n Business Tax and Company Law Quarterly - VAT incurred in relation to M & A activity - revisited : the dragons rejoice!

Volume 3, Issue 2
  • ISSN : 2219-1585


The treatment of VAT in an M & A environment is fraught with uncertainty. The crucial issue is: must the goods and services acquired by the relevant vendor in the course of the M & A activity be utilised or consumed directly in the vendor's enterprise activities, or is it sufficient if the goods and services are merely indirectly utilised and consumed in the vendor's enterprise activities? The answer is of importance in determining whether any foreign services constitute taxable 'imported services' and whether the VAT incurred in respect of the goods and services constitute deductible input tax in the vendor's hands. In C: SARS v De Beers Consolidated Mines the company had engaged both local and foreign professional service providers to assist the company in considering a shareholder restructure that had been proposed by a consortium of shareholders. The Tax Court (see 2(2), July 2011) had found mainly in favour of De Beers as regards whether the foreign services constituted taxable 'imported services' or not, and confirmed that some of the VAT incurred in respect of the local services constituted deductible input tax.

On appeal, the Supreme Court of Appeal (SCA) found fully in favour of SARS and held that the foreign services constituted taxable 'imported services' and disallowed any input tax deduction in respect of the local services. While two judgments were delivered (both in favour of SARS), in essence the SCA found that the foreign and local services had not been utilised or consumed by De Beers in the course or furtherance of its 'enterprise', being the mining, marketing and selling of diamonds. This article examines the SCA decision and seeks to distil any general principles that might have emerged that would provide guidance going forward.

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