Transfer Pricing Showdown: SARS Scores Win Against Retail Giant
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Case: SC (Pty) Ltd v SARS [2025] ZATC CPT
The Background
Cape Town’s SC (Pty) Ltd, a major retail group, got into hot water with SARS over how much it was paying for using its brand. The company was only paying 1% of its turnover to a Mauritius-based related party for the rights to operate under the brand. SARS argued this was way too low compared to industry norms, which are around 4% to 5.3%. So, they adjusted SC’s taxable income by over R1 billion for the 2016 and 2017 years.
What Was Disputed
SC tried to block SARS from switching legal arguments midway. SARS initially using the Comparable Uncontrolled Price (CUP) method for calculating the fair royalty rate and then changed to the Profit Split Method. SC objected, saying this changed the whole case unfairly. But the court disagreed and allowed SARS to proceed with the new method.
The Ruling
The Tax Court ruled in SARS's favour, allowing the amendment. It held that SARS didn’t introduce a new cause of action, but rather refined its reasoning. It also noted that SC had sufficient opportunity to respond and wasn’t prejudiced by the change.
Takeaway for Accountants
If you have multinational clients, review their pricing arrangements. The judgment signals that SARS is taking a tougher stance on transfer pricing and will leverage all available tools to clamp down on perceived base erosion. SARS is clearly not afraid to litigate, and win on substance over form.
