Page 731 - SAIT Compendium 2016 Volume1

CASE DIGEST 2011–2012
auctioneering, auditing, broking, draftsmanship, education, engineering, health, information technology, law, management, real estate, research, secretarial service, surveying, translation, valuation and veterinary service, which are all professional or quasi-professional activities, requiring a particular quali cation and, in many cases, a licence, certi cate, or membership of a professional body before the person concerned can participate in that activity. The second category comprises broadcasting, commercial arts, entertainment and sport, none of which is relevant to the activity carried out by the taxpayer.
The Tax Court held that since the term ‘consulting’ is the least easily de ned of all the terms, the rules of interpretation that have been referred to, must be strictly applied. The dictionary de nition of the term must be applied and it must be regarded as the offering of advice by a professional or quali ed person. Furthermore, the fact is that a taxpayer, as a close corporation, in its own right cannot hold a certi cate as a ‘professional person’. Nor does the sole member of the taxpayer hold any such licence, certi cate or membership of a professional body. Judge Mbha concluded that the taxpayer in this case is not involved in the business of ‘consulting’ as envisaged in s 12E(4)(d) of the Act.
In any event, even if no de nite conclusion as to the interpretation of the term ‘consulting’ can be arrived at by the application of any of the rules of statutory interpretation to which the court has referred, then the contra scum rule must be applied and the statute interpreted in favour of the taxpayer.
Meaning of ‘broking’ and/or ‘management’
With reference to the Concise Oxford Dictionary and Longman Business English Dictionary (2007), Judge Mbha held that ‘it is clear that the taxpayer does not conduct any “broking” transactions on behalf of its clients, neither does it purport to act as a broker in any way.’
With reference to the Concise Oxford Dictionary and the Longman Business English Dictionary (2007), Judge Mbha held that the taxpayer clearly did not control or direct the activities of its clients and that the management function rested with the taxpayer’s clients.
It was held that the terms ‘broking’ and ‘management’ did not apply to any of the activities conducted by the taxpayer. The Tax Court relied on the evidence that was presented by the taxpayer and the documents led as part of the dossier describing the taxpayer’s business activities, that none of the activities of broking or management were re ected in the terms cited by SARS. The key word in the description of the activities must be ‘marketing’, which is not a professional service and the member who personally performs a part of the taxpayer’s services has neither a professional quali cation nor a professional licence.
SARS’ contention that the taxpayer rendered a personal service, as de ned in s 12E, was unsuccessful.
The court held that SARS was incorrect in classifying the taxpayer was a personal service provider as de ned in s 12E of the Act, as its activities did not constitute a personal service; alternatively, that the revenue generated by any personal service provided by a member of the taxpayer, did not exceed the prescribed amount.
10. Remission of penalties for issuing ctitious invoices
[VAT 889/12]
Background
The taxpayer, a close corporation owned by a single member, appealed against a decision by SARS to impose VAT and a punitive levy of 200% on the taxpayer’s tax liability.
The taxpayer, a registered VAT vendor, issued three tax invoices in January, March and April 2004 respectively to another close corporation (‘PQR’) for the supply of seafood products. PQR duly paid the amounts invoiced. The taxpayer thereafter submitted a nil VAT return for the relevant VAT periods. PQR submitted an input tax claim to the respondent. Pursuant thereto the respondent conducted an audit to verify whether the suppliers listed in the schedules provided by PQR had accounted for the corresponding output tax, and found that the appellant had submitted a nil VAT return for the relevant VAT periods.
As a result of the taxpayer’s failure to account for output tax in respect of the supplies allegedly made during the January, March and May 2004 VAT periods, SARS raised additional assessments on 18 March 2005 in terms of s 31 of the Value-Added Tax Act 89 of 1991 (the Act) and levied 200% additional tax against the appellant in terms of s 60 of the Act.
The taxpayer admitted that on the documentation received by SARS, it was entitled to raise the additional assessments and to impose a 200% levy. However, the member claims that the invoices were ctitious and that the taxpayer had supplied nothing to PQR.
Issue
At issue was whether the explanation given by the member is credible, and if it is found to be, whether it exonerates the appellant from liability.
The member, who is an accountant by profession and fully acquainted with the provisions of the VAT Act, gave the following explanation:
The members of PQR were Mr B and Mr C. They are related to a woman working in the of ce of his family business. Although he is not a close friend of the two men, they did meet socially from time to time. They proposed to him that he establish a close corporation with the business of supplying seafood products. They promised to order supplies from him. He duly incorporated the close corporation and registered as a VAT vendor. Thereafter the men asked him to issue ctitious invoices to PQR for the supply of seafood products. They told him that they wanted to raise a loan from D Bank. In order to acquire the loan they had to convince D Bank that they required the loan for the purpose of purchasing stock for their business. In truth, they did not require stock, but wanted to use the money for some nefarious purpose. The member said that he did not know what the purpose was. According to him, the men had assured him that they would take care of any tax implications that may arise from the issuing of the ctitious invoices. He said that they had sent him faxes explaining exactly what the invoices should look like, including the ctitious
SAIT CompendIum oF TAx LegISLATIon VoLume 1 723
CASE DIGEST 2011-2012