Taxpayers score a legal win against SARS
Recent Tax Court rulings have strengthened taxpayer protections by blocking SARS from increasing disputed tax assessments after prescription, reinforcing important limits on the revenue authority’s litigation powers.
According to Webber Wentzel partners Nina Keyser and Karen Miller, the landmark ABD transfer pricing case (IT 14302) remains a defining moment in South African tax law.
The ABD case
The case involved SARS challenging a 1% royalty charged by ABD to its foreign subsidiaries between 2009 and 2012, arguing that it was too low.
SARS raised additional assessments based on an expert opinion obtained in 2015. However, in 2020 — long after the prescription period had expired — SARS engaged a new expert, who concluded that the assessments should have been even higher.
Instead of issuing new assessments (which it was legally barred from doing), SARS asked the Tax Court to “alter” the existing disputed assessments, effectively seeking to increase them.
The court rejected this approach.
It found that it would make no commercial sense for ABD to undercharge its subsidiaries, as this would inflate their profits and benefit minority shareholders. The court also noted that the subsidiaries were based in jurisdictions with equal or higher tax rates than South Africa, undermining any tax-avoidance motive.
Expert evidence rejected
The Tax Court was highly critical of SARS’s expert, Dr Slate, whose analysis relied on a survey conducted in 2020 to assess pricing decisions made a decade earlier.
The court found this evidence inherently unreliable and described the expert as biased and unwilling to make concessions.
Ultimately, SARS’s attempt to increase assessments after prescription failed, marking a clear win for taxpayers.
A similar pattern in a second case
A second case, IT 45840, followed a similar trajectory.
SARS raised additional assessments for the 2015 and 2016 tax years using the Comparable Uncontrolled Price (CUP) method and concluded that a 4% royalty should have applied instead of 1%.
In 2024, SARS obtained a new expert report stating that the CUP method was inappropriate and that the Profit Split Method (PSM) should have been used instead.
While the Tax Court allowed SARS to reference this report in its statement of grounds, the expert effectively undermined the basis of the original assessments, raising questions about the coherence of SARS’s litigation strategy.
Why this matters
Keyser and Miller said these cases raise important procedural questions, particularly whether a Tax Court can ever order SARS to increase an assessment once prescription has set in.
Traditionally, tax disputes result in either:
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the taxpayer winning and the assessment being reduced, or
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SARS winning and the assessment remaining unchanged.
SARS’s recent strategies suggest an effort to reopen prescribed assessments, a move that would expose taxpayers to greater risk simply for disputing an assessment.
“For now, the law and precedent favour taxpayers,” Keyser and Miller said.
“Disputes remain confined to the original assessment and objection.”
However, they cautioned that transfer pricing remains a highly contested area, and taxpayers should remain vigilant as SARS’s litigation tactics continue to evolve.
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