South Africa vs BASF South Africa Pty (Ltd), March 2026, High Court, Case No A2024/024644
Table of Contents
Case Information
Court: High Court of South Africa, Gauteng Division, Johannesburg
Case number: A2024-024644
Applicant: BASF South Africa (Pty) Ltd
Respondent: Commissioner for the South African Revenue Service
Jurisdiction: South Africa
Judgment date: 13 March 2026
Judgment Summary
This appeal concerned two procedural rulings made by the Tax Court, Johannesburg in the course of a transfer pricing dispute relating to BASF South Africa (Pty) Ltd's 2011 year of assessment. The High Court had to decide, first, whether the Tax Court was correct to grant SARS leave to amend its Rule 31 statement of grounds of assessment and, second, whether the Tax Court was correct to refuse BASF leave to make two amendments to its Rule 32 statement of grounds of appeal [1].
The High Court found that both orders were appealable as decisions on procedural matters with final effect, given that they concerned the Tax Court's competence to grant or refuse the amendments [21]. On the merits, the court held that SARS's proposed amendments novated the whole of the factual and legal basis of the assessment, in contravention of Rule 31(3), and that the Tax Court therefore erred in granting them [58]. The court further held that the Tax Court erred in refusing BASF's proposed amendments, which related to amounts already fully in dispute and were not barred by Rule 32(3) [82].
The appeal was upheld in its entirety with costs on Scale C, including the costs of two counsel [83].
Background
BASF South Africa (Pty) Ltd manufactures and distributes catalysts. In doing so it purchases Platinum Group Metals (PGMs) from BASF Metals GmbH, a connected company incorporated in Switzerland and referred to as BASF Zug. The PGMs are liquified, mixed with chemicals and applied as a coating to a substrate to form catalysts, which are then sold to South African original equipment manufacturers (OEMs) [2].
SARS conducted an audit and concluded that BASF's purchase of PGMs from BASF Zug was not at arm's length. SARS applied the Transactional Net Margin Method (TNMM) with a full cost mark-up (FCMU) profit level indicator to determine the arm's length price [27]. SARS's comparison of FCMU results showed that BASF achieved a three-year weighted average FCMU of (0.60%) for the 2009 financial year, which fell below the minimum of the comparable range, and a FCMU of (1.00%) for the 2011 financial year, which fell between the minimum and lower quartiles of the comparable range [29].
On 11 January 2016 SARS issued an additional assessment adjusting BASF's taxable income for the 2011 year of assessment [31]. BASF objected on 5 May 2016, arguing that the prices paid to BASF Zug were arm's length prices and that SARS had failed to factor in the use of high-value input material in BASF's cost base [32]. SARS disallowed the objection on 29 July 2016 and adjusted BASF's taxable income by increasing the FCMU to the median of the arm's length inter-quartile range achieved by comparable companies [32]. BASF filed a notice of appeal. SARS delivered its Rule 31 statement of grounds of assessment on 24 July 2018 [33].
Core Dispute
The appeal raised two procedural questions arising from interlocutory amendment rulings in the Tax Court [1].
First, SARS sought to amend its Rule 31 statement to include three entirely new benchmarking studies conducted by an independent expert, Dr Fügemann, and to introduce an adjustment based on MNE Group Synergies. BASF argued that these additions novated the whole of the factual and legal basis of the original assessment, contrary to Rule 31(3) of the Tax Court Rules [37, 38].
Second, BASF sought to amend its Rule 32 statement to include, among other things, two amounts, namely R27,342,842.00 and R49,231,289.00, totalling R77 million, which it alleged SARS had failed to include in calculating BASF's EBIT, and to introduce a ground relating to compensation received in the form of surcharge levies for holding PGMs on behalf of OEMs [59, 60]. SARS opposed these amendments. The Tax Court refused them on the basis that they were raised for the first time on appeal and had not been foreshadowed in the notice of objection [61].
A preliminary question of whether the Tax Court's orders were appealable was also before the High Court [5, 6].
Court Findings
On appealability, the High Court held that the Tax Court's orders were appealable. They were not purely interlocutory because they had final effect: they concerned the Tax Court's competence to grant or refuse the amendments, and questions of competence are always treated as having final effect [15, 16, 21]. The court distinguished the respondent's reliance on Wingate Pearse v Commissioner for the South African Revenue Service as dealing with issues of onus and duty to lead evidence first, which are purely interlocutory [20].
On SARS's Rule 31(3) amendment, the court held that section 31(2) of the Income Tax Act 58 of 1962, as it read in 2011, confined any adjustment to the "consideration" in respect of the affected transaction and did not permit a separate or additional adjustment for items such as MNE Group Synergies [48, 52, 53]. The introduction of three new benchmarking studies, relying on different data sets and different comparables, constituted a material alteration of the factual foundation of the original assessment and was not a mere refinement or clarification but a fundamental change of case [54]. The court found that comparability concerns had already been raised in BASF's notice of objection and that SARS had chosen not to address them at that time [55]. Accordingly, the proposed amendments constituted a novation of the whole of the factual and legal basis of the disputed assessment, prohibited by Rule 31(3), and the Tax Court erred in granting them [56, 58].
On BASF's Rule 32(3) amendments, the court held that the only restriction on a taxpayer raising new grounds of appeal in a Rule 32 statement is that the new ground must not constitute an objection against a part or amount of the disputed assessment not previously objected to under Rule 7 [73]. BASF had objected to the entire transfer pricing adjustment of R114,157,077 and the proposed amendments concerned errors in the calculation of the quantum of that very adjustment; they did not seek to challenge any part or amount acquiesced to in the objection [72]. The R77 million comprising the two amounts was part of the composition of the objected assessment and was not additional or separable from it [59, 81]. Regarding the surcharge levies, the court found a clear connection between what BASF sought to introduce and the statement in the objection that BASF had been compensated by OEMs for the use of its working capital [66, 68]. The Tax Court erred in treating the novelty of the grounds as fatal and in conflating the ground of objection with the subject matter of the objection [80].
Outcome
The appeal was upheld in its entirety [82]. The Tax Court's order was substituted as follows: SARS was refused leave to amend its Rule 31 statement of grounds of assessment, specifically to make those additions and deletions comprising the proposed amendments in the proposed Rule 31 statement served on BASF on 2 February 2023. BASF was granted leave to amend its Rule 32 statement as stated in paragraphs 3 and 6 of its notice in terms of Rule 35. SARS was ordered to pay the costs on Scale C, including the costs of two counsel [Order, paragraphs 1 and 2].
TP Method Highlighted
SARS applied the Transactional Net Margin Method (TNMM) with a full cost mark-up (FCMU) profit level indicator to determine the arm's length price for BASF's purchase of PGMs from BASF Zug [27]. The TNMM methodology involved establishing a benchmark range of profitability for comparable independent third parties through a benchmarking study and then comparing BASF's actual profitability to that benchmark [27]. SARS adjusted BASF's taxable income for the 2011 year of assessment by increasing the FCMU to the median of the arm's length inter-quartile range achieved by the comparable companies [32].
The tested transaction was the purchase of PGMs by BASF from BASF Zug for use in the manufacture and sale of catalytic converters to OEMs [30, 31]. SARS evaluated BASF's total cost base incurred in acquiring the PGMs, other raw materials, and manufacturing and distributing the catalysts [30].
BASF contended that the Comparable Uncontrolled Transaction (CUP) method ought to have been adopted because PGMs are widely traded commodities in respect of which market prices can be readily ascertained and which prices are largely not dependent on the negotiating positions of the parties [40]. BASF also contended that the cost of PGMs used in the manufacture of catalysts should have been treated as a pass-through cost in accordance with standard industry practice [41].
During preparation for the Tax Court appeal, SARS obtained three additional benchmarking studies from an independent expert, Dr Fügemann, which identified third-party companies that use high-value input materials such as PGMs and other precious metals in their manufacturing process. Dr Fügemann also considered the effect of group synergies and concluded that BASF's remuneration for the 2011 year of assessment did not adhere to the arm's length principle [36].
Major Issues / Areas of Contention
- Whether the Tax Court's amendment rulings were interlocutory and therefore not appealable, or were appealable as decisions on competence with final effect.
- Whether SARS's proposed amendments to its Rule 31 statement, introducing three new benchmarking studies and an MNE Group Synergies adjustment, constituted a novation of the whole of the factual or legal basis of the disputed assessment, contrary to Rule 31(3) of the Tax Court Rules.
- Whether the MNE Group Synergies adjustment was legally competent under section 31(2) of the Income Tax Act 58 of 1962 as it read in 2011, which confines any adjustment to the 'consideration' in respect of the affected transaction.
- Whether BASF was entitled under Rule 32(3) to introduce, as new grounds of appeal, the alleged omission of amounts of R27,342,842.00 and R49,231,289.00 from the calculation of its EBIT, notwithstanding that those specific amounts were not identified in its notice of objection.
- Whether BASF was entitled under Rule 32(3) to introduce a ground relating to compensation received in the form of surcharge levies for holding PGMs on behalf of OEMs, given that the objection had referred to compensation by OEMs for the use of working capital.
- Whether the correct test under Rule 32(3) is novelty of the ground of appeal, or whether the only restriction is that the new ground must not constitute an objection to a part or amount of the assessment not previously objected to under Rule 7.
- Whether the appropriate transfer pricing method for the purchase of PGMs was the TNMM with FCMU or the Comparable Uncontrolled Transaction (CUP) method, given that PGMs are widely traded commodities.