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Master Currency vs. SARS (Supreme Court of Appeal) 20 March 2013
What were the facts of the case?
operates foreign exchange facilities in the duty-free area of O.R. Tambo International Airport in Johannesburg.
It levied VAT at the zero-rate on its charges to departing non-resident passengers – and in good faith too.
But this didn't protect them from what was to happen next…
Declaring zero-rated supplies on your Vat return is an immediate trigger for a SARS Vat audit
If you deal with:
Petroleum, diesel or illuminating paraffin
Goods temporarily admitted into South Africa; and
Foreign goods or services…
Levying VAT on forex (foreign exchange) was questioned by Master Currency's auditors, and so they asked for a ruling from SARS on the matter.
SARS then stated the services which Master Currency provides are in fact standard-rated, and not zero-rated! As a result, SARS raised an assessment on the tax fraction of foreign exchange commissions which Master Currency earned!
You see, if local or foreign passengers buys goods in the departure duty-free shops, they will be taking the goods out of South Africa. They'll use them in another country, and so there's no Customs duty and the sale is zero-rated.
But foreign-exchange services, like what Master Currency offers, for departing passengers in the departing lounge, are for use within South Africa, and so these must be standard-rated, because goods for use in South Africa can't be zero rated.
As a result, the Supreme Court of Appeal dismissed Master Currency's appeal, and the assessment from SARS remained in place.
What can you learn here?
From this case, there are two very important things you need to know. They are that:
1. If you charge VAT at the zero rate, then you must prove to SARS that you're entitled to do so; and
2. If you can't provide documentary proof, then you could face penalties and interest.
Master Currency didn't understand those points, and as a result they paid the price for it, with a nasty SARS assessment being raised against them.
*If you want to learn more on zero-rated goods, such as a comprehensive checklist of what the zero-rated goods and services are, page over to Chapter B
01 in your the Practical VAT Loose Leaf Service.
If you don't already have a copy, simply click here.