SARS v ABD Limited

About the book

When fourteen operating companies of a South African telecommunications group paid a uniform 1% royalty for the use of its intellectual property between 2009 and 2012, SARS challenged the rate as not at arm's length. It relied first on an expert whose approach translated to a royalty of roughly 3%, and then, on appeal, on a second expert contending for variable rates across the operating companies ranging from below 1% to over 9%. The Tax Court (Case No IT 14302) ruled in favour of ABD Limited and set aside the assessment, accepting an internal comparable uncontrolled price from a Cyprus agreement as proof that the 1% rate was at arm's length under section 31 of the Income Tax Act.

The judgment sets a precedent in a seldom-litigated field of tax law. For revenue services across Africa, it underscores that transfer pricing assessments must rest on solid evidence and sound economic principles, with clear justification before deviating from established expert opinion. For multinationals, it illustrates the complexities and financial stakes of transfer pricing litigation, and why intercompany transactions must be demonstrably at arm's length.

The analysis also examines what the outcome owed to specialist representation. Prof Dr Daniel N Erasmus and his team, who played a crucial role in defending ABD Limited's position, have settled transfer pricing cases for an average of 3% of the original assessments, upwards of US$5 billion in total, and bring particular depth in valuing intangible assets, business restructurings, and data-driven transfer pricing models in the post-BEPS landscape.

The closing chapters turn the case into practice: how to manage transfer pricing risk through a Tax Steering Committee, from composition, governance and client-attorney privilege to initial risk audits, training, and continuous improvement, whether you are establishing a committee for the first time or strengthening one that already exists.

“The Court found no factual justification for SARS to adjust the royalty rate under section 31 of the Income Tax Act.”Prof Dr Daniel N Erasmus · Renier van Rensburg · Gilbert Ferreira

What you’ll learn

• Why the Tax Court set aside SARS's assessment and upheld ABD's uniform 1% royalty rate as arm's length
• How an internal comparable uncontrolled price, the Cyprus agreement, decided the dispute under section 31 of the Income Tax Act
• How SARS's case shifted from one expert's roughly 3% approach to variable rates from below 1% to over 9%, and why neither survived scrutiny
• What the precedent demands of African revenue services: well-substantiated assessments and clear justification when challenging multinationals
• Why specialist expertise matters in valuing intangibles and defending complex transfer pricing positions
• How to establish or strengthen a Tax Steering Committee, from governance and cross-functional collaboration to client-attorney privilege

Inside the book

1. A Quick Overview
2. Importance of Appointing the Right Transfer Pricing Specialists
3. Detailed Summary of the Case and Judgment
4. Importance of the Judgment for Transfer Pricing Legislation
5. The Value of Expertise in Complex Transfer Pricing Matters
6. The Importance of Collaboration and Knowledge Sharing
7. The Role of Technology and Data Analytics
8. Case Studies: Successful Transfer Pricing Dispute Resolution
9. The Future of Transfer Pricing and the Continued Need for Specialized Expertise
10. Investing in Transfer Pricing Expertise for Long-Term Success
11. Managing Tax (and Transfer Pricing) Risk through a Tax Steering Committee
12. Sources