BCM (PVT) LTD v ZIMBABWE REVENUE AUTHORITY

The appellant, BCM (Pvt) Ltd, is an investment holding company incorporated in Zimbabwe. Following a tax investigation and audit by the Zimbabwe Revenue Authority (the respondent) covering the period 2011-2015, the respondent discovered that certain income described as sundry income, advisory fees, and other sources in the appellant's financial statements had not been subjected to VAT. On 7 February 2018, the respondent issued assessments in terms of s31 of the Value Added Tax Act, holding the appellant liable for $3,397,322.26 inclusive of a 75% penalty. The appellant objected on 7 March 2018, claiming that the respondent incorrectly charged 15% VAT instead of zero percent on revenue from tax advisory services to non-residents, and incorrectly charged VAT on fair value adjustments which are not vatable. Six issues were presented for determination relating to various amounts assessed for VAT across the tax years 2011-2015.

• Whether amounts taxed as sundry income for years 2011, 2012 and 2013 were fair value adjustments not subject to VAT
• Whether the amount of $100,000 subjected to VAT for tax year 2011 as advisory fees was correctly classified and subject to VAT
• Whether amounts of $608,191 and $237,568 subjected to VAT in tax year 2013 were share income from associates and dividend income not subject to VAT
• Whether the amount of $2,447,092 subjected to tax in tax year 2014 was supplied to a non-resident and subject to VAT at 0% under section 10(2)(l) of the VAT Act
• Whether the amount of $3,321,293 subjected to tax in tax year 2015 was a fair value gain not subject to VAT
• Whether the 75% penalty imposed was appropriate

1. The appeal succeeds on issue 2 (the $100,000 advisory fees assessment for 2011). 2. The rest of the appeal is dismissed. 3. The respondent is directed to reassess the liability of the appellant for VAT for the year ended 2011 as well as any penalty attendant thereon in light of this judgment.

1. Under s37 of the VAT Act, the burden of proof lies on the appellant taxpayer to prove that the Commissioner erred in subjecting amounts to VAT. Bare allegations unsupported by documentary evidence from the taxpayer's own books of account are insufficient to discharge this burden. 2. Where the revenue authority alleges oral disclosures at meetings as the basis for assessments, but provides no documentary record or witness evidence to substantiate such allegations, particularly where the alleged amount does not appear in any financial statements, the assessment on that basis cannot stand. 3. The requirements for zero-rating of services under s10(2)(l) of the VAT Act are cumulative: services must be supplied for the benefit of AND contractually to a non-resident who is outside Zimbabwe at the time services are rendered. If services are also for the benefit of a Zimbabwean resident, the section does not apply. 4. Under s33(3) of the VAT Act, appellants in fiscal appeals are limited to grounds of objection stated in the notice of objection unless the Commissioner agrees to amendment or the court grants leave on good cause shown. Issues not raised in grounds of appeal are non-issues and cannot be determined.

The Court commented on the questionable practice of filing addenda to notices of appeal without proper legal basis, noting such documents are unnecessary and embarrassing to the Court and respondent who must spend valuable time perusing them. The Court also noted it appears to be the practice for the respondent's Commissioner to keep records of meetings (such as the 'Record of Interview' format), and that such records would be of assistance in establishing what transpired at meetings where oral disclosures are alleged. The Court observed that books of account required to be kept under s37B of the Income Tax Act and s57 of the VAT Act should contain the necessary supporting evidence for taxpayer claims.

This case clarifies important principles in Zimbabwean tax law regarding: (1) the burden of proof on taxpayers in VAT appeals under s37 of the VAT Act, requiring substantive documentary evidence to contradict tax assessments; (2) the evidentiary standards required of the revenue authority when making assessments, particularly regarding the need for proper documentation of meetings and disclosures; (3) the interpretation of the zero-rating provisions under s10(2)(l) of the VAT Act for services to non-residents, establishing that the requirements are cumulative and the service must be for the exclusive benefit of the non-resident; (4) procedural requirements for appeals under s33 of the VAT Act, confirming that appellants are limited to grounds stated in the notice of objection unless amendment is agreed or leave is granted. The case demonstrates the practical application of the doctrine that he who alleges must prove in fiscal appeals.