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Master Currency v CSARS (155/2012) [2013] ZASCA 17

22 March 2013   (0 Comments)
Posted by: Author: SAIT Technical
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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.

The 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 Africa.

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 invoice.

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 international territory).

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. 

Matters to consider: 

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 concerned.

Section 11(2)(l)

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 ratingunders11(2)(l)(ii)becausesub-paragraphs(i)to(iii)mustberead 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.

Section 11(2)(g)

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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