Stellenbosch Farmers' Winery v C:SARS
30 May 2012
Posted by: SAIT Technical
The taxpayer is a wholesaler that imported and distributed
Bells whiskey in South Africa. It concluded a 10 year agreement relating to
this distribution which was prematurely cancelled more than three years before
the earliest date on which the distribution agreement could be terminated.
As a result, the tax payer received the sum of R67 million
from United Distillers, a United Kingdom (UK) based company with which the tax
payer had concluded the distribution agreement. The Commissioner of SARS included the receipt of this payment as part of the taxpayer’s gross
income in the assessment for tax. This was upheld by the tax court.
On appeal, the issue before the SCA was the taxpayer’s
contention that the payment was of a capital nature which attracted no tax
liability. The Commissioner’s cross appeal related to the tax court’s decision not
to allow interest on the unpaid provisional tax while the appeal in the second
case related to whether VAT was payable on the payment received because the
payment allegedly related to services supplied by the taxpayer to a
non-resident of South Africa but directly connected to movable property situate
in South Africa.
The SCA held that the tax court misinterpreted the evidence
where it reasoned that the payment received arose out of a calculation by the
taxpayer of its future loss of profits, and therefore the payment was part of
gross income. Evaluating the evidence in the case, the SCA found that the
taxpayer did not carry on the business of the purchase and sale of rights to
purchase and sell liquor products, did not embark on a scheme of profit making,
and discharged the onus of establishing the payment was of a capital
The cross-appeal was dismissed since the issue became moot
once the SCA found that the provisional tax was not payable.
The appeal with regard to VAT was dismissed on the bases
that the services in question, compositely the surrender of rights, were not
connected to any movable property, and on the basis that in any event the
exclusive distribution right held by the taxpayer was an incorporeal right not
situated in South Africa since United Distillers was registered in the UK,
which meant VAT was to be charged at zero per cent in terms of s 11 (2) (I)
(ii) of the Valued Added Tax Act.
Click here to access the judgment.