VAT — A Tale of Two Supreme Court of Appeal Decisions:

• Author: Des Kruger Kruger
• DOI: 10.10520/ejc-btclq_v13_n2_a4
• Published date: 01 June 2022
• Date: 01 June 2022
• Pages: 18-28

18 © Siber ink

VAT — A Tale of Two Supreme

Court of Appeal Decisions:

RENNIES TRAVEL AND CAPITEC

DES KRUGER*

AbstrAct

Two recent value-added tax (VAT) cases were heard by the Supreme Court

of Appeal (SCA); one (Rennies Travel v CSARS) dealt with the issue of whether

the commissions paid to Rennies by certain airlines in the form of f‌lat and

supplementary commissions constituted additional consideration for a single

supply of the zero-rated service of arranging the transportation of passengers

on international journeys, or consideration for a separate supply of services

comprising incentives for ticket sales for such international travel or for the

promotion and marketing of the ticket sales by the airlines.

The Tax Court found in favour of SARS on the basis that the supplementary

commissions (SARS had conceded that the f‌lat rate commissions related to

the zero-rated single supply of arranging the international travel of passen-

gers) were paid in respect of the standard-rated promotion and marketing

services undertaken by Rennies.

The SCA found in favour of Rennies on the basis that the commis-

sions constituted consideration for the single supply of services by Rennies

comprising the zero-rated arranging of transport of passengers on interna-

tional journeys (section 11(2)(d) of the Value-Added Tax Act, 1991 (VAT Act).

While it is submitted that the decision is correct, it is questionable whether the

SCA was correct as regards the premise upon which the decision was made.

Rather, it is arguable that the commissions were paid for separate supplies of

services to the airlines, but such separate services still comprising the zero-

rated supply of arranging international travel. This approach is important as it

recognises that the airlines themselves are recipients of the services rendered

by Rennies. While not crucial for purposes of sustaining the zero rating of the

services supplied by Rennies, this approach would have had great signif‌icance

had the services been standard rated, as the airlines would in such circum-

stances only have been able to claim input tax relief for the VAT incurred (if

standard rated) if it could be said that the relevant supplies had been made

to them.

The second case (CSARS v Capitec Bank Limited) dealt with the ability of

Capitec bank to claim a deduction of the tax fraction of payments made to

indemnify its credit customers under section 16(3)(c) of the VAT Act. In essence

loan cover is provided by Capitec to the bank’s clients so that if the client dies

or was retrenched his or her debt to the bank would be extinguished. Capitec

had stated that the loan cover was provided free of charge. On the happening

of the relevant event (death or retrenchment) Capitec would make a claim

against Guardrisk under its policy of insurance with the insurer and then apply

the proceeds in setting off the loan indebtedness of the client.

* Consultant, Webber Wentzel; Adjunct Professor, Department of Commercial Law,

University of Cape Town.