Inland Revenue clarifies zero rated provisions for sale of a non-trading business due to damage caused by TC PAM

The VAT Office confirms that the zero rated provisions (clause 9 Third Schedule) for a sale of a business will only apply if the relevant conditions of taxable activities sold as a going concern as defined in Section 2 of the VAT Act [CAP 247] is satisfied.

For a supply to qualify as a supply of a going concern it must meet all of the following conditions:

- There must be a supply of a taxable activity or of part of a taxable activity capable of separate operation;

- Everything necessary for the continued operation of the taxable activity (or part thereof) must be supplied to the purchaser; and

- The supplier must carry on the taxable activity up to the time it is transferred to the purchaser.

Hence if a registered person decides to sell the business that has not been trading due to the damages caused by Tropical Cyclone PAM will NOT be able to sell the business as a going concern because the supplier must be carrying on the taxable activity and/or part of that taxable activity up to the time of transfer to the recipient. Meaning the business must be trading at the point of sale.

It is not necessary for the person purchasing the taxable activity to carry on the same taxable activity as that carried out by the person selling the business. The test is whether the taxable activity constitutes a going concern at the time of supply. In other words the focus is on what is being ‘supplied’ not on what activity the purchaser might undertake after the transfer.

The VAT Office would like to advise all registered persons to use the following Going Concern Checklist to determine the zero rated provisions for business sold as a going concern:

- Are both the supplier and the recipient registered for VAT?

- Does the supply constitute the transfer of the whole or part of a taxable activity as a “going concern” (as defined in Section 2)?

- Are all of the goods and services that are necessary for the continued operation of that taxable activity or that part of a taxable activity being supplied to the recipient?

- If the supply is of part of a taxable activity, is that part capable of separate operation?

- Is the supplier carrying on the taxable activity or part of that taxable activity up to the time of transfer to the recipient?

- Have the supplier and recipient agreed in writing that the supply is the supply of a taxable activity as a going concern?

For more information on any of our articles published in our weekly column, please contact the VAT Office by phone: 00678 24573 or email us at vatqueries@vanuatu.gov.vu