Master Currency v CSARS (155/2012)  ZASCA 17
22 March 2013
Posted by: Author: SAIT Technical
Author: SAIT Technical
The Supreme Court of Appeal heard
the matter between Master Currency (Pty) Ltd and the Commissioner for the South
African Revenue Services (SARS) on 1 March 2013.
Malan JA delivered the judgment
on 20 March 2013.
appellant, Master Currency (Pty) Ltd, appealed against the dismissal by the
Johannesburg Tax Court (Victor J) of its appeal against the revised value-added
tax assessments in respect of the October 2003 to January 2005 tax period.
Master Currency (Pty) Ltd
("appellant) was awarded the tender to operate two bureaux de change in the duty
free area of the then Johannesburg International Airport in 1999. There were
numerous ‘duty free shops’ in this area where departing passengers were able to
purchase goods free of taxes and duties. There was also a VAT refund
administrator stationed in the area where departing non-residents could collect
cheques for the VAT they claimed back on purchases they had made in South
The services rendered by the appellant at the two bureaux were mostly
cash transactions concluded with departing non-resident passengers in
possession of a boarding pass and a passport. These passengers would present
South African rand to the appellant either in cash, travellers’ cheques or
cheques received from the VAT refund administrator. The appellant would then
convert the rand into foreign currency, calculate the exchange rate margin and
the commission and transaction fee and present the departing passengers with an
The two bureaux dealt with non-residents only in accordance with an
instruction by the Reserve Bank that residents were not allowed to purchase
foreign currency as part of their travel allowance once they had passed through
passport control and emigration.
The services rendered by the appellant are ‘financial services’ as
defined in s 2(1) consisting of the exchange of currency.
The appellant had previously
operated a point of sale computer system that did not have the functionality to
turn of the calculation of VAT at the standard rate. In 2003, a new system was
implemented and the charging of VAT at the standard rate was turned off. The basis for that assumption was the
perception that no VAT was chargeable in a duty free area, a perception aided
by complaints of non-resident customers (the previous concessionaire of the two
bureaux was ABSA Bank Ltd and the appellant had taken over a number of its
employees, including its manager, who informed it that goods sold and services
supplied in the departure area were deemed to be sold or supplied in
The result of this was that between 1999, when the appellant commenced
operations at the two bureaux de change, and 2003, VAT was charged on its fees
and commissions at the standard rate, but this was not done after October 2003
when the appellant’s own point of sale system was introduced.
During KPMG’s 2004 audit, it was
noticed that VAT was not being charged and the matter was referred to SARS for
clarification which resulted in an assessment where VAT was charged.
The appellant appealed against
the assessment to the Johannesburg Tax Court where the appeal was dismissed.
The present case is an appeal
against the decision of the Johannesburg Tax Court.
1. Does the rendering of services
in a duty free area qualify for any exemptions, exceptions, deductions and adjustments in terms of the Value
Added Tax Act?
2. Do the supplies made by the
appellant qualify as zero-rated supplies in terms of section 11(2)(l) or
11(2)(g) of the Value Added Tax Act?
Rendering of services in a duty free area
The Act as it read during the period of assessment contained no
reference to a ‘duty free area’ or a ‘tax free area’ and did not use a similar
expression. It was suggested that judicial notice may be taken of the fact that
many airports have areas where commercial transactions can be concluded free
from government duties.
It is held to be an excessively broad proposition, full of uncertainty
as to the nature of the ‘duties’ and ‘transactions’. No reliable evidence was
presented to support this proposition, particularly in so far as services are
This section provides for a zero
rating for services supplied to non-residents except where supplied in connection
with land in the Republic, movable property inside the Republic or where the
person is situated in the Republic at the time the services are rendered.
The appellant contended that the
rendering of its services were zero rated in terms of s11(2)(l)(ii)(aa) because
they were supplied in connection with movable property that was being
‘exported’. This, it was submitted, is sufficient to secure a zero rating and s
11(2)(l)(iii) cannot be applied independently to disqualify the zero
disjunctively. The appellant suggested that the word ‘or’ where it appears
after subparagraph (ii) in s 11(2)(l) be read disjunctively.
SARS argued that s 11(2)(l)(iii)
was dispositive of the matter. If the services were rendered to persons who
were present in the Republic at the time the services were rendered that is the
end of the matter and no zero rating under s 11(2)(l)(ii) is possible.
The appellant argued that it is
entitled to a zero rating by virtue of s 11(2)(l)(ii)(aa). It was held that
this not correct as section 11(2)(l) defines services to non-residents which
are zero rated. Subparagraphs (i) to (iii) are exceptions to the zero rated
services, and are in effect services that are standard rated.
This section provides for a zero
rating for services supplied in respect of movable property situated in an
export country at the time services are rendered.
It was argued that that the
incorporeal rights attaching to banknotes are situated in the country where
they are issued and where the issuing bank resides. The banknotes exchanged by
the appellant are therefore ‘movable property’ situated in ‘export countries’
at the time the services (that is, the exchange of currencies) are rendered.
It was held that the argument
ignores entirely the history of money and central banking. Banknotes, with or
without a promise to pay its face value on demand, cannot be regarded as
documents that embody incorporeal rights that are situated, in the case of
foreign notes, elsewhere.
Further, the appellants’ services
rendered in the duty free area are subject to VAT at the standard rate and were
correctly assessed as being so by the SARS.
The appeal was dismissed with costs.
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