The Commissioner for the South African Revenue Service v Woolworths Holdings Limited

Woolworths Holdings Limited, a JSE-listed active investment holding company, acquired all the shares in David Jones Limited in 2014 for approximately R21.4 billion. The acquisition was funded through existing cash, debt facilities, and a R10 billion fully underwritten rights offer to resident and non-resident shareholders. Woolworths Holdings incurred underwriting and professional fees from both resident and non-resident service providers in raising this capital and paid VAT on the resident suppliers’ fees. It claimed an input tax deduction for a portion of the VAT incurred and accounted for VAT on imported services from non-resident suppliers. SARS disallowed the input tax deduction, assessed additional VAT on imported services, and imposed an understatement penalty, contending that the rights offer was an isolated, non-enterprise activity. Woolworths Holdings successfully appealed to the Tax Court, and SARS appealed to the Supreme Court of Appeal.

The appeal was dismissed with costs, including the costs of two counsel. The Tax Court’s decision allowing the input tax deduction, rejecting the imported services assessment, and remitting the understatement penalty was confirmed.

This judgment clarifies that an active investment holding company’s capital-raising activities, including rights offers, can form part of its VAT enterprise. It affirms a broad, purposive interpretation of 'enterprise' under the VAT Act and provides important guidance on the deductibility of VAT incurred in raising capital for investments, as well as the VAT treatment of services linked to rights offers involving non-resident shareholders.