Navigating the VAT Maze

• Jurisdiction: South Africa
• DOI: 10.10520/ejc-btclq_v16_n3_a2
• Author: Joon Chong,Des Kruger Kruger
• Pages: 1-14
• Date: 01 November 2025
• Published date: 01 November 2025
• Published By: Siber Ink

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© Juta and Company (Pty) Ltd

Navigating the VAT Maze:

INPUT TAX DEDUCTIBILITY FOR HOLDING

COMPANIES AND PRIVATE EQUITY STRUCTURES IN

THE POST-WOOLWORTHS ERA

JOON CHONG* AND DES KRUGER**

ABSTRACT

This article provides a comprehensive analysis of the evolving legal land-

scape governing value-added tax (VAT) input tax deductibility for holding

companies in South Africa, as well as for private equity structures. It examines

the seminal judgments in Commissioner for the South African Revenue Service

(CSARS) v De Beers Consolidated Mines Ltd, the recent landmark case of CSARS

v Woolworths Holdings Limited, and the corroborating Tax Court decision in

IT 76795. The analysis reveals a fundamental jurisprudential shift away from

the restrictive, transaction-focused approach established in De Beers towards

the holistic, purpose-driven framework solidif‌i ed in Woolworths. This evolution

presents both signif‌i cant opportunities and new compliance imperatives for

corporate structures, particularly within the private equity (PE) sector.

The central principle emerging from this body of case law is the critical

importance for a holding company to def‌i ne, structure, and evidence its

status as an ‘active investment holding company’. To successfully claim input

VAT on acquisition, capital-raising, and other strategic expenses, a holding

company must demonstrate that its core enterprise involves the continuous

and regular provision of taxable supplies – such as management, f‌i nancial, or

administrative services – to its underlying portfolio companies for a fee. The

mere passive holding of shares and receipt of dividends or interest is insuf-

f‌i cient to constitute a VAT enterprise for the purposes of deducting input tax

on associated costs.

The core thesis of this article is that the test for deductibility has evolved.

The question is no longer whether an expense has a ‘direct and imme-

diate link’ to a specif‌i c operational transaction, but rather whether it has a

clear ‘functional link’ to the company’s overall, continuous enterprise. The

Woolworths judgment has aff‌i rmed that costs incurred in furtherance of stra-

tegic expansion, such as capital-raising fees, are deductible if they serve to

enhance and grow an active investment management enterprise.

For the PE industry specif‌i cally, this represents a pivotal moment. The stra-

tegic imperative is clear: PE holding companies must proactively structure

their operations to align with the principles of the Woolworths judgment.

This involves establishing formal management service agreements, charging

market-related fees, and maintaining meticulous records that evidence active

strategic involvement in portfolio companies. By doing so, they can create a

defensible basis for claiming input VAT on a wide range of transaction costs,

thereby mitigating tax leakage and enhancing overall fund returns.

* Partner, Webber Wentzel.

* Consultant, Webber Wentzel.

2025 16(3) BTCLQ 1

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