Page 37 - P6 Slide Taxation - Lecture Day 3 - VAT Part 2

16.2. Value of supply: Connected persons [s 10(4)] – KL3

• If a VAT vendor makes a supply to a connected person and

→ supply at no consideration or supply at less than open MV AND

→ connected could not claim the full input tax [s 16(3)]

→ Then: consideration = open MV

→ Not applicable to fringe benefits [s 18(3)]

Thus, output is charged on MV, while input is claimed on the

actual consideration.

Why?

If 2 parties are connected the output is raised at 100% and the input is

claimed at the % of taxable supplies. If TS = 100% then there is no benefit

as input = output. But as soon as the connected person can not claim the

full input (because the % TS is for example 80%) the output must be raised

on the market value and not on the consideration paid, while the input is

claimed on the actual consideration