How are the buybacks getting past SARS?

Something that has long intrigued me is how the shenanigans at the Thoroughbred sales are kosher as far as the taxman is concerned.

At every sale we have blatant buybacks that are not recorded as vendor buybacks. There are many on this current sale, its not hard to figure them out. Perhaps Muhti or one of the breeding fundis can explain how accounting is done in this regards. To illustrate my point:

Horse A is "sold" for R400000. The buyer clearly had the job of chasing up the price and the "reserve" price was met. The "sale" is recorded as a sale and not a buyback. So what happens at this point? Does the vendor inform BSA that it was a buyback, or are full price and VAT paid? If the deal goes through on this basis, the Receiver gets R60000 ( 15% VAT ), and I presume the breeder pays BSA a percentage of the "sale price". I find it extremely unlikely that this occurs for obvious financial reasons.

I am presuming that if there is an recorded "genuine" buyback, then a certain % PLUS VAT needs to be paid to BSA. For the sake of ignorance lets say that the BSA charge 5% plus VAT on these cases. The vendor therefore needs to pay R20000 and VAT of R3000 ( 15% ).

The Receiver therefore "loses out" on R57000 in this example. I wonder whether our good men at SARS are aware of this situation and whether BSA is compliant by doing business in this regard. I think when the vendor buyback is official it may be kosher, but when breeders do underhanded business like this, trying to artificially boost prices, they should pay the full VAT amount due.

Consider the millions lost in revenue by just perusing Jooste and partners activities at the CTS sales over the years.

I would appreciate your thoughts.

Just thinking a bit further - SARS and BSA are further compromised by not receiving the bigger contribution that would have been forthcoming from the underbidder.

You say " trying to artificially boost prices".

Why would anyone do this? I sold horses for over a decade, and no one I know ever said anything like that because, for a start, how would you benefit? Also, you are with the buyers, sellers are often buyers at another sale, and buyers become clients and friends, if anyone caught wind that you manipulate, you would be finished in 1 minute, it doesn't matter who you are.

The sellers are also members of the breed society and sales organisation, so if you mess there, it's with your fellow breeders. How would you survive with your reputation in tatters?

People could commit fraud, but #$%^& me you would have to have very large balls. Many of the bigger breeders have other major businesses too, why would they play games? Maybe you know something, but everything at the sales as a vendor generated bills that had to be deducted or paid, and ending with a negative balance when the expenses of getting to the sales inevitably left you with mountains to climb, would be horrible.

I don't know if this kind of innuendo is shining any light on fraud or conspiracy. The chances are horses that are bought back were friendless and just didn't sell. At some point they get sold and go through the books. Unsold horses are just a misery for breeders who make a living as sellers, and others can just race them for themselves. I doubt very much if you look at the horses which did not transfer ownership, that the connections perpetrated any fraud. Why would you assume they do?

Tony firstly thank you for responding to my post.

I did indeed say artificially trying to boost prices. You only have to look at some of the CTS sales to see how certain stallions and farms were "supported" by the infamous - signed for at R900000 by Joey Ramsden, raced by the conman. Why was it done? To boost stallion stats, farm performance etc etc, not to mention ego. However that was then, this is now and the first horse sold at the Nationals that seems obviously a buyback is lot 32 where Avontuur Thoroughbreds sell a horse to Avontuur Farm. Seeing that this horse either didn't have a reserve or the reserve was in the R200000 region clearly, I would say that the price was artificially boosted, I can see no other explanation. My question remains - is VAT paid on the R200000 or is there a pre-determined fee for buybacks? I also maintain that there must have been an under-bidder at R150K/175K/180K I'm not sure what denominations the auctioneer was taking. That under-bidder who was a "genuine" buyer would have had to pay full VAT on his purchase.

A few years back I remember the BSA introducing a vendor buyback category. This has now discontinued. The question must be asked why.

Let me make another thing very clear, I have nowhere mentioned that fraud is occuring because I do not know how the BSA invoices out these buybacks and hence I have asked the questions that I have.

I was about to say I am not an apologist for the breeders, but I see I am. So from the get-go, I can see we would disagree on some things.

Many people on this forum are ultimately of the opinion that it's a horse auction and therefore you send a horse into the ring and let the cards fall as they may. I disagree, if anyone would do that with their house, then I guess you walk the talk. When I was a seller, a buy-back was synonymous with bidding up so I used reserve prices. I was reluctant to just send my horse into the ring unprotected because often the number of buyers was less than the numbers for sale and it was entirely possible to have a horse that had not made it onto anyone's list or maybe only 1 bidder's list.

The problem with reserves is that you could end up paying commission on a string of horses and not sell any. You could also end up with many "not sold" and that annoys people.

I had left by the time that the buy-back system was openly allowed. The big benefit is that you could manage your commissions if you badly misjudged the price, but at the expense of bidding against a buyer and I can see how that doesn't end well.

Vat is only payable against a legit sale and not on fun and games. The rules for vat are clear, registered person who must issue a legal vat invoice on a legit sale. You cannot make shit up here. If you auction your R2 million yacht one Saturday morning and bid against your Mrs to R2 million, you don't issue yourself with a 2 mil invoice and you don't pay 300k vat. If your deal with the auctioneer was 1% no matter what price, he issues you with an invoice and you pay the comm.

As it happens, I think the comm is 8% at these sales, be that sales price, buy-back or reserve. I think the vendor has to tell the auctioneer (bsa) what's happening once a horse is not sold, bought back or sold subsequently so that they can process collections or just bill for expenses.

If you can't stand there and bid for your own horse, then you will have to instruct someone and mark it as a direct payment and then the Vat obligations fall to you personally and not the auctioneer, exactly the same if the horse is not sold, however there is a period after the auction that if the horse is sold it still falls under the auction, certainly while still on the premises and possibly for a while after.

It's possible that there is a rule (an agreement of some kind) that you can't buy-back, but it's not a law. You can buy from yourself out of your company to yourself, you could have partners and buy them out, or I suppose you can inflate your income as you describe above, pay the income tax on the other side and the inflated comms and taxes etc etc. It's one way to establish a value for taxes, insurance and depreciation.

The example you gave for inflating prices was for one guy known for vertical integration. I would have to say that he's 1 in 1000, or 1 in 10k, so lets just agree that's the exception.

I'm flogging a point, but if a horse cost me 100k to produce, I don't owe you anything so I would typically have a reserve of 60k. Often my reserve was a price at which I would rather keep the horse and race it myself or with a trainer or with friends. If the standards of the day was to be able to buy back publicly, that's what I would have done... then at least people would know exactly what I'm doing.

A friend once argued to me that he "would" put his reserve price on the door for potential buyers to see. He didn't appreciate the psychological game at play at an auction. It's clear if my reserve on the door is 50k, you might think that 30k is a bargain, by the same token if my reserve was shown as 150k you might think 95k is a bargain. In poker, you don't always show your hand because you may want to bluff.

I once sold a horse to a serious buyer, and afterwards he told me it was his pick of the sale and he had double what he paid. Argh. I really could have done with the money. A few years earlier I sold him a horse off the farm for 15k, everytime it won he remembered to say how cheaply he got it. It won 5. Then he sold it for 25k. He had my number. The point is the whole process is half luck and half strategy, and auctions are war, why are buyers such sissies? Having said that, I never really felt the process was personal, and I can't think of someone I sold a horse to that I couldn't phone right now. People who got bargains from me came back, and if it didn't turn out well no one ever said to me I did them in.

Of course, we not talking the big money, so possibly things get more serious out there. In fact, I know they do. Mathew 13:12, people only pay proper money to people that have proper money.

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