Diageo South Africa (Pty) Ltd v Commissioner for the South African Revenue Service

Diageo South Africa (Pty) Ltd, a South African VAT vendor, supplied advertising and promotional (A&P) services to foreign, non-resident brand owners in respect of alcoholic beverage brands distributed in South Africa. These services included advertising campaigns, events, sponsorships, and the use and distribution of promotional goods such as branded merchandise and alcoholic products for sampling. Diageo charged a single fee for these A&P services and zero-rated the entire supply under s 11(2)(l) of the Value Added Tax Act 89 of 1991. SARS assessed Diageo for additional output VAT, contending that part of the single supply consisted of goods consumed in South Africa and that, by virtue of the deeming provision in s 8(15), the goods portion constituted a separate, standard-rated supply. The Tax Court upheld SARS’s assessment, and Diageo appealed to the Supreme Court of Appeal.

The appeal was dismissed with costs, including the costs of two counsel. The additional VAT assessments issued by SARS were confirmed.

The case clarifies the interpretation and application of s 8(15 of the Value Added Tax Act, confirming that the deeming provision applies to composite supplies of goods and services attracting different VAT rates, irrespective of whether the components are economically dissociable. It reinforces the principle that zero-rating provisions are exceptions to the general rule and must be applied strictly, and it provides important guidance for VAT vendors supplying composite services to non-residents.