The taxpayer carried on a fast food delivery business, in terms of which customers wishing to order food from a number of fast food restaurants could place their orders with the taxpayer. The taxpayer would then relay the orders to the relevant restaurants and would arrange for the collection of the food and for its delivery to the customers in exchange for a commission.
The actual collection and delivery services were purportedly not performed by the taxpayer or its employees, but by drivers who acted as independent contractors to the taxpayer. The drivers were remunerated by way of a delivery fee, which appeared on the tax invoice presented to the customer as drivers petrol money. In terms of the tax invoices, value-added tax (VAT) was charged in respect of the food order, but not in respect of the drivers petrol money.
The South African Revenue Service (SARS) assessed the taxpayer on the basis that the delivery of food orders to the customers constituted the supply of a service by the taxpayer for consideration in the course or furtherance of an enterprise, as contemplated in section 7(1) of the Value-Added Tax Act (the VAT Act) and that such supply was therefore subject to VAT. The taxpayer objected to this assessment on the basis that the supply of delivery services was made by independent contractors rather than by itself. The taxpayer claimed that it simply acted as agent in respect of the collection of remuneration due to the independent contractors.
The Tax Court noted that while the manner in which the parties involved in the supply of a service formulate their contractual relationships is something that needs to be taken into account, it is not necessarily dispositive of how the statutory questions fall to be answered on the facts.
In this case, the facts were that the taxpayer required the independent contract drivers to present themselves as the public face of the taxpayer, and that the customers expected delivery to be effected by the taxpayer, and not by a third party. Furthermore, the drivers had no legal right to claim their remuneration from the customers since there was no privity of contract between the drivers and the customers. The taxpayer could therefore not be said to be acting as the drivers agent in respect of the collection of delivery fees. The taxpayer contracted with the customers for the delivery of food, and the payments made by the customers in respect of drivers petrol money were, in reality, made in consideration for the delivery of food. This fact was not changed merely because the taxpayer was obliged to renounce a part of the consideration in favour of the drivers.
On this basis, the Tax Court found that regardless of the fact that the taxpayer may have outsourced the performance of the delivery, the taxpayer had made supplies of delivery services for consideration in the course of its enterprise and it was liable to VAT on such supplies.
