Foreign services and VAT: Supreme Court rules against De Beers

2012-07-12 00:00

A RECENT case, the Commissioner of the South African Revenue Service (SARS) versus De Beers, dealt with the meaning of an “enterprise” and “imported services”.

The issue before the Supreme Court of Appeal (SCA) was whether services supplied by a London-based bank to a South African company, De Beers Consolidated Mines Limited (De Beers), were used for making taxable supplies in the course of the furtherance of its enterprise.

De Beers’ business activity is the mining and selling of diamonds.

De Beers had argued that the provision of the services was a necessary part of its mining and selling diamonds enterprise and that the supplies were wholly used in making taxable supplies in the furtherance of its enterprise. Accordingly, this did not fall within the definition of imported services.

SARS argued that the services rendered by the London-based bank were unrelated to De Beers’ core activities of mining and sale of diamonds.

It was further argued that the services rendered were in relation to the shareholders and investors in De Beers.

The court held that in the case of a public company there is a clear distinction between the enterprise, with its attendant overhead expenses, and the special duties that are imposed on the company in the interest of its shareholders.

The duty imposed on a public company that is the target of a takeover is too far removed from the advancement of the value–added tax (VAT) enterprise to justify characterising services acquired in the discharge of that duty as services acquired for purposes of making taxable supplies.

The second issue was where the services were consumed — Johannesburg or London. It was the court’s view that De Beers was a South African company with its head office in Johannesburg.

The independent directors had met and decided to use the services of the London-based bank in Johannesburg.

The transaction was approved and implemented in South Africa; therefore it was the court’s view that the services were consumed in South Africa.

It was held that De Beers was not a dealer in shares and the holding of an investment and receipt of dividend income did not fall within the definition of enterprise. The services rendered by the London-based bank were not acquired by De Beers in the furtherance of its enterprise of mining and selling diamonds.

The services were consumed in South Africa, but the services were not consumed for the purposes of making taxable supplies, and accordingly were correctly treated as imported services by SARS.

For more information call KPMG at 033 347 7600.

Join the conversation!

24.com encourages commentary submitted via MyNews24. Contributions of 200 words or more will be considered for publication.

We reserve editorial discretion to decide what will be published.
Read our comments policy for guidelines on contributions.

24.com publishes all comments posted on articles provided that they adhere to our Comments Policy. Should you wish to report a comment for editorial review, please do so by clicking the 'Report Comment' button to the right of each comment.

Comment on this story
0 comments
Comments have been closed for this article.

Inside News24

 
/News

Book flights

Compare, Book, Fly

Traffic Alerts
There are new stories on the homepage. Click here to see them.
 
English
Afrikaans
isiZulu

Hello 

Create Profile

Creating your profile will enable you to submit photos and stories to get published on News24.


Please provide a username for your profile page:

This username must be unique, cannot be edited and will be used in the URL to your profile page across the entire 24.com network.

Settings

Location Settings

News24 allows you to edit the display of certain components based on a location. If you wish to personalise the page based on your preferences, please select a location for each component and click "Submit" in order for the changes to take affect.




Facebook Sign-In

Hi News addict,

Join the News24 Community to be involved in breaking the news.

Log in with Facebook to comment and personalise news, weather and listings.