| Summary: | Corporate Social Responsibility (“CSR”) as a business approach and corporate
strategy has recently been added to the agenda of big and small businesses. The
Johannesburg Stock Exchange Limited (“JSE”) requires of listed companies to
disclose in their annual financial statements whether they have complied with King III
(2009) or to explain as to why they have not. King III (2009) lays down the principle
that a company is not only a profit making institution, but should also be a responsible
citizen of the country. Companies are therefore moving toward becoming corporate
citizens. Corporate citizenship is about integrating corporate responsibility into core
business strategies, while at the same time adding value to shareholders and
stakeholders. These corporate citizens are expending more and more money on their
CSR objectives in the form of CSR expenditure.
The purpose of this research study is to provide an analysis of the factors that
influence the South African value-added tax (“VAT”) treatment of CSR expenditure.
In general, the principles in the Warner Lambert (2003) case can be applied to such
expenditure under the Value-Added Tax Act (89 of 1991) (“VAT Act”), in the sense
that the expense being incurred for income tax purposes in the production of income
will normally also be incurred “in the course or furtherance of an enterprise” for VAT
purposes.
The methodology used to meet the set objectives was that of legal interpretative
research, specifically doctrinal. It was used to identify how the income tax and VAT
legislation is applied on overhead expenditure, specifically CSR expenditure. The
principles in the South African VAT legislation, specifically relating to the input tax
deduction, were compared to the international VAT system to determine whether
principles are similar and foreign judgements therefore reliable. A critical analysis
was thereafter performed on South African and international case law, specifically
European Court Judgements (“ECJ”) judgements, relating to the deductibility of input
tax.
The findings are that CSR expenditure may be seen as an overhead cost to a business
and furthermore as a tool with which financial benefits can be created for a company
if utilised correctly. It was determined that the factors that influence the South African VAT treatment of CSR expenditure were whether a supply made for no consideration,
specifically CSR expenditure, was made in the course or furtherance of an enterprise
and whether the CSR expenditure incurred could be proven to have a direct or
immediate link to the making of taxable supplies in the course or furtherance of the
vendor’s enterprise. === MCom (South African and International Taxation), North-West University, Potchefstroom Campus, 2014
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