Interpretation of section 8(15) of the VAT Act 89 of 1991

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Severus Smuts | Director | Indirect Tax | Deloitte Africa | mail me |


This article is based on the Court case (330/2019) [2020] ZASCA 34 (03 April 2020). The taxpayer was engaged in the importation, manufacturing and distribution of alcoholic beverages. The taxpayer entered into an agreement with foreign brand owners for the advertising and promotion of their alcoholic products in South Africa.

The brand owners granted the taxpayer the exclusive rights, in respect of the brands distributed to use the brand owners’ trademarks, intellectual property, equipment, packages and labels in South Africa.

The brand owners also agreed to compensate the taxpayer for advertising and promotional services performed in South Africa as per agreement.

The taxpayer had levied Value Added Tax (VAT) at a zero rate, in accordance with section 11(2)(l) of the Value Added Tax Act 89 of 1991 (VAT Act), on advertising and promotional services supplied to foreign brand owners on the basis that the marketing and promotional activities culminated in a service being supplied to the brand owners.



However, the South African Revenue Service (SARS) has invoked section 8(15) of the VAT Act as it maintained that the taxpayer had made separate supplies of zero rated advertising and promotional services, as well as standard rated goods in the form of promotional giveaways and samples that were not exported but consumed in South Africa.

The taxpayer appealed the decision by SARS to the Supreme Court of Appeal (SCA). The SCA dismissed the appeal and held that the taxpayer is liable for output tax in respect of the supply of goods not exported but consumed in South Africa (i.e. the promotional giveaways and samples). The remaining services were not assessed by SARS and the zero rating was therefore allowed.

The decision is based on section 8(15) of the VAT Act. This section of the VAT Act states that, where a single supply of goods or services or of goods and services would, if separate considerations had been payable, have been taxed in part at the standard rate of 15% and in part at the zero rate. Each part of the supply concerned, will be deemed to be a separate supply.

VAT vendors should carefully consider the application of this court case where, and to the extent, they receive marketing income in respect of supplies that are consumed in South Africa such as free samples and promotional items.


 



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