Rennies Travel – Paving the way to old horizons?

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Rennies Travel – Paving the way to old horizons?

• 21 June 2022
• VAT
• Christo Theron

The Supreme Court of appeal in Rennies Travel (Pty) Ltd v SARS (207/2021) [2022] ZASCA 83 on 6 June 2022 handed down a judgement in favour of Rennies Travel in a Value-Added Tax dispute with SARS. The case deals with certain technical issues. It also comments on the role of tax courts who in the recent past appear to have become a law upon themselves.

Introduction

In the Rennies Travel case the Supreme Court of Appeal deals with the technical requirement of linking consideration for a taxable supply to an actual identifiable supply of taxable goods or service before there can be any liability for VAT.

It also deals quite explicitly with the approach that tax courts should take when reviewing facts put before them.

In this article we deal with the above issues.

The role of the tax court

The traditional role of the tax court has been that of reviewing a set of facts and contentions placed before the court and concluding on the tax consequences thereof.

A disturbing trend in the last year or two has been tax court providing judgements based on contentions not raised by taxpayers or SARS, but by the court itself.

The Rennies Travel case is a case in point. The tax court concluded based on its own view that the amounts under dispute related to consideration for marketing expenditure, notwithstanding the fact that this was never contended by any party and that it could not be reconciled with the formal agreements that governed the payments.

The Supreme Court of appeal held that “This approach is impermissible and wrong.”

Need we say anything more …

The technical arguments

The case deals with whether payments in excess of fixed standard fees charged for the supply of services (normally referred to as incentives) should be afforded the same VAT treatment as that subject to the standard fee arrangement.

In the Rennies Travel case the services subject to the standard fee arrangement were zero-rated. SARS argued that the incentive payments related to a different supply that would not be subject to VAT at the standard rate.

SARS argued that the incentives were paid for meeting the revenue targets and not for the zero-rated services.

The court did not agree with this argument. It ruled that the meeting of revenue target is not a supply of service in itself. To determine the VAT consequence of such payments, the actual service for which the payments are received must be identified.

The court considered the commercial agreements between the contracting parties and held that the standard and incentive payments were merely two types of consideration for the same supply. The same VAT principles accordingly had to be applied to both categories of consideration. In the Rennies Travel case this meant that the receipts were subject to VAT at the zero rate.

Case closed …

The learning

From a tax court process perspective, hopefully they have taken notice of this judgement.

From a technical perspective, it is always necessary to be able to identify a specific supply in respect of which consideration is received. In this regard agreements  should be meticulously drafted to ensure that unnecessary dispute with SARS do not result.

Click here to access the case.

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