The Commissioner for the South African Revenue Service v Alan George Marshall NO and Others

The respondents were trustees of the South African Red Cross Air Mercy Service Trust (the Trust), a non-profit organisation registered as a public benefit organisation (PBO) under the Income Tax Act and as a VAT vendor. The Trust provided aero-medical services (including flying doctor services, air ambulance, rescue services, and patient transfers) to provincial health departments under written agreements concluded since 2006. The provincial governments paid the Trust a monthly availability fee for aircraft and additional kilometre/hourly rates for flights undertaken. The Trust applied for a binding private VAT ruling, contending that payments received from provincial health departments qualified for VAT zero-rating under section 11(2)(n) of the VAT Act as they were 'deemed services' under section 8(5). The Commissioner ruled that these were actual services rendered under section 7(1)(a), not deemed services, and were subject to VAT at the standard rate of 14%. The Trust had previously paid VAT on remuneration received and claimed input tax deductions.

• Whether the aero-medical services supplied by the Trust to provincial health departments constituted a 'deemed supply' of services under section 8(5) of the VAT Act
• Whether payments received by a designated entity (welfare organisation) from a public authority for actual supply of services qualify for zero-rating under section 11(2)(n) of the VAT Act
• The proper interpretation of 'payment' in section 8(5) and its distinction from 'consideration' under section 7(1)(a) of the VAT Act
• Whether section 8(5) applies to both actual and deemed supplies or only to deemed supplies

The appeal was upheld with costs, including costs for two counsel. The order of the Gauteng Division of the High Court, Pretoria was set aside and replaced with an order dismissing the Trust's application with costs.

Section 8(5) of the VAT Act applies only to unrequited or gratuitous payments (such as grants, subsidies, or donations) made by a public authority or municipality to a designated entity, not to payments constituting consideration for the actual supply of goods or services under section 7(1)(a). The word 'deemed' in section 8(5) is intended to create a fiction where no actual supply exists, not to describe actual transactions. Payments received by a designated entity (including a welfare organisation) from a public authority for actual supply of services pursuant to a contractual agreement constitute 'consideration' as defined in section 1 of the VAT Act and are taxable at the standard rate under section 7(1)(a). Such payments do not qualify for zero-rating under section 11(2)(n) because they do not fall within the deeming provision of section 8(5). The undefined term 'payment' in section 8(5) must be distinguished from the defined term 'consideration' and interpreted to refer to payments not linked to actual performance or supply of goods and services.

The Court made several non-binding observations: (1) Zero-rating is the most favourable treatment in the VAT system, with vendors making zero-rated supplies usually owed refunds by SARS. (2) There is no conceivable reason why PBOs engaged in commercial activities should be treated differently from other commercial entities. (3) SARS Interpretation Notes, though not binding on courts or taxpayers, constitute persuasive explanations of statutory provisions. Interpretation Note 39 had been in circulation for years without being challenged until this case. (4) To interpret section 8(5) as applying to actual supplies would do violence to the fundamental architecture of the VAT Act, create uncertainty, and negatively impact the fiscus and government's ability to deliver services. (5) The Court noted that grants and subsidies already provide substantial incentives for PBOs to supply goods and services on behalf of public authorities. (6) The Court observed that the Trust's argument that goods actually supplied to a public authority are deemed to be services was self-destructive and flawed, as there is no discernible reason for actual supply of goods to be deemed a supply of services.

This judgment clarifies the scope and application of section 8(5) of the VAT Act, establishing that the deeming provision applies only to unrequited payments (grants, subsidies, donations) from public authorities to designated entities, not to payments constituting consideration for actual supply of goods or services. It reinforces the distinction between actual supplies taxable under section 7(1)(a) and deemed supplies under section 8(5). The case is significant for VAT treatment of public benefit organisations and welfare organisations that provide services to government departments under contractual arrangements. It confirms that such organisations, when engaged in commercial activities supplying actual services for consideration, must charge VAT at the standard rate and cannot claim zero-rating under section 11(2)(n). The judgment prevents the extension of preferential VAT treatment beyond its intended legislative purpose and protects the integrity of the VAT system. It provides important guidance on statutory interpretation, particularly the use of deeming provisions and the significance of undefined versus defined terms in tax legislation.