Interpretation of statutes often comes into play in tax matters. But what ultimately matters is what was intended by the statute. This is illustrated in Alan George Marshall and Others, SA Red Cross Air Mercy Services Trust v The Commissioner, SARS (case number 39219/2014).
Rural medical air assistance services have been offered by the Red Cross since 1994. The services are offered through the SA Red Cross Air Mercy Services Trust.
In October 2012, the trustees applied to SARS for a binding private ruling regarding VAT. In its ruling, SARS stated that VAT was payable upon funds received by the trust for services rendered to local municipalities and other regional bodies. The trust received these funds based on the availability of aircraft and crew, and it billed directly for flying time.
Upon receipt of the ruling, the trust’s attorneys requested that the ruling be reconsidered. They were of the view that Section 8(5) of the VAT Act had been misinterpreted by SARS. When SARS refused to reconsider the trust’s VAT status, the trustees sought a declaratory order from the High Court, setting out the correct interpretation of ‘VAT status’.
The dispute revolved around the interpretation of Section 8(5). This provides that a designated entity shall be deemed to supply services to any public authority or municipality to the extent of any payment made by the public authority or municipality concerned to or on behalf of that designated entity in the course or furtherance of its business.
‘Designated entity’ is defined as a vendor that is a welfare organisation. Under Section 1 of the VAT Act, a welfare organisation, in turn, is defined as an organisation registered as such under Section 30 of the Income Tax Act. The Air Mercy Service trust was an approved public benefit organisation.
SARS held that the actual services supplied were subject to VAT, while ‘deemed’ services were not. In order to tie all the relevant sections together, the applicants relied on Section 11(2)(n). This provides that ‘services’ comprise the carrying on by a welfare organisation of the activities referred to in the Section 1 definition of ‘welfare organisation’ and, to the extent that payment is made in respect of those services in terms of Section 8(5), those services shall be deemed to be supplied by that organisation to a public authority.
The Court looked at the relevant case authority, holding that the most important rule of statutory interpretation is that the interpretation must ultimately reflect the purpose of the legislation. The Court did not agree with SARS that services were not zero-rated, because from the words used in the section under discussion, it was ‘services’ that were paid for. Thus the payment could not be gratuitous and actual services rendered did indeed qualify for zero rating in terms of the legislation.