It’s fairly standard practice for businesses these days to send tax invoices by email. But there are serious questions as to whether these “electronic invoices” comply with the provisions of the VAT Act. Chris Eagar, Associate Director – Tax at Deloitte is calling on SARS to provide clarity regarding the validity of using emailed invoices to claim back VAT from the national revenue collector.
Based on the VAT 404 Guide for Vendors, vendors using emailed tax invoices which do not meet the security requirements for electronic invoicing may find SARS auditors seeking to disallow input tax credits claimed on the basis that the relevant vendor was not in possession of a valid tax invoice when the deduction was made.
Despite SARS indicating over the last two years that an interpretation note will be issued to clarify uncertainties relating to the format of tax invoices and modes of distribution there is still no indication as to when this is expected. Eagar therefore urges companies to adopt a conservative approach when it comes to the acceptance of tax invoices delivered by email until SARS provides greater clarity.
To claim an input tax deduction, the VAT Act requires the vendor to obtain and retain a “document” that constitutes a valid tax invoice. The Act furthermore provides that a “document” includes any printout of information generated, sent, received, stored, displayed or processed by electronic means. A tax invoice sent by email would therefore seem to qualify. In its VAT 404 Guide for Vendors, SARS states, however, that electronic tax invoices must also meet the requirements of the Electronic Communications and Transactions Act (“ECT Act”). It also states that SARS is not in a position to issue rulings or provide advice on whether any electronic communications meet the technical specifications of the ECT Act. As a result there is a grey area regarding the validity of supporting documentation relied upon when claiming VAT credits from SARS.
Despite the acknowledgement that SARS cannot confirm whether vendors meet the requirements of the ECT Act, the VAT 404 Guide does refer to another SARS publication, the VAT News, which lists the requirements for a valid electronic invoice as the following:
• The parties must agree in writing that electronic invoicing will be done;
• The data must be sent over a secure line or contain an electronic signature; and
• The data must be 128 bit encrypted.
These requirements are, however, not contained in the VAT Act, or the ECT Act.
Eagar points out that in terms of the ECT Act, an emailed tax invoice should constitute a data message as defined, being “data generated, sent, received or stored by electronic means”. In terms of section 14 of this Act, the requirement that the data message should constitute the original document (as is the requirement for a valid tax invoice) would be met if it passed an assessment, which, in essence, entails the verification of whether the information has remained complete and unaltered in the light of the purpose for which the information was generated and having regard to the general circumstances.
“No indication is, however, given as to who must perform this assessment and at what stage,” he said.
Eagar argues that a scanned document received via email cannot be altered electronically by the recipient and should pass the assessment referred to above. Similarly, a tax invoice made available on the website of the supplier for printing by the recipient following on an emailed notification to the recipient, could probably also be protected from alteration by the recipient and in this case too, should pass the assessment referred to in the ECT Act.
“A PDF document, on the other hand, can be altered by the recipient and should therefore probably be subject to the encryption requirements,” said Eagar.
To assess whether a document remained unaltered after being received would probably require a comparison with the original data, which the recipient would normally be unable to perform. Clarification is therefore required about what exactly the assessment referred to in the ECT Act entails and whether such assessment could be performed by the sender. It appears, however, that at least in some instances, an emailed tax invoice could meet the requirements of both the ECT Act and the VAT Act, without meeting the requirements as set out in the VAT News, referred to above.
“Without the proper direction regarding electronic invoicing there may be serious repercussions for businesses if SARS decides to enforce the letter of the law. By not providing clarity SARS may also be creating a legitimate expectation that a PDF and other electronic invoices are acceptable as email seems to become the distribution mode of choice for many vendors.” said Eagar.