South Africa: ENS Tax In Brief

Below, please find issue 115 of ENS' tax in brief, a snapshot of the latest tax developments in South Africa.

case law

• Pather v CSARS (52782/21) [2024] ZAGPJHC 87
  • This matter concerns the lawfulness and procedural fairness of the decision by the Commissioner for the South African Revenue Service ("SARS") to hold a third party, Ms Diroshini Pather ("Applicant"), jointly and severally liable for the tax debt of the taxpayer, Impulse International (Pty) Ltd, in terms of section 183 of the Tax Administration Act, 2011 ("the TAA") to the extent that she knowingly assisted in the dissipation of the taxpayer's assets in order to obstruct the collection of a tax debt of the taxpayer.
  • The Applicant argued that she was not aware of the taxpayer's tax affairs when she received payments from the company and that SARS' failure to consider a request to suspend payment of the alleged tax debt in terms of section 164(2) of the TAA was procedurally unfair.
  • The Court held that:
    • SARS is required, under section 183, to prove that the Applicant "knowingly" assisted in dissipating funds of the taxpayer. The court referred the matter to trial on this question.
    • The Applicant's remedies are set out in section 184 of the TAA and do not include remedies available to taxpayers owing tax under an assessment, such as a request for suspension of payment of tax debt in terms of section 164 of the TAA.
  • The Court accordingly dismissed the review application.
  • Find a copy of the judgment here.
• TUUP v CSARS (VAT 22402)
  • The appellant, a university, entered into a head lease and sub-lease with a developer. Under the head lease, the appellant leased the land to the developer, who was obliged to build a student residence on the land. The property, with improvements, was leased back to the appellant under the sublease for use as a student residence.
  • The appellant is a VAT vendor who makes both taxable and exempt supplies. In terms of section 17(1) of the Value-Added Tax Act, 1991 ("VAT Act"), SARS granted a class ruling for universities which determined that universities cannot deduct more than 12.5% of the VAT they spent on goods and services. The class ruling was agreed between Higher Education South Africa ("HESA") and SARS.
  • The appellant sought to claim input tax deductions on the costs associated with the head lease, arguing these costs were for taxable supplies.
  • The Tax Court found the head lease and sub-lease to be components of a singular arrangement. The primary purpose of the dual arrangement was identified as providing student housing, which is an exempt supply in terms of section 12(h)(i) and (ii) of the VAT Act. Therefore, the appellant was not entitled to claim VAT input deductions.
  • The Tax Court further determined that the 12.5% cap on VAT input deductions, established by the class ruling, was lawful. The cap was based on a thorough investigation and agreement with HESA, ensuring fairness and preventing the formula from yielding disproportionate deductions for universities. Including the VAT costs from the head lease in the apportionment formula, as the appellant suggested, would have distorted the ratio, allowing for deductions that did not reflect actual taxable supply use. The court supported SARS' decision to exclude the costs from the apportionment calculation.
  • The appeal was accordingly dismissed.
  • Find a copy of the judgment here.

customs and excise

• International Trade Administration Commission of South Africa ("ITAC") | Media Release
  • ITAC issued a media statement to provide clarity on the creation of a temporary rebate for the importation of poultry products.
  • ITAC clarified, inter alia, that in order to ensure continued protection for domestic poultry producers against unfair trade practices and injurious imports, the temporary rebate does not apply to anti-dumping duties and is not a full rebate in some product categories as set out in Schedule 4 of the Customs and Excise Act, 1964 ("Customs and Excise Act").
  • Find a copy of the media statement here.
• Draft Customs and Excise for public comment | Effect of transfer pricing on customs value
  • SARS published draft amendments relating to the effect of transfer pricing on customs value.
  • The draft amendments relate to rules under sections 40(3), 41(4) and 120 of the Customs and Excise Act.
  • The due date for comment is 23 February 2024.
  • Find a copy of the draft amendments here.

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