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VAT Case Law: Don't make the same mistake Master Currency did with zero-rated goods and services

by , 03 February 2016
If you supply goods or services in a duty-free zone, it DOESN'T necessarily mean you shouldn't levy VAT on those goods or services!

Take note of the following VAT case involving Master Currency and avoid making their mistake regarding zero-rated supplies....

Master Currency vs. SARS (Supreme Court of Appeal) 20 March 2013

What are the facts?

Master Currency operates foreign exchange facilities in the duty-free area of O.R. Tambo International Airport.

It levied VAT at the zero rate on its charges to non-resident (departing) passengers. It did this in good faith because shops in the duty-free zone sell goods at the zero rate.

What happened?

This procedure (namely VAT levied on forex) was queried by Master Currency's auditors. They then asked for a ruling from SARS.

SARS then stated that the services which Master Currency provides are STANDARD-RATED. So they raised an assessment on the tax fraction of foreign exchange commissions which Master Currency earned.

Keep reading to see where Master Currency went wrong…


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Where did Master Currency go wrong?

If a local or foreign passenger buys goods in the departure duty-free shops, he taking the goods out of South Africa. In other words, she'll consume them in another country. So there's no Customs duty and the sale is zero-rated (examples here include liquor, cigarettes, etc.).

BUT, the foreign-exchange services, for departing passengers in the departing lounge, are for use IN South Africa. So, these must be standard-rated, because goods for use, in South Africa, can't be zero rated.

The Supreme Court of Appeal dismissed the appeal, and so the assessment from SARS remained in place.

What can you learn from this case?

If you charge VAT at the zero rate, then you must prove to SARS that you're entitled to do so.

If you can't provide documentary proof, then you could face penalties and interest.
*Do you want to learn more? Then subscribe to the Practical VAT Loose Leaf Service.

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