There be dragons: the VAT implications arising from the De Beers SCA judgment

In this article the author examines a recent judgment delivered by the Supreme Court of Appeal (SCA) on 1 June 2012 upholding an appeal from the Tax Court, Cape Town with costs. The Tax Court had to determine whether the services acquired by De Beers Consolidated Mines Ltd (DBCM) from NM Rothschild and Sons Ltd (NMR) were imported services as defined in section 1 the Value-Added Tax Act 89 of 1991 and subject to VAT and whether the VAT incurred by DBCM in respect of the local advisory services acquired by DBCM constituted input tax as defined in the Act. The Tax Court found largely in favour of DBCM, in that the foreign services did not constitute imported services. In respect of the VAT paid by DBCM for the local advisory services it acquired, which relate inter alia to an offer to purchase the shares in DBCM, except insofar as the services rendered by the law firm Webber Wentzel Bowens (WWB) were allowed as deductible input tax, the Tax Court found that the services were otherwise not deductible as input tax as they related to the rendering of non-taxable supplies and that they did not relate to DBCM’s enterprise activities. On appeal, two judgments were written for the court: a lengthy judgment written jointly by Navsa and van Heerden JJA (the minority), and a separate concurring judgment written by Southwood AJA (Leach JA and Maclaren AJA concurring with that separate judgment) (the majority). The minority and majority judgments reached the same conclusion—albeit for different reasons: the foreign advisory services constituted taxable ‘imported services’ and no deduction for input tax was allowed in respect of the local services acquired by DBCM.