THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case no: 863/2023
In the matter between:
THE COMMISSIONER FOR THE SOUTH
AFRICAN REVENUE SERVICE APPELLANT
and
WOOLWORTHS HOLDINGS LIMITED RESPONDENT
Neutral citation: The Commissioner for the South African Revenue Service v
Woolworths Holdings Limited (863/2023) [2025] ZASCA 99
(04 July 2025)
Coram: ZONDI ADP , DAMBUZA and MOTHLE JJA and NAIDOO
and DIPPENAAR AJJA
Heard: 26 August 2024
Delivered: This judgment was handed down electronically by circulation
to the parties’ representatives via email, publication on the
Supreme Court of Appeal website, and release to SAFLII. The
date and time for hand -down is deemed to be 04 July 2025 at
11h00.
Summary: Value Added Tax 89 0f 1991 (VAT Act) – An entity
conducting an enterprise as an investment company is entitled to input tax
deduction in respect of costs incurred in relation to a rights offer made to
shareholders to raise capital for further investment which would increase the
value of its investments.

2


ORDER

On appeal from : The Tax Court of South Africa , Western Cape (Grobbelaar AJ,
with Pasiwe and Gouws sitting as members of the Tax Court ):
1 The late filing of the notice of appeal is condoned.
2 The appeal is reinstated.
3 The appellant shall pay the respondent’s costs of the application for
condonation and reinstatement , including the costs of two counsel.
4 The appeal is dismissed with costs , including the costs of two counsel ,
determined in terms of Scale C of the tariff of fees for legal practitioners who
appear in the Superior Courts .

JUDGMENT

Dambuza JA ( Zondi ADP and Mothle JA and Naidoo and Dippenaar AJJA
concurring) :

Introduction
[1] During 2014 the respondent, Woolworths Holdings Limited (Woolworths
Holdings) acquired all the shares in an Australian entity, David Jones Limited
(David Jones). In the course of raising the capital for that acquisition , Woolworths
Holdings utilised the underwriting services of resident (South African) and non-
resident service providers , and incurred expenses accordingly . It also incurred
expenses in respect of underwriting services obtained from non -resident service
providers. The main issue in this appeal is whether Woolworths Holdings is
entitled to deduct , as input tax, the value -added Tax ( VAT ) it paid on the fees
charged to it by local service providers in relation to the underwriting services .
3

Aligned to that issue , is the question whether Woolworths Holdings was obliged
to declare and pay VAT on the fees it paid to the non-resident services suppliers .
A related issue is whether SARS was entitled to impose an understatement
penalt y (USP) in terms of s 222 of the Tax Administration Act 28 of 2011 ( the
TAA ) in relation to what it considered to be understatements in the declarations
made by Woolworths Holdings.

[2] The Tax Court of South Africa , Western Cape (Grobbelaar JA, with Pasiwe
and Gouws concurring) (the Tax Court) upheld an appeal against the
disallowance by SARS of Woolworths Holding’s input tax deduction claim for
the costs of the underwriting services and the VAT levied for the imported
services . Additionally, the court remitted the understatement penalty to
Woolworths Holdings . The appeal by SARS in this Court , in terms of s 135(1)
read with s 132(b) of the TAA, is against the judgment of the Tax Court, and is
with the leave of th at court.

Background
[3] Woolworths Holdings is a listed company o n the Johannesburg Stock
Exchange . It conducts an enterprise whose activities include the supply of
management and support services to its subsidiaries . As an active holding
investment company, it actively participates and assists in the management of its
subsidiaries , including providing financial services and management of the
group’s capital (referred to as the treasury function). It charges management fees
for these services. Its subsidiaries include Woolworths (Pty) Ltd (Woolworths) ,
a retail chain store i n which it holds 100% of the issued share capital .

[4] On 1 August 2014 Woolworths Holdings acquired all the shares of David
Jones Limited (David Jones), an Australian department store, for a purchase price
of R21, 4 billion (A$2.1 billion). At th at time, the shares were held through Vela -
4

Investment Holdings (Pty) Ltd (Vela) and Osiris Holdings (Pty) Ltd ( Osiris ).
Woolworths Holdings still hold s the David Jones shares through these
‘intermediate’ companies.1 The acquisition was funded by existing cash , new
debt facilities , and equity funding raised through a R10 billion fully underwritten
renounceable rights offer .2 Woolworths Holdings concluded an unsecured
syndicated facility agreement with Citibank, N.A (London), J P Morgan Limited
(Johannesburg) , Citi Bank South Africa, and the Standard Bank of South Africa
Limited (SBSA), as underwriters and lenders , for provision of a short -term equity
bridge facility in the amount of u p to R1 1 billion . At completion of the
transaction , the equity bridge facility was repaid with the capital raised from the
rights offer.

[5] The rights offer was made to South African residents and non -resident
shareholders in the ratio of 54.44% (resident) and 45.56 % (non-resident) . For this
purpose , Woolworths Holdings secured professional (underwriting) services
from local suppliers and non -resident suppliers (imported services) . The services
related to arranging and executing the equity bridge facility and the rights offer .3
Consequently , Woolworths Holding s incurred professional fees in relation to
these services .

[6] Wool worths Holdings incurred VAT of R18 609 841.21 in respect of
SBSA’s underwriting fees . When determining its liability for VAT for the period
ending in February 2015 it deducted input tax of R8 478 752. 06, being a portion
(54.44% ) of the VAT incurred in relation to the services used in respect of the
rights offer taken up by resident shareholders . It the declared R15 489 266 in

1 Woolworths Holdings holds 100% of the shares in Osiris and Osiris holds 100% of the shares in Vela. Vela
acquired 100% of the shares in David Jones.
2 An invitation to existing shareholders to buy additional new shares in the company at a discount to the market
price on a stated future date.
3 Essentially assisting Woolworths Holdings with raising the capital needed to purchase the David Jones shares.
5

respect of the portion (45.56%) of the VAT incurred for the services supplied by
non-resident service providers as ‘imported’ services and claimed a reduction of
a portion (R12 883 990.78 ) of such costs. The input tax deduction claim resulted
from a tax opinion given to Woolworths Holdings by Finvision VAT Specialists
(Pty) Ltd (Finvision) . It was based on the supply of the share s to residents being
an exempt supply and the supply to non-residents being a zero -rated taxable
supply .4 In essence , Woolworths Holdings deducted input tax only in respect of
the costs incurred in respect of local suppliers and paid output tax in respect of
the costs incurred in respect of foreign suppliers of service s.

[7] SARS disallow ed the deduction of the VAT input of R8 478 752.06 and
levied a further VAT output tax of R28 373.90 on what it regarded as the correct
value of the total imported service s (in addition to the R15 489 266.12 that had
been declared by Woolworths Holdings ). SARS then imposed a 10% USP of
R2 136 274.28 against Woolworths Holdings, in terms of ss 222 and 223 of the
TAA , for the amounts i t considered to have been understated .

[8] The basis for disallowing the input tax deduction was that the services
relating to the rights offer were not taxable supplies rendered for the purpose of
consumption, use or supply in the course or furtherance of an enterprise
conducted by Woolworths Holdings , as provided in the V alue-Added Tax Act 89
of 1991 (the VAT Act) . SARS reaso ned that prior to the acquisition of David
Jones , Woolworths Holdings had not engage d in the activity of issuing shares in
a continuous, unchanged or uninterrupted manner , as an enterprise . It had not
traded in the issuing of shares prior to the acquisition and did not do so subs equent
to the acquisition . It never conducted an ‘enterprise ’ continuously or regularly as
envisaged in s 1 of the VAT Act. Rather, it conducted the rights offer as an

4 In terms of s 2(1)(c) and (d) of the Value -Added Act 89of 1991 (the VAT Act) the issue of shares and debt are
‘deemed to be financial services ’.
6

isolated activity . The issuing of the shares was ‘not a sufficiently continuous or
regular activity so as to constitute an enterprise activity’.

[9] For the same reason , SARS was of the view that the costs incurred in
respect of the services rendered by the foreign suppliers related to a non-
enterprise activity (the rights offer) . A further additional output liability
assessment was raised by SARS in respect of services supplied for due diligence ,
on the basis that the expenditure was incurred prior to the actual acquisition of
David Jones .

[10] Woolworths Holdings lodged an appeal in terms of s 104 of the TAA ,
against the additional assessments . Only a portion of the objection relating to the
output tax was upheld . Woolworth s Holdings approach ed the Tax Court on
appeal.

[11] The Tax Court found that the VAT charged on the underwriting services
supplied to Woolworths Holdings by resident service providers was deductible
input tax. It found that Woolworths Holdings conducted an enterprise as an
investment company, which consisted of acquiring and managing investments,
including raising capital to acquire subsidiaries and capital management services
of the subsidiaries. As such, t he expenditure was therefore incurred in the conduct
of the enterprise conducted by Woolworths Holdings , the Court found. It also
found that the services supplied in relation to the issuing of shares under the rights
offer to non -resident shareholders were not imported services and that
Woolworths Holdings was not liable for understatement penalties.

[12] In this Court , SARS appeals against the reversal of its disallowance of the
input tax deduction together with its levying of VAT on what it considered to be
imported services , and the imposition of the USP.
7


Input tax
[13] In determining these issues t he starting point is s 7 of the VAT Act which
regulates the imposition of VAT on the suppl y of goods or services , and the
supply of imported services within the Republic . The imposition of VAT under s
7 is subject to exemptions, exceptions, deductions and adjustments as specified
in the VAT Act.

[14] Section 7 (1) and (2) of the VAT Act reads as follows :
‘7 Imposition of value -added tax
(1) Subject to the exemptions, exceptions, deductions and adjustments provided for in this
Act, there shall be levied and paid for the benefit of the National Revenue Fund a tax, to be
known as the value -added tax -
(a) on the supply by any vendor of goods or services supplied by him on or after the
commencement date in the course or furtherance of any enterprise carried on by him;
(b) on importation of any goods into the Republic by any person on or after the
commencement date;
(c) on the supply of any imported services by any person on or after the commencement
date, calculated at the rate of 15 per cent on the value of the supply concerned or the
importation, as the case may be.
(2) Except as otherwise provided in this Act, the tax payable in terms of paragraph (a) of
subsection (1) shall be paid by the vendor referred to in that paragraph , the tax payable in
terms of paragraph ( b) of that subsection shall be paid by the person referred to in that
paragraph and the tax payable in terms of paragraph ( c) of that subsection shall be paid by the
recipient of the imported services ’. (Emphasis added .)

[15] Section 7(1) create s a liability for the payment of VAT in relation to three
kinds of persons: a vendor, an importer of goods and a recipient of imported
services. A vendor is defined in s 1 of the VAT Act as a person who is required
to be registered under that Act. In terms of s 23 of the Act any person who
conducts an enterprise in this country, exceeding the prescribed registration
8

threshold value (of R1 million) in respect of taxable supplies, over the prescribed
period must register with SARS as a vendor.

[16] Once a vendor is registered as such, under s 23, it must furnish returns to
SARS in which it calculate s and pay s to SARS the VAT payable by it for each
prescribed period. Vendors must then levy VAT on all their taxable supplies and
are requ ired to account for output tax on taxable supplies made .5 In terms of
s 16(3) , vendors are entitled to deduct from th eir output tax liability , the
associated input tax incurred.6

[17] Ordinarily, VAT is intended to levy tax on final consumption of goods and
services that take place within the Republic , irrespective of where the goods are
produced. Therefore, Woolworths Holdings would become liable for VAT on the
value of the services it utilised from its suppliers in relation to the rights offer.
However, as stated, Woolworths Holdings contends that the services were
acquired in the course of furthering its enterprise and the attendant expenses were
incurred for the purpose of making taxable supplies as contemplated in the
definition of ‘ Input tax’. In addition , it asserts that the rights offer taken up by
local shareholders was a supply of financial services which is exempt from VAT
in terms of s 12( a) of the VAT Act. In respect of the rights offer taken up by non -
residents , it asserts that the supplies are zero -rated under s 11(2)(l) of the VAT
Act.

[18] Input tax, in relation to a vendor, is defined in s 1 of the VAT Act as:
‘(a) tax charged under section 7 and payable in terms of that section by —

5 Section 7(1 )(a) of the VAT Act.
6 Section 16(3) of the VAT Act regulates the calculation of tax payable as follows:
‘(3) Subject to the provisions of subsection (2) of this section and the provisions of sections 14, 15 and 17, the
amount of tax payable in respect of a tax period shall be calculated by deducting from the sum of the amounts of
output tax of the vendor which are attributable to that period, as determined under subsection (4) and the amounts
(if any) received by the vendor during that period by way of refunds of tax charged under section 7(1) (b) and (c)
and 7(3) (a) . . . ’
9

(i) a supplier on the supply of goods or services made by that supplier to the vendor;
or
(ii) the vendor on the importation of goods by that vendor; or
(iii) the vendor under the provisions of Section 7(3) [not relevant in this instance ]
where the goods or services concerned are required by the vendor wholly for the
purposes of consumption, use or supply in the course of making taxable supplies or,
where the… services are acquired by the vendor partly for such purpose, to the extent
(as determined in accordance with the provisions of section 17) that the goods or
services concerned are acquired by the vendor for such purpose. ’

[19] What this means is that i nput tax is incurred on taxable supplies used by
the vendor and on imported goods used in making the taxable supplies in the
course or furtherance of any enterprise conducted by the vendor. Under s 1 of the
VAT Act, ‘any supply of goods or services which is chargeable with tax under
the provisions of s 7(1) (a) including tax chargeable at a rate of zero percent under
s 11’, is regarded as ‘ taxable supply’ .

[20] Deviations from liability for VAT are provided for in ss 11 to 17 of the
VAT Act. Section 11 provides for VAT on the supply of certain goods to be
charged at the rate of zero per cent in specified circumstances. The supply of
financial services, other than the zero rated per cent under s 11, is exempt from
VAT charges in terms of s 12(a). That s ection provides as follows :
‘12 Exempt supplies . - The supply of any of the following goods or services shall be exempt
from the tax imposed under section 7(1)(a):
(a) The supply of financial services, but excluding the supply of financial services which,
but for this paragraph, would be charged with tax at the rate of zero percent under
section 1 1.’
10

In terms of s 11(2)(l), financial services supplied to non -residents are zero rated.
In addition, under s 2(1)(c) and (d) of the VAT Act, the issue of shares and debt
are ‘deemed to be financial services’ .7

[21] In Commissioner for South African Revenue Service v De Beers
Consolidated Mines Ltd8 (De Beers ), this Court held that the first step in
determining if goods or services are tax able supply is to identify the activity or
business of t he enterprise and to make factual findings as to what the enterprise
is constituted of .9 The activ ities that form the enterprise must first be determined
and thereafter an enquiry shall be conducted into whether the goods or services
in question were used in the course or furtherance of the enterprise . If they were ,
then they we re a taxable supply in relation to the enterprise and proportionate
input tax may be deducted.
Determining the enterprise
[22] The relevant parts of s 1 of the VAT Act define ‘enterprise’ as follows :
‘‘‘[E]nterprise’’ means -
(a) in the case of any vendor , any enterprise or activity which is carried on continuously or
regularly by any person in the Republic or partly in the Republic and in the course or
furtherance of which goods or services are supplied to any other person for a consideration,
whether or not for profit, including any enterprise or activity carried on in the form of a
commercial, financial, industrial, mining, farming, fishing, municipal or professional

7 Section 2 of the Act provides:
‘Financial services. -(1) For the purposes of this Act, the following activities shall be deemed to be financial
services:
(a) . . .
(c) the issue, allotment, drawing, acceptance, endorsement or transfer of ownership of a debt security;
(d) the issue, allotment, or transfer of ownership of an equity security or participatory security.’
8 De Beers Consolidated Mines v CSARS [2012] ZASCA 103 para 44.
9 Ibid para 44.
11

concern or any other concern of a continuing nature or in the form of an association or
club;
Provided that -
(i) anything done in connection with the commencement or termination of any such
enterprise or activity shall be deemed to be done in the course or furtherance of that
enterprise or activity.
(v) any activity shall to the extent to which it involves the making of exempt supplies not
be deemed to be the carrying on of an enterprise ;’ (Emphasis Added .)

[23] In De Beers , this Court summed up the requirements for entitlement to
deduct input tax in computation of VAT liability as follows:
‘[A] vendor must (1) be registered in terms of the Act, (2) be carrying on an enterprise and (3)
must have paid VAT on goods or services which the vendor acquired wholly for the purpose
of consumption, use or supply in the course of supplying goods or services which are
chargeable with tax under the provisions of s 7(1)(a) of the VAT Act, that is, goods or services
must have been supplied in the course or furtherance of the enterprise ’.10

Woolworths Holdings’ Enterprise
[24] In the Tax Court , it was common ground that Woolworths Holdings is a
vendor as envisaged in the VAT Act. It was also not in disput e that it is an active
investment company that provid es management and support services to its
subsidiaries. Its main business as described in its memorandum of incorporation ,
is: ‘to carry on the business of an investment holding company , focusing on dir ect
or indirect investment in retail operations and matters ancillary thereto’.

[25] The Tax Court found accordingly that Woolworths Holdings conducts the
enterprise of an active investment holding company , which entails acquiring and
managing investments, including capital investments and assisting in the
management of such investments .

10 Para 48. The court also referred to s 17 of the VAT Act which , regulates computation of input tax where
goods or services are acquired partly for consumption or use in the course of making taxable supplies.
12


[26] In this Court , SARS accept s that Woolworths Holdings receives dividends
from the investments it holds and nurtures , but it insists that the dividends are
received as a result of shareholding and not because of an enterprise conducted
by it . SARS also contends that the description of the services supplied by
Woolworths Holdings to its subsidiaries , as capital management , is an
obfuscation.

[27] I have difficulty understanding this argument. SARS ignore s a significant
portion of the activities conducted by Woolworths Holdings. No explanation is
offered as to why activities relating to the investment s and financial management
of those investments must be ignore d in the factual determination of the enterprise
of Woolworths Holdings.

[28] It is true that t he definition of ‘enterprise’ requires , as a basic premise, that
the activity of the enterprise be conducted continuously or regularly. But t hat
definition makes express provision, by way of the p roviso, for activity conducted
in connection with the commencement or termination of the continuous activity ,
to be deemed to have been performed in the course or furtherance of the enterprise
or the continuous activity. The inclusion of the proviso in the definition of
‘enterprise ’, demands a holistic consideration of the activities of the entity under
consideration. It includes , as part of business operations, transactions that are
performed at the start and the end of such business operation s.

[29] The contention by SARS that a once -off transaction at the start of a
business enterprise does not form part of the enterprise is incorrect . Apart from
ignoring the facts relating to the activities of Woolworths Holding, that argument
is inconsistent with the textual definition of ‘enterprise’ in the VAT Act,
including the proviso. In addition, t he distinction sought to be drawn between an
13

‘enterprise’ and its ‘business’ is strained . The reference to the ‘activity’ of the
vendor in the definition of enterprise puts paid to the distinction advanced by
SARS.

[30] The courts have held that the words ‘any enterprise or activity’ in the
definition of ‘enterprise’ in the VAT Act must be given a broad interpretation . In
Commissioner for South African Revenue Services v Tiger Oats (Tiger Oats),11
this Court rejected an argument similar to the contention advanced by SARS in
this case . The Court held that even a business conducted intermittently, with long
intervals, met the requirements of an enterprise as defined in the VAT Act. It
further held that :
‘….[Tiger Oats] is a public company listed on the stock exchange and it proclaims its object to
be “to carry on the business of an investment holding company”. That immediately negates any
suggestion that the making of investments by it is, if it occurs at all, will be purely collateral
and unrelated to the other business activities. It is to be its very raison d’etre . (Indeed, if that
is not the business which it is carrying on, what, one may ask, is that business? No other is
described in the memorandum and articles of a ssociation as being its main business and main
object.) That, in turn, also negates the suggestion that making investments by it was not
intended to be an ‘ ‘activity of a continuing nature ’’. Any member of the public subscribing for
shares in such a company would be entitled to expect, and it would be the duty of the company’s
board of directors to ensure, constant monitoring of the investments which the company chose
to make, and appropriate action by way of new investment, further investment, or
disinvestment as the need arose. Moreover, as was said in Smith v Anderson (1880)15Ch 247
(CA) at 260 -261 and Platt v CIR 1922 AD 42 at 51, where the question is whether a company
is in fact carrying on a business, the fact that it was formed for the purpose of doing so indicates
prima facie the presence of the element of continuity of activity which is said to be a
characteristic feature of carrying on a business.
The respondent is not a mere passive investor. It is an investor which is the holding company
of the subsidiaries in which it holds shares. It is in a position to control the appointment of the
directors of those subsidiaries. Its own executive directors are drawn from the boards of the

11 Commissioner for South African Revenue Services v Tiger Oats [2003] ZASCA 43; [2003] 2 All SA 604
(SCA); 65 SATC 281.
14

subsidiaries. So intimately it is involved in the affairs of the subsidiaries that it is their banker.
The very appellation given to the group of companies (The Tiger Group) is reflective of its
dominance. Its fortunes and those of its shareholders are dep endent upon the performance of
the companies in which it has invested. Their performance is enhanced by the active
participation of the respondent in their affairs by acting as their banker and providing loans
which are either interest -free or bear rates o f interest more favourable than could be bargained
for in the market... ’12

[31] The similarities in business activities and relationship with subsidiaries
between the Tiger Group in Tiger Oats and Woolworths Holdings in this case,
are immediately apparent. Apart from the description of the business conducted
by Woolworths Holdings in its certificate of incorporation, the evidence
demonstrates that, other than the investments in Woolworths, South Africa and
David Jones, Woolworths Holdings also holds other subsidiaries as investments ,
including Woolworths Financial Services, Country Road in Australia, Witchery,
Mimco, Politix, and Woolworths in various other parts of Africa. Woolworths
Holdings in vests in these subsidiaries and earns dividends and interest from loans
advanced to them. Woolworth Holdings’ Board of Directors determines capital
management policy and makes capital management decisions for its own capital
and for its subsidiaries. The business of Woolworths Holdings bears the
hallmarks of an active investment holding company.

[32] When giving evidence in the Tax Court, Mr Moegamat Reeza Isaacs (Mr
Isaacs) , Woolworths Holdings’ group finance director, and Mr Ian David
Thompson (Mr Thopson) , its Head of Taxes and Treasury Division, d escribed the
business conducted by Woolworths Holdings as an active investment holding

12. Ibid paras 34 and 35. This Court had to determine the liability of Tiger Oats for regional establishment levy
under the Regional Services Council Act 109 of 1985. Section 1 of that Act defines an ‘enterprise’ as: ‘. . . any
trade, business, profession or other activity of a continuing nature, whether or not carries on for the purposes of
deriving a profit, but excluding any religious, charitable or educational activity carried on by any religious,
charitable or educational institution of a public character ’.
15

company. Mr Thompson described the services provided by Woolworths
Holdings to its subsidiaries as treasury and tax services, governance , internal
audit , and information technology services . Mr Isaacs described the services
rendered as financial, treasury and management services, together with internal
audit services . The evidence was that Woolworths Holdings ‘would look at
capital and other requirements of the business . . . including sourcing of the most
cost-effective forms of debt and capital ’. The creation or acquisition of
subsidiaries and the services rendered to them by Woolworths Holdings all form
part of its investment business .

[33] Contrary to SARS’ contention , the fact that the rights offer preceded the
actual acquisition of Davi d Jones and the relevant management agreement , is
immaterial . The sequence of events is a function of the method of nature of raising
capital. Equally , the fact that Woolworths Holdings started to earn management
fees from David Jones , more than a year after the acquisition , is of no moment .

[34] The factual context in this case is different from that in De Beers , on which
SARS place s much reliance. In De Beers this Court held that the holding of shares
and receipt of dividends did not fall within De Beers’ main trading activities ,
which were the mining and selling of diamonds from South Africa. De Beers ,
together with its subsidiaries owned diamond mining interests throughout the
world, including South Africa. Its Board, together with an Independent
Committee of Directors (ICD) resolved to seek professional advice from N M
Rothschild (NMR) , a foreign entity, in relation to an offer to take over the
interests of the independent unit holders in De Beers and a related Swiss
company, De Beers Centenary A G (DBAG). Professional advice was also sought
from South African entities, including finance houses and lawyers. SARS
determined that the NMR services were imported services under s 7(1)( c) of the
VAT Act and assessed an amount of R22 549 055.76 , as payable in that respect.
16

It also disallowed input tax claims by De Beers in the amount of R7 021 855.48 ,
relating to VAT charged by the local services suppliers to it, in respect of the
same transaction .

[35] In dismissing the appeal by De Beers against the disallowance of its input
tax claim , this Court considered that the expenses incurred related to the then
impending take over , and not to De Beers’ enterprise of mining, marketing and
selling diamonds. The Court held that: ‘unless one conducts business as an
investment company, the investments one holds cannot conceivably be regarded
on their own as constituting an enterprise within the meaning of that term in the
VAT Act’13...
where [De Beers] is not a dealer in shares, the holding of shares and receipt of
dividends by [it] does not fall within the definition of ‘ ‘enterprise ’’ and this must
therefore be disregarded. It must be found that [De Beers’] ‘‘enterprise ’’ for the
purpose of the [VAT] Act, consisted of mining, marketing and selling
diamonds.’14

[36] The submission on behalf of SARS in this case , that, based on these
findings in De Beer s, the holding of shares by Woolworths Holding s does not fall
within the definition of enterprise , can only be based on a misreading of the
judgment of this Court in De Beer s. This Court in De Beer s acknowledged that
investments held by an investment company can conceivably be regarded, on
their own, as an enterprise as envisaged in the VAT Act.

[37] The evidence that Woolworths Holdings acquires, holds and manages its
investments is beyond dispute. Similarly, t he evidence pertaining to the raising
of capital or debt for its subsidiaries and itself was supported by minutes and

13 De Beers para 34.
14 Para 52.
17

resolution s taken at its Board meetings. All these activities are part of the
enterprise of Woolworths Holdings a s a listed active investment holding
company .

Did the underwriting services constitute taxable supplies?
[38] ‘Taxable supply ’ is defined in s 1 of the VAT Act as ‘any supply of goods
or services which is chargeable with tax under the provisions of s ection 7(1)(a),
including VAT chargeable at zero percent under section 11 ’15. This means that a
supply is ‘liable to [VAT] only if it is made in the course or furtherance of an
enterprise’.16 Consequently, in this case, to constitute a taxable suppl y, the rights
offer, and the related underwriting services must have been used in the course or
furtherance of the enterprise of Woolworths Holdings. The enquiry in this regard
turns on the purpose for which the goods or services were supplied.

[39] In Commissioner for South African Revenue Service v Capitec Bank
Ltd(Capitec Bank)17 the Constitutional Court considered that the purpose for
which a free loan insurance cover was provided by Capitec to its clients was to
make Capitec’s loan offering to unsecured borrowers more attractive, thus
placing Capitec in a good competitive position relative to other credit providers
in the same business.18 The Constitutional Court held that:
‘…The question that has to be answered, in terms of section 16(3) (c) is whether the supply of
the loan cover to the borrowers was a taxable supply. That depends on whether it was made in
the course or furtherance of an enterprise. And that depends, in turn, on whether the activity,
in the course or furtherance of which the supply was allegedly made, qualified as an
‘‘enterprise’ and, if so, whether as a fact the supply was made in the course or furtherance of
that ‘enterprise ’’.

15 Value -Added Tax Act 89 of 1991.
16 35(2) 3 ed Lawsa at 156.
17 Capitec Bank Limited v Commissioner for the South African Revenue Service (CCT 209/22) [2024] ZACC 1;
2024 (7) BCLR 841 (CC); 2024 (4) SA 361 (CC); 84 SATC 369.
18 Capitec Bank para 67. Capitec lent money to these borrowers in order to earn exempt interest and taxable fees.
18

. . . The question is not what benefit the borrower obtained from the free cover, but why Capitec
conferred the benefit of free cover on the borrower.’19 (Emphasis added .)

[40] In Consol Glass (Pty) Ltd v The Commissioner for the South African
Revenue Service (Consol Glass )20, this Court, having identified the enterprise
carried on by Consol as the manufacture and sale of glass, made the following
observations:
‘Two observations assist the interpretative exercise. First , the diversity of goods and services
that may constitute taxable supply in a modern economy and the complexity of the lines of
supply that may be used in the making of such goods and services should not be
underestimated. An interpretation that is too restrictive of what is required to make taxable
supplies runs the risk of underestimating this diversity and complexity.
Second, since the purpose of acquisition is for consumption, use or supply, it is helpful to
consider how these attributes of the goods or services acquired have utility in the making of
taxable supplies. It is this functional relationship that signifies’.21

[41] The stated purpose of a Eurobond debt that had been taken by Consol was
to effect the reorganisation of the Consol group of companies. And the
refinancing arrangement, which was sourced in order to substitute the Eurobond
debt, was used for the same purpose - the reorganis ation of the various entities
related to Consol.22 Thus, both the Eurobond debt and the reorgani sation finance
did not have any functional effect on the glass container manufacturing
operations. They were not a taxable supply.

[42] Similarly, De Beers engaged the services under consideration because it
was the target of a take -over. It also had an obligation to report to the independent

19 Ibid p ara 73 and 74 .
20 Consol Glass (Pty) Ltd v The Commissioner for the South African Revenue Service [2020] ZASCA 175; 83
SATC 186 .
21 Para 29 to 30.
22 The re -arrangement achieved was that Consol acquired the business of Consol Limited and its two subsidiaries
as part of a leveraged buy -out. A new equity, Consol Holdings held all the equity in Consol Limited and Consol.
Consol Holdings was controlled by a private equity consortium. Para 34
19

unit holders on the fairness and reasonableness of the take -over offer. For that
reason , it had to obtain independent financial advice. The Court held that, ‘s uch
services were not acquired to enable [De Beers] to enhance its VAT enterprise of mining,
marketing and selling diamonds. The enterprise was not in the least affected by whether or not
[De Beers] acquired [the] services. They could not contribute in any way to the making of [De
Beers’] ‘taxable supplies’. They were also not acquired in the ordinary course of [De Beers’]
‘enterprise as part of its overhead expenditure as argued by [De Beers]. They were supplied
simply to enable [De Beers’] board to comply with its legal obligations . . .
. . .
The duty imposed on a public company that is a target of a take -over is too far removed from
the advancement of the VAT enterprise to justify characterising services acquired in the
discharge of that duty as services acquired for purposes of making taxable supplies, especially
in the circumstances of this case’ . (Emphasis added .)

[43] Woolworths Holdings on the other hand , used the underwriting services to
raise capital to expan d its business or enterprise. T he acquisition affected the
totality of Woolworths Holdings’ operations . It is in the nature of Woolworths
Holdings’ business to invest pooled capital into financial securities and to sell
shares to grow itself. Active investment of the nature that Woolworths Holding
conducts, entails raising capital in the course of investing in prospective
subsidiaries, management of capital for its subsidiaries , and trading in finance .
Importantly, i n Capitec Bank the Constitutional Court held that even where the
financial services were supplied for no consideration , they were a taxable supply
if they were supplied by the vendor to advance the interests of the enterprise.23

[44] A comprehensive consideration of the vendor’s activities is required , rather
than isolating a single or a segregated set of transactions. The inquiry is not
narrow or restricted. In this case, in stead of examining the enterprise holistically ,
SARS impermissibly isolated the share offer , ignoring the true extent and nature

23 Capitec Bank para 6 1.
20

of the enterprise, and then reasoned that, to qualify as a taxable supply, or as an
activity within an enterprise , the share offer (and related expenses) should be a
continuous or regular activity on its own. It concluded that because the share offer
did not recur , it was not Woolworths Holdings’ enterprise. SARS ignored the
impact of raising the capital and the acquisition on Woolworths Holdings’
business .

[45] It is important to consider how ‘enterprise’ and ‘taxable supply’ in
comparable foreign legislation have been interpreted in other jurisdictions .
Taxation is primarily governed by domestic laws of this country . However, this
case illustrates how the South African economy is linked to economies of the
world , and how its tax base is affected by cross border transactions. In Cibo
Participants SA v Directeur régional des impôts du Nord -Pas-de Calai 24 the
European Court of Justice considered the direct involvement of Cibo in the
management of its subsidiaries to be an economic activity and held that the
expenditure it incurred in relation to acquisition of a shareholding in its subsidiary
had a direct and immediate link with its business.25 More specifically, with regard
to the raising of capital by way of a rights offer . In Kretztechnik AG v Finanzant
Linz,26 it was held that the costs of raising capital by way of a rights offer formed
part of Kretztechnik’s overheads and had a direct and immediate link with its
entire economic activity.27 The undue focus by SARS , in the case before us, on
the specific mode of raising capital (the rights issue) , and isolating that activity
from the rest of Woolworths Holdings’ activities, makes little sense and would
render this aspect of South African Tax Law incoherent both nationally and
internationally.

24 Cibo Participants SA v Directeur réegional des impôots du Nord -Pas-de Calais [2001] EUECJ C -16/00;
[2001] ECR I -6663; [2001] ECR I -6663, [2002] STC 460.
25 Ibid para 35.
26 Kretztechnik AG v Finanzamt Linz EU:C: 2005:320 ; [2005] 1 W.L.R. 3755; [2005] S.T.C. 1118.
27 See also Melford Capital General Partner Ltd v Revenue 7 Customs [2020] STI 171; [ 2020] UKFTT 6 (TC)
para 77.
21


[46] The underwriting services were used by Woolworths Holdings, for the
purpose of enhanc ing the value of its investments . Consequently, they constituted
consum ption , use or suppl y in the course or furthering of its enterprise . A
consequential relationship or functional link between the rights offer (together
with the underwriting services) and the enterprise conducted by Woolworths
Holdings was established. The services were consumed by Woolworths Holdings
in the course of making taxable supplies and Woolworths Holdings was entitled
to input tax deduction in respect of the costs incurred.

Imported services
[47] The definition of ‘imported services ’ in s 1 of the VAT Act reads:
‘a supply of services that is made by a supplier who is resident or carries on business outside
the Republic to a recipient who is a resident of the Republic to the extent that such services are
utilised or consumed in the Republic otherwise than for the purpose of making taxable
supplies’ . (Emphasis added .)

[48] Ordinarily, Woolworths Holding w ould have been obliged to declare and
pay VAT on all supply of imported services , as prescribed in terms of s 7(1)(c)
of the VAT Act where such services , were not used for the making of taxable
suppl ies. However, given the conclusions I have reached above, that the services
rendered by foreign suppliers were taxable suppl ies utilised in the course and
furtherance of the enterprise of Woolworths Holdings, such services may not be
considered to be imported services . No VAT liability was incurred on that portion
of supplied services.28

Understa tement Penalty

28 See De Beers para 45 .
22

[49] In terms of s 222 of the TAA , a taxpayer must pay an understatement
penalty, in addition to the tax payable for the relevant period, in the event of an
understatement by it.29 Again, given the conclusions I have reached in the
preceding paragraphs , Woolworths Holdings did not understate its VAT liability
to SARS. Nevertheless, for completeness, I traverse briefly the further context
and the contentions made by the parties in this regard.

[50] SARS levied the USP on the basis that Woolworths Holdings only received
the tax opinion from Finvision after the due date of the VAT return, on
31 March 2015. The opinion is dated 25 February 2015 and the evidence on
behalf of Woolworths Holdings was that it forwarded the opinion to SARS on the
same day that it received it (25 February 2015) . Woolworths Holdings assert ed
that it made a full disclosure of the transactions in accordance with its tax
practitioner’s opinion obtained prior to the date of the February 2015 return.

[51] SARS contends that Finvision, particularly, Mr Christoffel Johannes Eaga r
(Mr Eagar), who gave the opinion to Woolworths Holdings, w as not an
‘independent’ practitioner as envisaged by s 223(3)( b) of the TAA because he
‘peddled a model to Woolworths to move it away from the applicable legal
position’ as he had a direct and improper interest in the fee that he would earn for
giving the opinion . First, t his argument was impermissibly raised for the first time
in the SARS’ heads of argument . At this stage of the proceeding s SARS is limited
to the grounds raised in its pleadings.30 In addition, t here is no evidence to support
the argument that Mr Eag ar’s opinion was self -serving, contrived and designed
to improperly persuade Woolworths Holdings to claim input tax . As

29 Section 222 (1) of the T ax Administration Act 28 of 2011 provides as follows:
‘In the event of an ‘ ‘understatement ’’ by a taxpayer, the taxpayer must pay, in addition to the ‘tax’ payable for
the relevant tax period, the understatement penalty determined under subsection (2) unless the understatement
results from a bona fide inadvertent error.’
30 Consol Glass para 44; rule 32(1) of the Rules Promulgated under Section 103 of the Tax Administration Act,
2011 (Act No. 28 of 2011), GN 37819, 11 July 2014.
23

demonstrated in the findings made in this judgment Mr Eag er’s opinion was
correct , in fact and in law. Furthermore , as stated, SARS never put up any
evidence to support the allegation that the opinion was obtained after the due date
of the February 2015 tax returns. No basis was established for the imposition of
the USP.

The application for condonation of the late filing of the notice of appeal
[52] SARS’ notice of appeal was filed out of time by almost four months. The
reason for the delay, as explained by SARS, was ‘difficulties’ experienced with
the State Attorney’s Bloemfontein office. In opposing the application ,
Woolworths Holdings points out that there is no admissible substantiation for this
allegation. I, however, am of the view that condonation should be granted.
Although the delay is not insignificant , the matter is of great importance to both
parties. And it was important that the issues ar ising in this case be determined
decisively given the different factual context, compared with De Beers and
Consol Glass .

Costs
[53] Woolworths Holdings seeks a costs order against SARS on an attorney and
client scale because of the insistence on the argument that the opinion was
obtained after the February 201 5 date, and the baseless imputation of impropriety
on Mr Eaga r. Indeed, in both the Tax Court and this Court SARS persisted with
the allegations that Woolworths Holding s was persuaded to claim input tax by
Mr Eaga r who, in turn, was not independent and was motivated by improper
motive to earn fees for opinion . These allegations have been proved to be
meritless. However, there is no evidence of bad faith, abuse of court process or
other conduct by SARS that requires punishment that is harsher than the usual
costs order.

24

[54] For all these reasons , the following order is granted:
1 The late filing of the notice of appeal is condoned.
2 The appeal is reinstated.
3 The appellant shall pay the respondent’s costs of the application for
condonation and reinstatement, including the costs of two counsel.
4 The appeal is dismissed with costs, including the costs of two counsel,
determined in terms of Scale C of the tariff of fees for legal practitioners who
appear in the Superior Courts.


__________________
N DAMBUZA
JUDGE OF APPEAL



25


Appearances:
For the appellant: A R Bhana SC, with
CAA Lewaak
Instructed by: Phats hoane Henney
Bloemfontein

For the respondent: A R Sholto Douglas SC , with
G Cooper
Instructed by : Nirenstein Attorneys Inc , Cape Town
McInty re Van Der Pos t Inc, Bloemfontein .