International cases update – August 2012; NZ decision on enterprise; decision of South Africa’s highest court

In August 2012, the following decisions relating to GST and VAT were handed down in New Zealand, the UK and Canada.

A decision of note is XXX and the Commissioner of Inland Revenue [2012] NZTRA 07 where the NZ Tribunal found that the taxpayer was entitled to be registered for GST as a property developer and to claim an input tax credit for the cost of acquiring land and associated costs with respect to a property development which did not proceed.  The decision provides a helpful insight into the approach of the NZ Courts on the difficult question of when an entity will be conducting a “taxable activity” in the context of the subdivision and sale of land. My analysis of the case can be accessed here.

Also, at the end of this post I briefly discuss a decision of the Supreme Court of Appeal of South Africa in Commissioner for South African Revenue Services v De Beers Consolidated Mines Ltd [2012] ZASCA 103 which touched on the difficult issue of the “attribution” of input tax credits in the context of acquisitions directly used for non-taxable purposes but used indirectly for making taxable supplies.  The approach of the Court may have some relevance to the construction of s 11-15 of the GST Act and the meaning of “creditable purpose”.

New Zealand

Taxation Review Authority

United Kingdom

Upper Tax Tribunal

  • HMRC v GMAC UK Plc [2012] UKUT 279 – VAT Bad debt relief – Insolvency Condition, Property Condition – whether valid under EU law – No; whether repayment claim resulted in a windfall contrary to EU law – need for reference – Yes; Time limit for making claims – whether time-barred as a result of overriding provisions of EU law

Tax Tribunal

  • Hope in the Community v Revenue & Customs [2012] UKFTT 499 – VAT – supply – whether funds received by the Appellant were grant monies outside the scope of VAT or consideration for a taxable supply of goods and services within sections 4 and 5 VATA 1994 – held taxable supplies – appeal disallowed
  • Skinner Ltd v Revenue & Customs [2012] UKFTT 525 – VAT – whether appellant’s dog food was pet food – meaning of “meal” in expression “biscuits and meal” in zero rating schedule – appeal allowed in part
  • Ward v Revenue & Customs [2012] UKFTT 499 – VAT  – exemptions – accommodation- whether the appellants supply of studio flats to the local authority was excluded from the exemptions within Group 1 of Schedule 9 of the Value Added Tax Act 1994 because they were operating a hotel or similar establishment – appeal dismissed

Canada

South Africa

In June 2012 the South African Supreme Court of Appeal handed down its decision in Commissioner for South African Revenue Services v De Beers Consolidated Mines Ltd [2012] ZASCA 103.  The question in this case was whether the acquisition of foreign advisory services (in respect of a proposed corporate restructure) were consumed by De Beers “for the purpose of making taxable supplies” so that input tax could be claimed.  The Tax Court sitting below found in favour of De Beers on the basis that the services were utilised and consumed by it for the purpose of making taxable supplies (i.e. in the course or furtherance of its enterprise of mining and selling diamonds).

The Supreme Court allowed the appeal by the Revenue.  In doing so, the Court considered the primary question to be whether the services were acquired “for the purpose of making taxable supplies”.

De Beers put its argument in the following way:

It was contended on behalf of DBCM that the provision of the services by NMR were necessarily attached to and according a concomitant of appellant’s mining or commercial enterprise as a public company.  As the appellant had chosen to conduct its business as a public company which, while conducting its operations, had certain statutory obligations, it was submitted that these services were directly linked to its making of ongoing supplies.  Thus, so it was argued, since these supplies can rightly be said to have been wholly utilised or consumed in the making of supplies, in the course or furtherance of appellant’s mining or commercial enterprise, they did not fall within the definition of imported services.  It was submitted that the Commissioner’s attitude embodied a restrictive approach in construing DBCM’s enterprise, limiting it to the nuts and bolds of the operational diamond business and excluding statutory duties imposed on the company in the interest of shareholders.  Put simply it was contended that NMR’s services were acquired in the furtherance of DBCM’s mining and diamond business.

The Revenue argued the following:

On behalf of the Commissioner it was submitted that the purpose in question is the purpose of the acquirer of the service and that, by its nature, the test is subjective.  DBCM’s reason for engaging NMR, so it was contended, was to acquire advice in relation to a take-over by parties to which it was related.  Accordingly, its board had a duty to report to the independent unit holders a to whether the offer was fair and reasonable and to obtain independent legal advice in that regard…The fact that this was the reason for DBCM’s engagement of NMR, rules out, as a relevant purpose, any of the incidental benefits which DBCM thought it might derive from the transaction.  

The Court agreed with the Revenue.  Also, the Court distinguished two tax cases (including the Australian decision in FCT v The Swan Brewery Co Ltd (1991) 22 ATR 295) where it was held that certain expenditure on services relating to corporate restructures was deductible for income tax purposes.

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