Page 748 - SAIT Compendium 2016 Volume1

CASE DIGEST 2012–2013
secure a zero-rating and s 11(2)(l)(iii) cannot be applied independently to disqualify the zero-rating under s 11(2)(l)(ii) because subparagraphs (i) to (iii) must be read disjunctively. The appellant suggested that the word ‘or’ where it appears after subparagraph (ii) in s 11(2)(l) be read disjunctively.
SARS argued that s 11(2)(l)(iii) was dispositive of the matter. If the services were rendered to persons who were present in the Republic at the time the services were rendered that is the end of the matter and no zero-rating under s 11(2)(l)(ii) is possible.
The appellant argued that it is entitled to a zero-rating by virtue of s 11(2)(l)(ii)(aa). It was held that this not correct as s 11(2)(l) de nes services to non-residents which are zero-rated. Subparagraphs (i) to (iii) are exceptions to the zero- rated services, and are in effect services that are standard rated.
Section 11(2)(g)
This section provides for a zero-rating for services supplied in respect of movable property situated in an export country at the time services are rendered.
It was argued that that the incorporeal rights attaching to banknotes are situated in the country where they are issued and where the issuing bank resides. The banknotes exchanged by the appellant are therefore ‘movable property’ situated in ‘export countries’ at the time the services (that is, the exchange of currencies) are rendered.
Held
It was held that the argument ignores entirely the history of money and central banking. Banknotes, with or without a promise to pay its face value on demand, cannot be regarded as documents that embody incorporeal rights that are situated, in the case of foreign notes, elsewhere.
Further, the appellant’s services rendered in the duty-free area are subject to VAT at the standard rate and were correctly assessed as being so by the SARS.
The appeal was dismissed with costs.
[Link: http://c.ymcdn.com/sites/www.thesait.org.za/resource/resmgr/2014_case_law/master_currency_(pty)_ltd_v_. pdf]
17. Application for the review of procedural defects and actions of the Commissioner for SARS in the raising of an additional income tax assessment
[MTN International (Mauritius) Limited v CSARS 75 SATC 171 (North Gauteng High Court – 31 January 2013)]
Introduction
The North Gauteng High court delivered its judgment in the matter between MTN International (Mauritius) Limited and SARS (case number 23203/11) on 31 January 2013. The taxpayer brought an application in terms of s 6 of the Promotion of Administrative Justice Act (‘PAJA’) for the review of the procedural defects and actions of the Commissioner for SARS in the raising of an additional income tax assessment. An order was sought to set aside the assessment and to refund monies withheld by SARS.
Facts
MTN International (Mauritius) Limited (‘applicant’) is a company registered in Mauritius and a subsidiary of MTN Group Ltd, a JSE-listed South African company.
The applicant acquired operating groups (‘investments’) in MTN Nigeria and Investcom (Middle East) through loans made from its holding company (MTN Holdings). A new company was incorporated in Nigeria in which interests were acquired. The interest expenditures on the loans were claimed as a deduction amounting to R3 044 873 in 2006 in respect of the Nigerian investment and R238 171 121 in respect of Investcom.
SARS (‘the respondent’) had allowed such deductions during previous years.
As a result of an overpayment of provisional tax, the applicant claimed substantial tax refunds and the respondent conducted a refund audit.
The respondent had queried the interest expenses in previous audits. An apportionment of interest was agreed at a meeting in 2008.
An independent audit conducted by the Johannesburg of ce held the view that the interest did not qualify for a deduction as it considered it to be ‘unproductive interest’.
On 23 February 2011 the respondent requested the applicant to agree to an extension of the prescription period to the 2006 assessment.
The applicant stated that it was not amenable to the request since it had made full disclosure and had given the respondent suf cient time to resolve the issues.
A letter of ndings was issued on 24 February by the respondent to which the applicant replied on 25 March stating that the management services agreement was negotiated between the parties at arm’s length in compliance with s 31 of the Income Tax Act.
The respondent raised an additional assessment on 31 March 2011.
The applicant argued that the respondent had not properly considered all matters in its reply and that its conduct was unlawful and reviewable for the following reasons:
1. SARS issued the revised assessment on 31 March 2011 and, contrary to its powers, it back-dated the due date to 30
March 2011.
2. SARS refrained to apply the practice it consistently applied by setting the ‘second date’ 30 days later.
3. The decision taken was not rationally connected to the reason contained in the respondent’s letter of ndings.
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