SARS Lost This Transfer Pricing Case. Here Is Why It Matters
This article will count 0.25 units (15 minutes) of unverifiable CPD. Remember to log these units under your membership profile.
BASF South Africa Pty (Ltd) v CSARS (A2024/024644)
The Johannesburg High Court has ruled in favour of BASF South Africa in a major tax dispute with South African Revenue Service over a transfer pricing adjustment of more than R114 million.
The case goes back to BASF’s South African business buying platinum group metals (PGMs) from its Swiss sister company to manufacture catalytic converters for vehicle manufacturers in South Africa.
What Was Argued
SARS argued that the prices charged between the related companies were not market-related, meaning BASF South Africa may have paid too much for the metals. SARS believed this reduced the company’s taxable profits in South Africa and issued an additional tax assessment for the 2011 tax year.
To support its assessment, SARS compared BASF’s profits to those of other manufacturers using a transfer pricing method called the TNMM method. SARS concluded BASF’s profits were lower than they should have been and increased its taxable income.
BASF challenged the assessment, arguing that:
PGMs are internationally traded commodities with publicly available market prices;
The metal costs were largely passed on to customers;
SARS used the wrong comparison companies; and
SARS applied the wrong transfer pricing method.
As the case continued, SARS tried to introduce three new benchmarking studies and a new “group synergies” argument to strengthen its case.
BASF argued this was unfair because SARS was effectively trying to change the original basis of the tax assessment years later.
The Court Ruling
The High Court agreed with BASF.
The Court found that SARS cannot completely change its legal and factual case after issuing an assessment. It ruled that the new benchmarking studies and “group synergies” argument amounted to a whole new case, which is not allowed under the Tax Court rules.
At the same time, the Court allowed BASF to add further arguments and calculations supporting its original objection, including income amounts SARS allegedly ignored when calculating BASF’s profits.
In simple terms, the judgment sends a strong message: SARS must stick to the original basis of its assessment and cannot rewrite its case midway through a dispute.