South Africa: The Supreme Court Of Appeal Casts Light On VAT Debate

Last Updated: 3 July 2012
Article by Robert Gad, Gerhard Badenhorst and Janel Strauss

Most Read Contributor in South Africa, September 2018

 The Supreme Court of Appeal ("SCA") delivered two important value-added tax ("VAT") judgments recently.

In the first matter, Stellenbosch Farmers' Winery v Commissioner for SA Revenue Service (504/2011) [2012] ZASCA 72 on 25 May 2012 the SCA confirmed the decision of the Tax Court that the consideration of some R67 million received by the vendor for agreeing to the early termination of a distribution right granted to it by United Distillers plc, a company incorporated in the United Kingdom is subject to VAT at the rate of zero percent in terms of section 11(2)(l) of the Value-Added Tax Act, No 89 of 1991 ("the VAT Act").

Two important principles emerge from this judgment.  Firstly, the SCA confirmed that although the agreeing to the early termination of the distribution right comprises the taxable supply of a service for VAT purposes, such service is not supplied directly in connection with any movable property situated in South Africa.  It dismissed the arguments by counsel acting for the South African Revenue Service ("SARS") that the service supplied, that is, the right being surrendered, can at the same time constitute the movable property in respect of which the service is supplied.

Secondly, the SCA confirmed the finding of the Tax Court that the location of an incorporeal right is where the grantor or the right resides.  This should clarify the position of a foreign entity which grants incorporeal rights to South African entities, such as the use of intellectual property or software, is not carrying on an enterprise in or partly in South Africa and is therefore not required to register for VAT in South Africa  as a result.

Judgment in another VAT matter, namely,  Commissioner: South African Revenue Services v De Beers Consolidated Mines Limited [2012] ZASCA 103 was delivered by the SCA on 1 June 2012.

The background to the matter is briefly as follows. In considering a complex restructuring transaction, De Beers Consolidated Mines Limited ("DBCM") engaged the services of an offshore independent financial advisor, NM Rothschild and Sons Limited ("NMR") and various local legal and tax advisors. The NMR services were obtained essentially to satisfy a statutory obligation of DBCM towards its unit holders. The invoices issued by the local providers to DBCM included VAT which DBCM deducted as an input tax in its own VAT returns. Arguing that neither the NMR nor local services were consumed by DBCM in the course of making taxable supplies, the SARS assessed DBCM on two grounds:

  1. The NMR services were "imported services" for purposes of section 7(1)(c) of the Value-Added Tax Act 89 of 1991 ("the Act")"; and
  2. The VAT charged by the local service providers did not qualify as "input tax" as this term is defined in section 1 of the Act.

The SCA held that the NMR services were "imported services". Most importantly, the SCA held that the statutory duty imposed on DBCM was too far removed from the advancement of the VAT enterprise to justify characterising services acquired in the discharge of that duty as services acquired for purposes of making taxable supplies. For the same reasoning the SCA also held that no input tax could be deducted in respect of any of the local services. The purposes for which the local services were provided was held to be too far removed from the "consumption, use or supply in the course of making taxable supplies" by an "enterprise" which mines, markets and sells diamonds.

Despite the fact that the SCA considered the facts of the matter as unique, the case sheds light on one of the most topical debates in VAT circles, concerning the deductibility of input VAT. It sets aside a more literal approach to the matter which had been upheld by the lower Court.

The first important principle that emerged from this judgment is that the SCA dismissed the contention where a vendor wholly carries on taxable activities, that all its expenses, including expenses relating to corporate actions that may arise, are attributable to such taxable activities. The activities and related expenses of a vendor should therefore be analysed and each category of activity and related expenses should be considered on its own merits to determine whether it comprises a taxable activity, for purposes of claiming input tax.

The second important principle is that the SCA followed a practical approach to determine the place of consumption with regard to the NMR services.  It concluded that these services were consumed where the DBCM board finally met to receive and approve the recommendations made, and where the transactions were implemented.  It would be interesting to see whether SARS will also apply this principle with regard to South African suppliers supplying services to foreign entities, that is, whether SARS will accept that advice provided by a South African service supplier to a foreign recipient who receives the advice and approves the recommendations outside South Africa is consumed outside South Africa, and that the zero rate to such services will apply, notwithstanding the fact that a representative of the foreign entity may have been present in South Africa when the advice was given or recommendations made.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Werksmans Incorporated
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Werksmans Incorporated
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions