VAT Guide to Value Added Tax - sri lanka inland revenue ...

out of which, the services are in fact utilized. That means the (place of the
business) where such services are in fact utilized is as important as the place of
the taxable activity from where the services are originated but not the place
where the decisions are taken on behalf of that business which utilizes the
services. In other words the place where the contract is concluded to accept the
services is not material. It may also be useful to quote from a foreign judgement
with regard to the concept of supply in Value Added Tax.
“The concept of making a supply for purposes of VAT is not identical with
the performance of an obligation for the purpose of law of contracts even
where the obligation consist in the provision of goods and services” ϒ
Thus the commission paid in foreign currency to a Sri Lankan agent by a foreign
principle for canvassing orders and other connected activities in Sri Lanka in the
course of carrying on or carrying out a business in Sri Lanka by that foreign
principle, does not tantamount to a payment for services supplied in Sri Lanka to
be consumed outside Sri Lanka for the purpose of zero-rating as envisaged in
sub-section 7 (1) (b)(vii) of the Act. The services consumed outside Sri Lanka
as envisaged in that –sub-section should be consumed in a manner similar to the
consumption of services mentioned in other sub-sections, specially subsection(v)
and sub-section ( vi) . What matters is the actual place of
consumption of services and not the place where the decisions are taken.
Please see para 10.5.14
The commission is paid on the basis of volume of business transacted in Sri
Lanka with the help of a an agent in Sri Lanka and the business is transacted in
Sri Lanka as a result of the services performed in Sri Lanka ; then the services
are treated as being consumed in Sri Lanka . The presence of an agent or
representative in Sri Lanka, to supply services makes things completely different
from a situation where business is transacted by other means such as internet.
The services of the agent in Sri Lanka falls within either Section 9 or Section 55
of the Act depending on the facts of the case.
ϒ Laws J. in Customs & Excise Commissioners V. Reed Personnel Services (1995) STC. 588
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