Case Notes: Is the supply of services in the duty-free area at an international airport in South Africa subject to VAT? Master Currency (Pty) Ltd v Commissioner for the South African Revenue Services

• Jurisdiction: South Africa
• Pages: 515-532
• Published date: 25 May 2019
• Citation: (2014) 26 SA Merc LJ 515
• Date: 25 May 2019
• Author: S P van Zyl

Case Notes

IS THE SUPPLY OF SERVICES IN THE DUTY-

FREE AREA AT AN INTERNATIONAL

AIRPORT IN SOUTH AFRICA SUBJECT TO

VAT?: MASTER CURRENCY (PTY) LTD v

COMMISSIONER FOR THE SOUTH AFRICAN

REVENUE SERVICES

S P VAN ZYL

Associate Professor, University of South Africa

I INTRODUCTION

International passengers usually buy luxury goods such as perfume,

liquor, electronics, cigarettes, and fashion items at duty-free zones at

international airports or boarding ports under the impression that these

goods are stripped of all local and international taxes. The hustle and

bustle at these duty-free zones should indicate the popularity of the tax

incentive (see Frances Cha ‘And the world’s most lucrative airports

are. . .’ (2012) CNN Travel (14 June 2012), available at http://

travel.cnn.com/explorations/shop/and-worlds-most-lucrative-airports-

are–006206, accessed on 3 July 2013). It is well known that the incentive

is based on the perception that the goods so purchased are intended for

export and should, as a result, be stripped of local taxes in accordance

with the destination principle applied in modern Value-Added Tax

systems (see Liam P Ebrill The Modern VAT (2001) 15–16, 179–80).

However, can it be said that services rendered at duty-free zones at

international airports are intended to be utilised and consumed in an

export country, and subsequently be exempted from VAT or be subject

to VAT at zero per cent? In Master Currency (Pty) Ltd v Commissioner for

the South African Revenue Services [2013] 3 All SA 135 (SCA) (‘Master

Currency’), the Supreme Court of Appeal had to decide whether the

supply of services at a duty-free zone at OR Tambo International Airport

should be subject to VAT.

515

(2014) 26 SA Merc LJ 515

© Juta and Company (Pty) Ltd

II THE FACTS

Master Currency was established in 1995 with the assistance of Rennies

Foreign Exchange (Rennies). It was licensed in 1997 by the South

African Reserve Bank as a foreign exchange dealer with limited authority

to deal in foreign exchange for travelling purposes with non-residents

visiting South Africa and residents leaving South Africa (para 4). Master

Currency had branches throughout South Africa and, until 2003, it used

Rennies’ point of sale computer system at all its branches (ibid). As

Rennies did not conduct its business at a duty-free zone, the point of sale

computer service automatically levied VAT at the standard rate on fees

charged for foreign exchange services (ibid).

In 1999, Master Currency (Pty) Ltd was awarded the tender to operate

two bureaux de change in the duty-free zone at the Johannesburg

International Airport (as it was then known) (para 2). It took over this

concession from ABSA Bank Ltd, together with several ABSA employ-

ees, including the manager (para 4). Alongside Master Currency, various

duty-free shops and a VAT refund administrator operated in the duty-

free zone (ibid). Non-residents departing South Africa could collect

cheques for VAT refunds on their South African purchases intended for

export from the refund administrator (para 3).

Master Currency mostly concluded cash transactions with departing

non-residents in possession of a valid passport and boarding pass (ibid).

These travellers would typically present Master Currency with South

African rand either in cash, travellers’ cheques, or cheques from the VAT

refund administrator. Master Currency would convert these sums into

foreign currency, calculate the exchange rate margin, commission, and

transaction fee, and present the departing traveller with an invoice

(ibid). The traveller would then pay over the rand value in exchange for

the foreign currency equivalent less commission and transaction fees

(ibid). On the South African Reserve Bank’s instruction, Master Cur-

rency dealt only with non-residents (ibid). Residents are not allowed to

purchase foreign currency once they have passed through passport

control and emigration (ibid). As Master Currency depended on the

Rennies point of sale computer service, it levied VAT on the services

rendered at the duty-free zone until October 2003 (para 4). From

October 2003 it implemented its own software system, which allows a

branch to charge or not to charge VAT on a transaction (ibid). Assuming

that no VAT should be charged in a duty-free area, Master Currency

turned off the VAT functionality in 2003 on its systems in the branches

in duty-free areas (ibid). This assumption was based on various factors,

including these:

(2014) 26 SA MERC LJ516

© Juta and Company (Pty) Ltd