VAT

Question 1

Facts:
British Airways recovered a “passenger service charge” on behalf of Airport Company Limited (a SA company). British Airways charged this passenger service charge as a separate line item on each passenger’s flight ticket. SARS contended that although the fare for the flight was zero-rated (being an international flight), the passenger service charge had to be standard rated.

Answer 1

British Airways PLC (recovery)

Issue:
The issue was whether British Airways had to account for VAT on the part of its ticket price which represented the recovery of the passenger service charge on behalf of the Airport Company Limited.

Principle:
VAT is levied on a service by a vendor, and not merely upon receipts for a service it did not supply (i.e. recovery on behalf of another TP).

Question 2

Facts:
Master Currency (MC) operated two bureaux de change in the duty free area at O.R Tambo international airport in the republic. Shops located in the duty free area are able to supply goods free of certain taxes and duties to departing passengers, for example no VAT are levied on goods purchased in the duty-free area in the international terminals.

MC rendered services to non-resident passengers whereby they presented their SA rand to MC, who would convert the rand into foreign currency. In doing so, MC could calculate the exchange rate margin, and charge a commission and transaction fee. The relevant amounts would all be indicated on an invoice presented to the passenger when the services were rendered.

The dispute betwen MC and SARS related to whether MC was, (on the currency exchange services rendered), obliged to levy and pay VAT at the standard rate of 14%, as per s7(1)(a), or at the rate of 0% by virtue of s11(2)(l).

Answer 2

Master currency (zero-rating)

Issue:
Whether the services rendered to non-residents in the duty-free areas should be zero rated for VAT purposes or not?

Principle:
Duty-free areas at international airports in SA is part of the republic. Thus, services rendered in these duty-free areas are services rendered in SA and should be standard rated for VAT purposes.