ABC (PTY) LTD v SARS
Introduction
3
Conclusion
Facts
4
Court's findings
5
Critique
Existing case law
International case law
Crookes Brothers
Quote
What we will do in this note
Set the scene
What we have done in this note
Concluding remark
Davis Tax Committee comments
OECD
Applicant
business of manufacturing, importing, and selling chemical products. It has a catalyst division
that is focused on manufacturing and selling catalytic converters (catalysts)
To produce the catalysts, applicant requires, inter alia, some metals known as the Precious Group of Metals (PGMs). It purchases the PGMs from a Swiss entity (“the Swiss Entity”)
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Audit 2014
Tax year 2011
formed a view that the transactions involving the purchase of the PGMs between applicant and the Swiss Entity did not meet the arm’s length standard
Argument
Respondent
Applicant
Respondent formed this view following a detailed analysis of the total cost base incurred by applicant in acquiring the PGMs and other raw materials, including the manufacturing and distribution costs of the catalysts. Respondent also took into account the role played by applicant in purchasing and manufacturing the catalysts, the assets and the risks involved, which risks applicant had accounted for in its financial statement. Using the Transactional Net Margin Method (TNMM)5 with a Full Cost Mark-Up (FCMU),6 respondent conducted a benchmarking study using external companies it considered comparable to applicant’s business circumstances. Following that comparability study, respondent noted that that the FCMU of 1%, declared by applicant in its 2011 financials, fell between the minimum and lower quartile of the range of comparable companies
It is common cause that contrary to the recommended practice that taxpayers test their transfer prices for the arm’s length requirements, applicant had not tested the transactions involving the purchase of the PGMs from the Swiss Entity