Navigating the VAT Maze: Input Tax Deductibility for Holding Companies and Private Equity Structures in the Post-Woolworths Era

by | Oct 18, 2025 | BTCLQ, BTCLQ V16 I3

Navigating the VAT Maze: Input Tax Deductibility for Holding Companies and Private Equity Structures in the Post-Woolworths Era

Authors: Joon Chong and Des Kruger

ISSN: 2219-1585
Affiliations: Partner, Webber Wentzel; Consultant, Webber Wentzel
Source: Business Tax & Company Law Quarterly, Volume 16 Issue 3, 2025, p. 1 – 14

Abstract

This article provides a comprehensive analysis of the evolving legal landscape governing value-added tax (VAT) input tax deductibility for holding companies in South Africa, as well as for private equity structures. It examines the seminal judgments in Commissioner for the South African Revenue Service (CSARS) v De Beers Consolidated Mines Ltd, the recent landmark case of CSARS v Woolworths Holdings Limited, and the corroborating Tax Court decision in IT 76795. The analysis reveals a fundamental jurisprudential shift away from the restrictive, transaction-focused approach established in De Beers towards the holistic, purpose-driven framework solidified in Woolworths. This evolution presents both significant opportunities and new compliance imperatives for corporate structures, particularly within the private equity (PE) sector.
The central principle emerging from this body of case law is the critical importance for a holding company to defi ne, structure, and evidence its status as an ‘active investment holding company’. To successfully claim input VAT on acquisition, capital-raising, and other strategic expenses, a holding company must demonstrate that its core enterprise involves the continuous and regular provision of taxable supplies – such as management, financial, or administrative services – to its underlying portfolio companies for a fee. The mere passive holding of shares and receipt of dividends or interest is insufficient to constitute a VAT enterprise for the purposes of deducting input tax on associated costs.
The core thesis of this article is that the test for deductibility has evolved. The question is no longer whether an expense has a ‘direct and immediate link’ to a specific operational transaction, but rather whether it has a clear ‘functional link’ to the company’s overall, continuous enterprise. The Woolworths judgment has affirmed that costs incurred in furtherance of strategic expansion, such as capital-raising fees, are deductible if they serve to enhance and grow an active investment management enterprise.
For the PE industry specifically, this represents a pivotal moment. The strategic imperative is clear: PE holding companies must proactively structure their operations to align with the principles of the Woolworths judgment. This involves establishing formal management service agreements, charging market-related fees, and maintaining meticulous records that evidence active strategic involvement in portfolio companies. By doing so, they can create a defensible basis for claiming input VAT on a wide range of transaction costs, thereby mitigating tax leakage and enhancing overall fund returns.

The Conflict Between Director Reliance in the Companies Act and Director Liability in the JSE Listings Requirements

by | Oct 18, 2025 | BTCLQ, BTCLQ V16 I3

The Conflict Between Director Reliance in the Companies Act and Director Liability in the JSE Listings Requirements

Author: Siyabonga Nyezi

ISSN: 2219-1585
Affiliations: BCom (UCT), LLB (Unisa), Attorney of the High Court of South Africa
Source: Business Tax & Company Law Quarterly, Volume 16 Issue 3, 2025, p. 15 – 22

Abstract

In the film The Pursuit of Happyness, the protagonist, Chris Gardner, juggles the challenges of fatherhood on the one hand, with his failing attempts at an entrepreneurial breakthrough on the other. Throughout the film, each keeps getting in the way of the other, almost as if they cannot coexist. A missive on a film about a struggling entrepreneur and father is perhaps not the most conventional way to start an article on delegation and reliance in company law; but the purpose of the anecdote is to emphasise the concept of two attempts at doing the right thing getting in the way of each other – a central theme in this article’s analysis of the Financial Service Tribunal ruling in Munro v Johannesburg Stock Exchange (JSE2/2023) [2024] ZAFST 36. More specifically, this article examines the incongruence between the reliance provisions in section 76(5) of the Companies Act 71 of 2008, and the provisions relating to director liability in the JSE Listings Requirements (‘Listings Requirements’).
In Munro, the Financial Services Tribunal (‘Tribunal’) had to determine, inter alia, whether a (financial) director was liable to be sanctioned for a contravention of the Listings Requirements, resulting from misstatements in the company’s financial statements, where the director relied on information provided to him by other employees of the company. This article asserts that the provisions of the Companies Act and the Listings Requirements result in parallel and conflicting treatment of reliant director conduct. The article further argues that there are instances where the JSE Listings Requirements may unduly impose liability on directors who have, in line with section 76(5), relied on information provided to them by other employees.

Equity Equivalent Programmes: A Tax Analysis

by | Oct 18, 2025 | BTCLQ, BTCLQ V16 I3

Equity Equivalent Programmes: A Tax Analysis

Author: Michael Rudnicki

ISSN: 2219-1585
Affiliations: Tax Executive, Bowman’s Attorneys
Source: Business Tax & Company Law Quarterly, Volume 16 Issue 3, 2025, p. 23 – 29

Abstract

The concept of ‘Equity Equivalents’ in the context of BEE ownership rules and regulations is rearing its head once more. Foreign organisations seeking investable presence in South Africa are cautious about giving up true equity. Ownership points play a key role in the ‘BEE score card’ table. The Department of Trade, Industry and Competition has historically accepted an alternative basis to transfer equity to black owned small and medium organisations. The alternative is referred to as an ‘Equity Equivalent’ programme.
The programme typically envisages a percentage of turnover over a period of time (typically seven to ten years) to be deployed in qualifying beneficiaries or participants in categories of investment such as supplier development, training and research.
This article considers the tax deductibility of the EE expenditure in terms of section 11(a) of the Income Tax Act (’the Act’).
It is submitted that expenditure is ‘actually incurred’ not at the time of signing the framework agreement with the DTIC, but when the contractual obligation to pay beneficiaries arises.
The ‘in the production of income’ test focuses primarily on the act giving rise to expenditure. In the Warner Lambert case (see below for detail), the court concluded that expenditure incurred in respect of social responsibility obligations meets the ‘in the production of income’ test. It is submitted that BEE related expenditure incurred to retain and grow market share meets this test. So too, it is submitted, does expenditure incurred in respect of the EE programme meet this test. The purpose of concluding this programme is to maximise earnings covering existing and new markets.
The more sensitive issue in respect of EE related expenditure is the capital versus revenue nature of the expense. Generally, expenditure incurred in performing the income-earning operations of a business is revenue in nature. Expenditure incurred as part of the cost of establishing or enhancing or adding to the income-earning structure is capital in nature. Supplementary tests are the ‘once and for all test’ and the ‘enduring benefit’ test.
Warner Lambert, supra, considered the social responsibility expenditure in the context of capital and revenue. It concluded that the taxpayer’s income-earning structure had been erected long ago. The expenditure it incurred was to protect its earnings. Accordingly, the judgment concluded that the expenditure was revenue in nature. In the case of companies having erected their income-earning structure long ago, the EE related expenditure does not create an additional structure. Ownerships points are but one of the elements of the BEE scorecard. But the key feature of the expenditure is to maintain and improve market share, thereby protecting the entity’s earnings. As a result, it is submitted, such expenditure is not of a capital nature. The same conclusion should prevail, it is submitted, where a foreign organisation establishes presence in South Africa for the first time and seeks to maximise its market share. Using this income-earning structure to seek profitable business and as a result incur EE related expenditure, does not, it is submitted, label such expenditure capital in nature.