XO Africa Safaris CC v Commissioner for the South African Revenue Service

XO Africa Safaris CC, a South African VAT-registered vendor, assembled and sold inbound tour packages to foreign tour operators (FTOs) who were not resident in South Africa. The packages comprised accommodation, transport, meals, conference facilities and leisure activities to be enjoyed by foreign tourists while physically present in South Africa. XO contracted directly with local suppliers (hotels, restaurants, transport and activity providers), paid them for the services, and invoiced the FTOs a lump sum including its mark-up. XO claimed that its supplies to the FTOs were zero-rated under s 11(2)(l) of the Value Added Tax Act 89 of 1991 because the recipients were non-residents. SARS audited XO and assessed VAT at the standard rate, contending that the services were supplied directly to persons present in South Africa. XO’s objection failed in respect of VAT, and its appeal to the Tax Court was dismissed, leading to this appeal to the Supreme Court of Appeal.

The appeal was dismissed with costs, including the costs of two counsel.

The case clarifies the application of s 11(2)(l) of the VAT Act in the context of inbound tourism and package tours. It confirms that zero-rating does not apply where services are consumed in South Africa, even if contracted and paid for by non-resident entities. The judgment reinforces the principle that substance and economic reality prevail over formal characterisation in VAT matters.