The Federal Tax Authority (FTA) has released a VAT Public Clarification “VATP028” on the input VAT recovery of mobile phones, airtime (i.e. call minutes) and data packages available to employees for business use.
Effective date
Public Clarification was issued on 6 December 2021.
In brief
On 6 December 2021, the FTA released a Public Clarification that impacts most taxpayers. The FTA takes the position that recovery of input tax on mobile phone expenses is only possible when a strict business use policy is in place and the taxpayer conducts an active enforcement of such policy.
Further, the FTA states that it is not possible to change the policy retrospectively. Therefore, it is likely that the Public Clarification will have an impact on input VAT previously recovered in relation to mobile phone expenses, and any invalid VAT claims would need to be corrected.
Henceforth, taxpayers should evaluate whether a strict policy should be introduced or if the entire amount of input VAT incurred on mobile phones, airtime and data packages available for employees should be borne as a business cost.
Summary of changes
The Public Clarification explains the eligibility for the recovery of input VAT incurred on mobile phones, airtime and data packages that are available to be used by employees for business purposes. There has previously been uncertainty about whether such input VAT was recoverable or not, as such services could be easily available for the employee’s personal, in addition to business, use during or outside of working hours.
The Public Clarification explains that where costs are incurred to make taxable supplies, the taxable person is permitted to recover input VAT incurred on mobile phones, airtime and data packages that are available to be used by employees for business purposes, only if all of the following conditions are met:
- The business is registered for VAT purposes.
- The business has acquired the mobile phones, airtime and packages in its own name, and not in the name of the employee, i.e. the business’ details are on the invoices and contracts with mobile supplier and service providers.
- The business has a documented policy that clearly states the following:
- Mobile phones, airtime and packages shall only be used for business purposes; and
- The consequences if such services were used for personal use.
- The business regularly monitors the use of airtime and packages, and retains justification for variances, if any. As part of monitoring the acceptable use of phones, airtime, and packages, the taxable person shall consider the variance between the actual usage and the average airtime and packages used for the specific role of the employee and the nature of the business purposes.
- The business takes action against employees who use mobile phones, airtime or data packages for personal use, as mentioned in the business’ documented policy.
- The business retains valid tax invoices in respect of the acquired mobile phones, airtime and data packages.
If the business acquires airtime and packages based on expected business requirements, any airtime and packages used in excess of the business plan would be regarded as non-business use, unless the additional airtime and packages is recharged to the employee with output tax, or if there is robust monitoring in place to substantiate the actual use.
It should be noted that only the documented policies that were already in place at the time where the mobile phones, airtime and data packages became available for employee use shall be recognised.
KPMG has a team of experienced tax specialists that can help you assess your current tax position, advise on the appropriate tax treatment, prepare clarification requests, or represent you in front of the FTA as registered tax agents.
We are happy to discuss your specific circumstances with you and determine the way forward, should you have any questions or concerns in this regard. Please get in touch with your usual KPMG contact or any of the tax professionals below.
