Page 459 - Juta's Indirect Tax

IN 70 VaLue-added tax act: InterPretatIOn nOtes IN 70
• Supplies by a branch or main business permanently located outside the Republic which is separately identi able from the business in the Republic and has its own independent system of accounting.
• Private or recreational pursuits or hobbies (unless carried on in the form of a business/enterprise), including the occasional sale of household goods or personal assets.
• Supplies made by a constitutional institution listed in Schedule 1 to the PFMA.
• Exempt supplies.
In addition, the VAT Act contains deeming provisions (mainly in section 8) which will deem certain transactions to be taxable supplies, or certain receipts to be in respect of taxable supplies made by a vendor, and as such, will be carried on in the course or furtherance of the vendor’s enterprise. For example; the deemed supply of enterprise assets upon ceasing to be a vendor; certain fringe bene ts supplied to employees; and the private, exempt, or other non-taxable use of enterprise assets.
‘activity or enterprise’
Paragraph (a) refers to an ‘activity or enterprise’. The use of the words ‘activity or enterprise’ makes the de nition very wide so that most activities (unless speci cally excluded) will constitute an ‘enterprise’. The term ‘enterprise’ when used as part of the wording of the de nition of that same term, means that the ordinary meaning of that word will apply in that context. The terms ‘activity’ and ‘enterprise’ are de ned as follows according to the Encarta Dictionary (English UK):
1. 2. 3.
“ ‘[A]ctivity’ means:
something somebody does – something that somebody takes part in or does
...
state of doing something – the state or process of doing something or being active.”
“ ‘enterprise’ means:
commercial business – a commercial company
business activities directed at pro t – organized business activities aimed speci cally at growth and pro t daring new project – a new, often risky, venture that involves con dence and initiative
readiness to undertake new ventures – readiness to put effort into new, often risky, ventures or activities.”
1.
2.
3.
4.
The phrase ‘activity or enterprise’ provides the main context within which the other words used in the term ‘enterprise’ as de ned in the VAT Act are to be interpreted, and essentially provides an activity-based test. Further, it refers to the kind of activities which are carried out in a commercial context where goods or services are supplied for a consideration. Typically, this refers to a business or similar venture, conducted in an organised and businesslike manner, where an element of risk-taking is involved, and where the aim is to grow or make a pro t* or to ensure that the organisation’s activities are sustainable. Most countries will either have the term ‘enterprise’ or ‘business’ de ned for the purpose of describing their tax base or the context in which VAT will apply to transactions. For this reason, as well as the fact that the term ‘business’ appears in the de nition of the ordinary meaning of an ‘enterprise’, it is useful to consider the ordinary meaning of a ‘business’ within this context.
1. 2.
The Encarta Dictionary (English UK) de nes the term ‘business’ as follows: “ ‘[B]usiness’ means
line of work – a particular trade or profession
commercial organisation – a company or other organisation that buys and sells goods, makes products, or provides services
commercial activity – commercial activity involving the exchange of money for goods or services.”
3.
It becomes clear, when considering these terms and de nitions, that in the context of supplies which are made for no consideration, the supplies can only be regarded as taxable if they are made in the context of a ‘business’†/ “enterprise” activity. Further, that there should be an integral connection between the supplies made for no consideration and the activities involving the supply of goods or services in return for some form of payment.
For example, in the De Beers case, the VAT implications of a complex share transaction involving a corporate restructuring undertaken by the vendor were considered by the Supreme Court of Appeal (SCA). The appellant’s view, which was initially con rmed in the Tax Court,‡ was that these activities were conducted in the course or furtherance of its enterprise. However, the SCA found this to be incorrect. The SCA held that the enterprise activities conducted by the appellant were the activities of mining, marketing and selling diamonds and that the activities associated with its efforts to meet the statutory duty that it had towards its shareholders§ were too far removed from those enterprise activities to be regarded as being in the course or furtherance of its enterprise.
* The element of pro t-making is addressed at the end of paragraph (a) of the de nition. For the purpose of having a de nition which is suf ciently wide to capture all kinds of business activities, the de nition speci cally includes activities which are carried out on a not-for-pro t basis. Reference is also made speci cally to the activities of an as- sociation or a club which are usually conducted in a businesslike manner. (This is a reference to an association not for gain – a term which is also de ned in the VAT Act.)
† Where the term ‘business’ is referred to in the rest of this Note, it is used to augment the explanation of the activities discussed in the context of an ‘enterprise’, and in particular, it is used to refer to the activities of ordinary businesses contem- plated in paragraph (a) of that de nition. The term is therefore to be interpreted in a wider sense than the ordinary meaning. However, the interpretation should not be applied so widely that it detracts from the context of the de nition which requires that the activities are conducted with the purpose of making supplies of goods or services for a consideration.
‡ ITC 853 (2011)73 SATC
§ As a result of this nding, the costs associated with performing the non-taxable activities could not qualify as input tax. Further, as certain services were acquired from a non-resident for this non-taxable purpose, the appellant was liable to pay VAT on imported services under section 7 (1) (c).
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