A Shift in South Africa’s Approach on Transfer Pricing Disputes

ABD LIMITED V CSARS, TAX COURT, CASE NO IT 14302

By:
Ellaine Raboroko
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A recent ruling by the Tax Court in the case of ABD Limited v CSARS marked a notable shift in how South Africa approaches disputes over transfer pricing.

In today’s global economy, Multinational Enterprises (MNEs) are challenged by navigating international tax and compliance rules, with transfer pricing being a crucial issue, especially when establishing new subsidiaries or expanding existing ones . Despite well-established international guidelines by the OECD, many MNEs face frequent scrutiny through transfer pricing audits due to insufficient setups of necessary tax and legal structures for transactions between related entities. A recent ruling by the Tax Court in the case of ABD Limited v Commissioner for the South African Revenue Service marked a notable shift in South Africa's approach to transfer pricing disputes, shedding light on the intricate nature of such disputes.

The case focused on the licensing of Intellectual Property (IP) to subsidiaries, involving royalty payments made by the fourteen Opcos of ABD Limited between 2009 and 2012. The South African Revenue Service (SARS) contended that ABD Limited should have charged a variable royalty rate based on the country and year of assessment, seeking an adjustment to reflect the variable rates 

Despite initial challenges, the court's ruling validated ABD Limited’s pricing strategy, emphasizing the importance of solid legal arguments backed by comprehensive evidence, including annual transfer pricing documentation such as local file, master file, and relevant comparability analysis 

To mitigate the risk of non-compliance and navigate the complexities of transfer pricing regulations, MNEs are advised to assemble a skilled team of tax advisors, legal experts, and financial analysts. By proactively addressing transfer pricing obligations and implementing best practices, companies can protect their operations from potential audits and ensure alignment with regulatory requirements.

For a deeper dive into the realm of transfer pricing and valuable insights on navigating international tax landscapes, download the latest edition now and stay ahead in the ever-evolving world of Multinational Enterprises (MNEs).