treated by developing and developed countries, as their
respective aims, needs, and objectives may differ. Furthermore, the comparison
comprises two ‘pools’ of jurisdictions, namely OECD member states and those signatories
to the Dubai ITR, as South Africa is a signatory to the Dubai ITR but also a key partner to
the OECD.
The research design is underpinned by the theories of equity (fairness) and certainty and
represents a qualitative study using secondary data to answer the research questions. A
doctrinal approach is employed to establish the VAT treatment of cross-border
telecommunication services in South Africa and internationally. The findings are deduced
through a comparative analysis.
It is established from the findings of this study that there are various legal documents to
which jurisdictions adhere that provide guidance regarding the VAT treatment of these
services globally. An overview observation revealed that all the OECD member states,
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whether developed or developing, and whether signatories to the Dubai ITR or not, all
have established place of supply rules for VAT/GST for the supply of cross-border
telecommunication services. Of note is that the two European Union countries, Austria and
Germany, have followed the EU regulations as opposed to the OECD Guidelines. A further
observation is that, of the three OECD key partner countries forming part of this study
(Brazil, China and South Africa), only South Africa has place of supply rules for these
services.
The fact that South Africa has a place of supply rule for cross-border telecommunication
services can arguably assist with providing certainty to taxpayers. However, as no
interpretation note exists for section 11(2)(y) of the VAT Act, SARS may consider issuing
a detailed interpretation note to enhance certainty and understanding. In this regard, SARS
can consider two jurisdictions, namely New Zealand and Canada, as they have
established detailed sections encompassing different ways in which telecommunication
services including cross-border telecommunication services take place for VAT/GST
purposes. This in turn may potentially provide certainty for affected taxpayers. However,
considering the fairness theory, due to zero-rating treatment of these services, South
Africa may be losing potential revenue to the fiscus compared to the majority of other
jurisdictions that charge VAT on these services. This highlights a possible lack of
competitive advantage and fairness on a global scale.