VAT and Branches of Foreign Companies and the Case

• Pages: 16-30
• DOI: 10.10520/ejc-btclq_v12_n3_a4
• Author: Des Kruger Kruger
• Date: 01 September 2021
• Published date: 01 September 2021

16 © Siber ink

VAT and Branches of Foreign

Companies and the Wenco

Case:

QUELLE CATASTROPHE!

DES KRUGER*

AbstrAct

The judgment of Fourie J in the recent Wenco International Mining Systems Ltd

(Wenco) case has resulted in a lot of confusion as regards the treatment of

local branches of foreign companies from a VAT perspective. Wenco supplies

software to the mining industry in, inter alia, South Africa. It established a

branch in South Africa to provide various support services to its clients in

South Africa and in Africa generally.

Conventional wisdom is that where a foreign company (in this case Wenco,

established in Canada) establishes a local branch operation (Wenco SA Branch)

with the specif‌ic purpose of rendering services to the foreign company (i e,

Wenco’s foreign main business), it was possible for the foreign company to

register the SA branch (Wenco SA Branch) as a vendor for VAT purposes. This

wisdom held true notwithstanding that the SA branch’s sole client would be

the foreign main business. The result would be that the services rendered by

the local branch (Wenco SA Branch) to the legal entity’s foreign main business

(Wenco) would be zero rated under section 11(2)(o) of the Value Added Tax

Act, 1991 (VAT Act), while the services supplied by Wenco to its clients in

South Africa would not attract any South African VAT in Wenco’s hands as it

would not be regarded as carrying on an enterprise in respect of any activities

carried on by it outside South Africa. Unfortunately, neither SARS nor FourieJ

gave much credence to this conventional wisdom and refused to register

Wenco SA Branch separately from Wenco qua legal entity. The result is that

Wenco is required to register as a vendor for VAT purposes and charge VAT

on any supplies it makes to South African recipients (per SARS and Fourie J).

While the article is on all fours with the argument by SARS, and endorsed

by Fourie J, that it is Wenco and not Wenco SA Branch that is carrying on an

‘enterprise’ as def‌ined, and that it is accordingly Wenco that must register as

a vendor, it nevertheless concludes that the services rendered by Wenco qua

South African VAT vendor to its main business in Canada is in fact zero rated

under section 11(2)(o) of the VAT Act. This author also argues that Wenco is

not required to account for South African VAT on the services supplied by its

main business to its mining clients in South Africa.

The article also explores whether the provisions of section 50 of the VAT

Act could apply in these circumstances. In essence, section 50 provides that

where any separate enterprises are carried on by a vendor (Wenco) or an

enterprise is carried on by a vendor (Wenco) in branches or divisions, the

* Consultant, Webber Wentzel.