REPUBLIC OF SOUTH AFRICA
IN THE HIGH COURT OF SOUTH AFRICA
HELD AT JOHANNESBURG
CASE NO: A2024-024644
(1) REPORTABLE: YES / NO
(2) OF INTEREST TO OTHER JUDGES: YES/NO
(3) REVISED.
IGNATURE
In the matter between:
BASF SOUTH AFRICA PTY (LTD)
And
COMMISIONER FOR THE
13 March 2026
DATE
SOUTH AFRICAN REVENUE SERVICE:
APPELLANT
RESPONDENT
This Judgment was handed down electronically and by circulation to the parties'
legal representatives by way of e mail and shall be uploaded on Caselines. The
date for hand down is deemed to be on 13 March 2026
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JUDGMENT
Mali J, (Dippenaar J et Meersingh AJ) concurring
Introduction
[1] This appeal turns on two issues. First, whether the Tax Court,
Johannesburg was correct in granting an order allowing the respondent,
Commissioner for the South African Revenue Service (SARS) leave to
amend its grounds of assessment (Rule 31 statement) in terms of Rule 31
(3) of the Rules of the Tax Cou rt. Secondly whether the Tax Court was
correct in refusing the appellant, BASF South Africa (SA) (Pty) Ltd (BASF)
leave to make two amendments to its Rule 32 statement of grounds of
appeal.
[2] The appellant, BASF, is a manufacturer and distributor of catal ysts which
are manufactured amongst other materials. Platinum Group Metals
(PGMS) purchased from its connected company BASF Metals GmbH
incorporated in Switzerland (BASF Zug). The PGMs are liquified and mixed
with other chemicals for them to be applied as coating to the substrate that
form the catalysts. The catalysts are sold to South African customers
referred to as original equipment manufacturers (OEMs). The appellant’s
principal activity is the manufacture, import and sale of chemical products.
It has a catalyst division which is involved in the manufacture and sale of
catalysts for use in the abatement of exhaust emissions from motor
vehicles.
[3] The parties are embroiled in a Tax Appeal in a matter concerning additional
assessments raised by the respon dent in a transfer pricing transaction
governed by section 31 (2) of the Income Tax Act, 58 of 1962 (ITA), as it
was in 2011. The section provides as follows:
"Where any supply of goods or services has been effected-
(a) between- (1) (aa) a resident; and (bb) any other person who is not a
resident; (b) between those persons who are connected persons in
relation to one another, and (c) at a price which is either - less than the
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price which such goods or services might have been expected to fetch if
the parties to the transaction had been independent persons dealing at
arm's length (such price being the arm's length price); or
(ii) greater than the arm's length price, the Commissioner may ... in the
determination of the taxable income of either the acquiror or supplier,
adjust the consideration in respect of the transaction to reflect an arm's
length price for the goods or services”.
[4] Section 31 is an anti -avoidance measure, seeking to counter situations
where multinational enterprises util ise non -arm's length transactions to
shift profits. Section 31 as it read in 2011 was only concerned with whether
the prices paid for goods and services between related entities were above
or below an arm's length price.
[5] The Respondent also raised that the judgment of the Tax court and orders
were not appealable because they were interlocutory orders. The parties
were requested to file submissions on appealability. We first deal with
appealability.
Appealability
[6] The submission on behalf of the Respondent was that the orders are not
appealable because they are interlocutory orders with no final effect. The
submissions on behalf of appellant were that the orders are appealable as
the appeal is based on whether Tax Court had the competency to make the
orders and whether the amendments were permissible in terms of R31(3)
and R32(3) respectively.
[7] In substantiation it was argued that the Tax Court had no competency to
grant the order in favour of the Respondent because SARS’ amendments
offended the provisions of Rule 31 (1) of the Tax Court Rules (IT Rules). On
the other hand, the Tax Court had competency to grant the order in favour
of the appellant because the amendments sought by the appellant did not
offend Rule 32 (3) of the IT Rules. In support of the contention the appellant
submitted what is impugned is the competence of the Tax Court to order
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amendments, which competence stems from the parties ‘s entitlement under
the Rules of the Tax Court.
[8] Rule 31 (3) pertains to whether the amendments are permissible in the case
of the respondent's amendment of its Rule 31 statement) and Rule 32(3) (in
the case of the appellant's amendment of its Rule 32 statement). The Tax
Court's competence to order the amendments therefore flows from the
parties' competence to make them under the Rules.
[9] According to the Respondent the decisions constitute interlocutory
applications as contemplated in section 117 (3) of TAA which provides that
the Tax Court may hear and decide an interlocutory application or an
application in a procedural matter relating to a dispute under this Chapter as
provided for in the ‘rules’. The chapter referred to is Chapter 9 of TAA.
Section 129 falls under chapter 9 and provides as follows:
“In the case of an assessment or “decision” under appeal or an application in
a procedural matter referred to in s 117 (3), the tax court may
(a) confirm the assessment or “decision”,
(b) order the assessment or “decision” to be altered;
(c) refer the assessment ba ck to SARS for further examination and
assessment; or
(d) make an appropriate order in a procedural matter.”
[10] Interlocutory orders are decisions made by the Tax Court as in (a) above
and further the order is a decision in a procedural matter as in (d) above.
Furthermore, an amendment is a procedural matter catered for under Rule
52 (7) which provides that a party seeking an amendment of a statement
under rule 35, may apply to the Tax Court under this part for an appropriate
order, including an order concerning a postponement of the hearing. The
Tax Court is empowered to grant amendment sought in terms of Rule 35. Of
significance is a difference made by the TAA between proce dural matters
and interlocutory matters. A procedural matter determines how the main
matter should proceed or issues to be determined in the main hearing. It
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governs how a lawsuit or case is conducted, with the goal of ensuring that
justice is administered fairly and efficiently.
[11] Both parties amongst others rely on Commissioner for SARS v Free State
Development Corporation (Free State) 1 . The Respondent refers to
paragraph which states:
“…5 The order deals with the granting of an amendment. Ordinarily, t his
would be a purely interlocutory order, which does not dispose of any issue
in the main appeal. In Macsteel Tube and Pipe, a division of Macsteel
Service Centres SA (Pty) Ltd v Vowles (Mac Steel) this Court held that:
‘It is true that the ref usal of an amendment may have a final and definitive
effect because a party may be precluded from leading evidence at the trial
in respect of the aspects which were to be introduced by the amendment
of the pleadings. However, the granting of an amendment does not, without
more, have that effect. Ordinarily, an order granting leave to amend is an
interlocutory order which is not final and definitive of the rights of the
parties.” [added insertion]
[12] The SCA in the paragraph referred to above was not ruling or passing a
judgment on the appealability; rather it was stating what it could be in the
ordinary sense and referred to Macsteel. There is no blanket approach on
the question of appealability of interlocutory orders. A court faced with the
question of appealability as in the present case must engage on an exercise
whether the order /s are purely interlocutory and do not dispose any issue in
the main appeal. If it disposes of the issue in the main appeal, it is appealable
because it has final effect.
[13] In the present instance, if the orders granted by the Tax Court are not
appealable, the pleadings complained about would get to the main appeal
whilst the appellant does not agree with the manner of pleading. In the view
of this cou rt the pleadings will have a final effect. The appellant will be
1 [2023] ZASCA 84
6
expected to answer to the assessment which it alleges is a novation on legal
and factual grounds. This will be prejudice to the appellant if it would be
required to deal, in the tax appeal, with the additional benchmarking studies
and the MNE Group Synergies ground, when the Respondent is not
permitted to rely on them as a matter of principle and they are not properly
issues in dispute.
[14] The Respondent’s counter argument that the appellant w ill have an
opportunity to deal with the issues raised in Rule 31 (3) in evidence cannot
pass muster because the respondent would be the first to raise that the
appellant did not plead to the issues at the relevant time, i.e at the pleading
stage. The court of first instance will not have time to alter the decision as
held in paragraph 6 of Free State as follows:
The right to appeal a decision of the Tax Court falls under s 133(1) of the
TAA, which provides that ‘[t]he taxpayer or SARS may in the manner
provided for in this Act appeal against a decision of the tax court under
sections 129 and 130’. It is trite that, in the ordinary course, to be considered
appealable, the order or decision must be ‘final in effect; not susceptible of
alteration by the court of first instance; definitive of the rights of the parties,
and, the order must have the effect of disposing of at least a substantial
portion of the relief claimed in the main proceedings’
[15] To the above the SCA referred to the case of Zweni v Minister of Police2.
The appellant referred to paragraph 11 of Free State, wherein the SCA dealt
with the questions of competence as follows:
the Tax Court's order "is appealable because it concerns the Tax Court's
powers to grant the order which it did. SARS cont ends that such powers
were lacking in terms of the Legislation and the Rules of the Tax Court.
Questions of competence are always treated as having a final effect as a
lack of competence would vitiate the decision"
lack of competence would vitiate the decision"
[16] The appellant’s submissions are on all fours with the above. The appellant
complains that if the amendment sought by the respondent offended Rule
2 1993 (1) SA 523 (A)
7
31 (3) then it was not competent for the Tax Court to grant it. On the other
hand, the Tax Court erred in refusing the appellant’s amendments whilst it
was competent for it to grant the amendments. Furthermore, at paragraph
44 of Free State the following was held:
“Applications for amendments seeking to retract incorrectly admitted legal
consequences are normally granted by our courts (even on appeal), for
‘the law would be prejudiced if cases were to be decided on what parties
might, in ignorance, have agreed the law to be’. A court is not even obliged
to consider prejudice to the other side in such circumstances. In Potters
Mill it was held that:
‘Where a plaintiff alleges in a pleading that a particular law governs the
case, whereas that law may not, an admission by a defendant that the law
referred to governs the case does not make it so. What the law is has
always been a matter for the court to determine, and it is well established
that mistakes about the law which the parties make are not binding on a
court. “
[17] The appellant’s complaint in part is that the respondent is changing the law.
The amendment granted to the Respondent pertains to what the appellant
believes is a change of legal grounds (Section 31 of ITA) by the Respondent.
The SCA had another oppor tunity to decide on the appealability of the
decisions of the Tax Court. In Commissioner for the South African Revenue
Service v Virgin Mobile South Africa (Pty) Ltd3 it was held:
“[8] Section 133 (1) addresses the issue of appealability in respect of
decisions of the tax court: a taxpayer or SARS may appeal against ‘a
decision of the tax court under ss 129 and 130’. Section 130 has no relevance
this appeal. The question is thus whether the dismissal of an application in
terms of rule 30 of the Uniform Rules is a decision as contemplated in section
129 (2) of the TAA.
[9] Section 129 (2) (d) gives the tax court the power to make appropriate
[9] Section 129 (2) (d) gives the tax court the power to make appropriate
orders in procedural matters relating to disputes. The taxpayer’s appeal
3 2025 (5) SA 427 (SCA) paras 8 -9
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against Sars’ additional assessment was a dispute under ch 9 of the TAA.
Was the rule 30 application filed by the taxpayer a procedural matter relating
to that dispute? If so, the decision the tax court is appealable. …”
[18] Although Rule 30 in the abovementioned case is in the Uniform Rules of
Court, of importance it is a Rule meant to facilitate the hearing of the main
matter, therefore Tax Court rules are also designed for the same purposes.
Having regard to the above the decisions of the Tax Court in relation to
procedural matters are appealable.
[19] Furthermore, an amendment is a procedural matter catered for under Rule
52 (7) which provides that a party seeking an amendment of a statement
under rule 35, may apply to the Tax Court under this part for an appropriate
order, including an order concern ing a postponement of the hearing. The
Tax Court is empowered to grant an amendment sought in terms of Rule 35.
Of significance is a difference made by the TAA between procedural matters
and interlocutory matters. A procedural matter determines how the mai n
matter should proceed or issues to be determined in the main hearing. It
governs how a lawsuit or case is conducted, with the goal of ensuring that
justice is administered fairly and efficiently.
[20] The respondent’s reliance on Wingate Pearse v Commissioner for the South
African Revenue Service 4 is misplaced. It is distinguishable and dealt with
issues pertaining to the onus of proof and the duty to lead evidence first.
Those issues are purely interlocutory.
[21] Having regard to the above it is found that the orders of the Tax Court are
appealable.
The basis of the appeal
[22] The first issue is whether the amendment of the Respondent’s grounds of
assessment (Rule31) in the amended statement constitutes novation as
4 2017 (1) SA 542 (SCA)
9
provided for in Rule 31 (3). If it does, then it was not competent for the Tax
Court to grant same.
[23] The second issue is whether the Tax Court ‘s refusal of amendments
proposed by the Appellant when it had com petency to do so was correct
either because the amendments did not fall within the limits or fell outside
of what a taxpayer may include in its Rule 32 (3) statement (grounds of
appeal)
[24] Rule 31 (3) provides:
"SARS may include in the statement a new ground of assessment or basis
for the partial allowance or disallowance of the objection unless
it constitutes a novation of the whole of the factual or legal basis of the
disputed assessment, or which requires the issue of a revised assessment".
[25] Rule 31 (3) is a prohibitor. SARS is not allowed to include a new ground if
it changes or introduces the whole of legal basis or facts. Rule 32 (3)
provides:
“The appellant may include in the statement a new ground of appeal unless
it constitutes a ground of objection against a part or amount of disputed
assessment not objected to under rule 7. [ added underlining]
Summary of facts
[26] The Respondent conducted an audit on the appellant and found that the
Appellant’s purchase of PGM's f rom a related party, BASF Zug, in the
manufacture and distribution of catalysts was not at arm's length. It drew
this conclusion after conducting a functional and comparability analysis to
determine whether an arm's length consideration was paid for the purchase
of PGM's for the manufacturing and distribution of catalysts to Original
Equipment Manufacturers) OEM’s . In conducting the comparability
analysis, SARS employed methods recommended by Organisation for
Economic Co-operation and Development (OECD).
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[27] The Respondent applied the Transactional Net Margin Method ("TNMM")
with full cost mark -up ("FCMU") profit level indicator to reflect an arm's
length price in respect of the tested transaction and to then adjust the
appellant's taxable income for the 2011 t ax year. The principle underlying
the TNMM methodology is that, as a general principle, entities that
participate in similar commercial endeavours (such as manufacturing
similar products) in similar markets should enjoy similar profit margins. The
application of the TNMM method involves the establishment of a
benchmark range of profitability for comparable independent third parties,
through a benchmarking study. The actual profitability of the tested
taxpayer is then compared to this benchmark.
[28] A material inconsistency would be indicative of the taxpayer engaging in
non-arm's length transactions with connected persons (although there may
be another explanation, as the OECD cautions), justifying the making of an
adjustment. Moreover, the benchmark study pro vides a basis for the
quantum of any adjustment to be made to the taxpayer's taxable income,
such adjustment to take place in the manner contemplated in section 31(2).
[29] The Respondent ’s comparison of FCMU realised by comparable
companies to the appellant r eflected that for the financial years 2009 the
appellant achieved a three-year weighted average FCMU of (0.60%) which
fell below the minimum of the range of the comparable set of companies
for the same period. Such comparison also showed that the Appellant
achieved a FCMU of (1.00%) for the financial year 2011, which fell between
the 10 minimum and lower quartiles of the range of the comparable set of
companies for such period.
[30] The FCMU results achieved by the Appellant for the distribution of self -
manufactured catalysts, for the financial year 2011 accordingly
demonstrated that the transactions between the appellant and BASF Zug
demonstrated that the transactions between the appellant and BASF Zug
were not at arm's length. The consideration paid by the appellant in respect
of the purchases of the PGMs from BASF Zug, and w hether that was at
arm's length, was determined by assessing the consideration realised by
the Appellant after the manufacturing of the catalyst and the sale thereof to
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OEMs. The respondent also evaluated the A ppellant’s total cost base
incurred in acquiri ng the PGMs, other raw materials, manufacturing and
distributing the catalysts, for purposes of determining the arm's length
nature of the mark-up achieved by the Appellant.
[31] On the above basis, on 11 January 2016 SARS consequently issued an
additional assessment and made an adjustment to the Appellant’s taxable
income for the 2011 year of assessment because the Respondent did not
consider that the purchase price of the PGM's from BASF Zug, paid by
BASF ZA, for the manufacturing and sale of catalytic conve rters to
independent OEM's reflected an arm's length price.
[32] The Appellant objected to the additional assessment on 5 May 2016,
challenging the Respondent’s computation of arm’s ‘length’ consideration.
The Appellant’s objection was that the price paid to Z ug was arm’s length
prices. The Appellant’s complaint was that SARS did not factor the use of
high value input material in the A ppellant’s cost base in the computation.
Ultimately, the Respondent disallowed the appellant’s objection on 29 July
2016, because the Appellant did not provide any persuasive evidence for
the selection of any point in the range, as it did not test the arm's length
nature of the tested transaction, in terms of paragraph 11.4.7 of Practice
Note No. 7. The Respondent adjusted the taxable income of the Appellant
for the 2011 year of assessment by increasing the FCMU reflected by
BASF for the 2011 year of assessment to the median of the arm's length
inter-quartile range achieved by the comparable companies.
[33] The Appellant filed a notic e of appeal and disputed that the amount
determined by the Respondent (according to the TNMM, with FMCU profit
level indicator) represented the arm's length prices for the relevant
purchases of PGM's. The Respondent delivered a Rule 31 Statement of
grounds of assessment in respect of the 2011 year of assessment on 24
July 2018.
grounds of assessment in respect of the 2011 year of assessment on 24
July 2018.
[34] The matter proceeded in the Tax Court. On 24 July 2018, the Respondent
filed a Rule 31 Statement in respect of the A ppellant’s 2011 year of
assessment and relied on the grounds of assessment as set out in the letter
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of audit findings. Therein, it sets out its conclusion that the tested
transaction was not at arm’s length together with the analysis which it
undertook to arrive at such conclusion.
[35] In response thereto, the Appellant f iled its Rule 32 Statement and set out
its grounds of appeal. In its Rule 32 Statement, the Appellant inter alia
raised new grounds of appeal and contended that:
The Respondent failed to have regard to the OECD Guidelines by failing
to take proper accou nt of the extraordinary increase in the price of rare
earth minerals ("Rare Earths") which the appellant was required to absorb
in the 2011 year and which had a material negative impact on its operating
margins; and included MNE Synergies adjustment
[36] During the preparation of the appeal, the Respondent had to address the
appellant’s complaint pertaining to the transfer pricing analysis, as referred
to earlier. It sourced an independent study from Dr Fügemann who
conducted his own benchmarking study which re sulted in three
benchmarking studies. Dr Fugemann’s study involved the identification of
third-party companies that use high -value input material, such as PGM’s
and other precious metals, in their manufacturing process which should be
included in their base cost. In determining an arm's length price, Dr
Fügemann also considered the effect of group synergies. The Respondent
also mandated Dr Fugemann to consider the app roach suggested in the
appellant’s Rule 32 statement. In the conclusion of his report, Dr
Fügemann agreed with the Respondent in that the App ellant’s
remuneration achieved in respect of the 2011 year of assessment does not
adhere to the arm's length principle.
Arguments
[37] Appellant’s arguments were that the Respondent’s amendments sought
to introduce new and different transfer pricing adjustments (in the
alternative to the actual assessment, and on the premise that the
Respondent fails to defend it) base d on three entirely new benchmarking
Respondent fails to defend it) base d on three entirely new benchmarking
studies, as well as an independent purported adjustment based on a
13
factual premise (the "MNE Group Synergies" ground) which had nothing to
do with the benchmarking studies and played no role in the additional
assessment.
[38] The three new benchmarking studies and the MNE Group Synergies
ground novate the legal and factual basis of the additional assessment,
because they abandon in its entirety the original benchmarking study (on
which the assessment was fundamentally premised).
[39] Furthermore, the Appellant submitted that the companies with which it was
compared were in fact properly comparable but denied that the
comparability analysis and selection of the TNMM was in accordance with,
or permitted by, section 31(2). The arm 's length nature of the purchase of
PGMs from BASF Zug could properly be determined by reference to the
consideration realised from the sale of catalysts to OEMs, save that the
pass- through cost of PGMs to the OEMs was in fact effected at an arm’s
length. It submitted that the comparability analysis, even if competent in
principle, was improperly carried out for different reasons.
[40] The TNMM was an inappropriate method for the Respondent to use as the
affected supplies involved the sale of PGM's, which 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 to each transaction. The market prices of PGMs thus represent
external comparabl e uncontrolled transactions and the Comparable
Uncontrolled Transaction (CUP) method ought to have been adopted.
Application of the CUP would have resulted in no adjustment to the
consideration being warranted or required. TNMM was improperly applied,
even if the TNMM was an appropriate methodology for SARS to have
utilised. The way it was applied was flawed in at least the following
respects:
[41] First, the Respondent failed to treat the cost of PGMs used in the
manufacture of catalysts as a pass-through cost, notwithstanding that such
manufacture of catalysts as a pass-through cost, notwithstanding that such
treatment is in accordance with standard industry practice and is reinforced
by, inter alia, the agreement between the Appellant and General Motors
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("GM") in respect of which GM provides PGMs to the Appellant as free
issue in the manufacture of catalysts, so that the cost of such PGMs is not
charged to GM and the Appellant makes no margin on them; (in the case
of OEMs) had negotiated the acquisition of PGMs at pass-through costs.
[42] Second, the Respondent identified "comparable entities" for purposes of
applying the TNMM that were not in fact comparable with the Appellant.
The Appellant compared entities involved in the manufacture of automotive
parts other than catalytic converters. The latter are distingu ishable from
automotive parts in general by, inter alia, the use of high -value raw
materials such as PGMs in their manufacture, the cost of which is not
typically subject to mark-up as part of the sale price.
[43] The Respondent’s arguments were that, in addition to the benchmark study
that was conducted during the audit process SARS has, through an
independent firm of experts (Dr Fugemann’s report) , conducted an
additional benchmark study to identify companies that are comparable to
the Appellant i.e. manufacturers that operate in industries that require high
value raw materials in their cost base and which use such materials in their
manufacturing.
[44] Reliance on additional material to corroborate an assessment does not on
its own mean that an assessment has bee n changed or that the
Respondent now relies on new factual or legal basis. In support of the use
of other benchmarking sets, the Respondent referred to the 2010 OECD
Transfer Pricing Guidelines for Multinational Enterprises and Tax
Administrations (July 20 10) ("2010 OECD Guidelines") (and the further
versions published in 2017 and 2022). Accordingly, a range of figures may
result when more than one method is applied to evaluate a controlled
transaction. Nevertheless, each separate range potentially could be used
to define an acceptable range of arm's length figures.
[45] The Respondent argued that once the amendment is granted, the
[45] The Respondent argued that once the amendment is granted, the
appellant would have the right to make consequential amendments to its
statement of ground of Appeal and lead any evidence to meet the
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comparable benchmark assessment conducted by Dr Fugemann an d its
experts are at liberty.
[46] The Respondent ‘ s further contention was that the Appellant would be
entitled to place all the necessary information before the Tax Cou rt,
including additional information that comes to light after the audit process
since the hearing of the Tax Appeal is a hearing de novo. The Tax Court
has wide powers to confirm, vary or remit an assessment to the
Respondent for reassessment.
[47] Another su bmission made on behalf of the Respondent was that
consideration of MNE Group Synergies does not constitute a new
methodology or a different assessment. Group Synergies were dealt with
as part of determining an arm’s length price and also to show that there is
no pass through of PGMs as contended by the Appellant, as the Appellant
must be remunerated for its role in the manufacturing process.
DISCUSSION
[48] The first question to be asked is what the legal and factual basis in Rule 31
are as compared to the legal and factual basis submitted in Rule 31 (3).
The legal basis should be found in section 31 (2). That section is clear that
the only item to be adjusted is “consideration.” The Respondent does not
dispute that its Rule 31 (3) sought to include MNE Syn ergies adjustment.
The operative mechanism for adjustment is confined to the “consideration”
in respect of the affected transaction. Where the actual consideration
deviates from the arm’s length consideration, the statute deems the
consideration to be the arm’s length amount . Consequently, any
adjustment to the taxpayer’s taxable income must flow from a
characterisation or recalibration of the consideration itself. The statute does
not, in its 2011 iteration, permit a separate or additional adjustment for
items such as “synergies” or other economic benefits that are not directly
reflected in the price or consideration for the transaction.
[49] The Respondent does not dispute that its amended Rule 31 statement
[49] The Respondent does not dispute that its amended Rule 31 statement
sought to include an MNE Synergies adjustment or adjusted the
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calculations based on MNE Synergies. Rule 31(3) limits what the
respondent may include in a Rule 31 statement. It provides:
“SARS may include in the statement a new ground of assessment or basis
for the partial allowance or disallowance of the objection unless it constitutes
a novation of the whole of the factual or legal basis of the disputed
assessment or which requires the issue of a revised assessment”.
Interpretation
[50] As established in Natal Joint Municipal Pension Fund v Endumeni
Municipality5, interpretation requires a unitary consideration of text, context
and purpose and must also consider the circumstances surrounding the
creation of the provision, and the material known to those responsible for
its drafting.
[51] Building on Endumeni, in Capitec Bank Holdings v Coral Lagoon
Investments 194 (Pty) Ltd 6 it was held that the triad of text, context, and
purpose should not be applied mechanically. Instead, interpretation
involves understanding the relationship between the words used, the
concepts they express, and the provision’s place within the broader legal
framework. The starting point remains the language of the provision.
[52] Insofar as the legal basis of the additional assessment is concerned, the
Respondent relied on the applicat ion of section 31(2) of the Income Tax
Act 58 of 1962, as it read in 2011. The language of the section is that the
adjustment applies on “consideration” and nothing else. To apply the
adjustment on other things not appearing in the language of the provisi on
like MNE group synergies is a novation of the legal basis. There is no basis
for such an adjustment on the language of section 31(2) as it read in 2011.
[53] The term “consideration” must be given its ordinary meaning within the
context of the tested transaction. It refers to the price paid or value given.
It does not, without clear legislative direction, extend to collateral
5 [2012] ZASCA 13; 2012 (4) SA 593 (SCA) para 18.
6 [2021] ZASCA 99, 2022 (1) SA 100 (SCA) para 25
17
economic concepts such as group synergies. The Respondent ’s attempt
to introduce such an adjustment was therefore legally incompetent and fell
to be disregarded.
[54] Secondly, the facts alleged in the Rule 31 statement are straightforward: a
single benchmarking study was undertaken and used as the factual basis
for the assessment. However, in its amendment of its rule 31 statement,
the Respondent brought three new benchmarks, thus changing the factual
basis on which SARS exercised its discretion to make the actual transfer
pricing adjustment. The introduction of entirely new benchmarking studies,
relying on different data sets and dif ferent comparables, constitutes a
material alteration of the factual foundation upon which the assessment
was originally based and upon which the Respondent initially chose to
plead. This is not a refinement or a clarification; it is a fundamental change
of case.
[55] The Tax Court appears to have given weight to the argument that the
additional benchmarking studies were obtained in response to
comparability concerns first raised in the taxpayer’s Rule 32 statement.
Both the notice of objection and the Rule 33 statement make it clear that
the issue of comparability was already expressly raised in the notice of
objection. The Respondent chose not to address these objections at the
time and did not revise its assessment. It cannot now rely on the absence
of those objections in the Rule 32 statement to justify its position when
those same concerns were fully articulated in the objection. A taxpayer is
entitled to assume that when it objects on specific grounds, and the
Respondent does not amend the assessment, the dispute will be
adjudicated because of the facts and grounds that gave rise to the
assessment.
[56] The Respondent was not entitled to leave to amend because what it sought
to introduce in its amended Rule 31(3) statement was not a mere
amplification of its ex isting case, but a novation —an entirely new case
amplification of its ex isting case, but a novation —an entirely new case
based on new facts and new legal contentions. This is an exercise
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prohibited by Rule 31(3) of the Tax Court Rules. The Rules of this Court,
and of the Tax Court, are designed to ensure that disputes are defined with
clarity and that neither party is taken by surprise. To permit the
Respondent, at a late stage in the proceedings, to jettison the factual basis
of its own assessment and replace it with a new one would be manifestly
unfair to the taxpayer and contrary to the proper administration of justice.
[57] The Tax Court in its judgment did not address the issue or the impact of
MNE synergies at all. It seems as if the Tax Court placed a premium on the
importance of Dr Fugemann’s report without segmenting the b asis of
section 32 of the ITA. While expert evidence, such as that of Dr Fugemann,
is valuable in transfer pricing disputes, it cannot supplant the plain
language of the statute. The Tax Court appears to have conflated the
expert’s views on economic theor y with the legal question of what the
statute permits. Section 31(2) permits an adjustment to consideration; it
does not permit a separate adjustment for MNE synergies. The failure to
segment this analysis, and to address the statutory basis for the synerg y
adjustment, constitutes a material misdirection.
[58] Considering the above, we find that the Tax Court erred in its conclusion.
The purported introduction of a claim for MNE Synergies was ultra vires
the provisions of section 31(2) of the IT Act and fell to be rejected.
Furthermore, the Respondent attempted to fundamentally alter the factual
basis of its case by introducing three new benchmarking studies in its
amended Rule 31(3) statement. This was procedurally irregular and should
not have been countenanced by the Tax Court. The dispute ought to have
been determined on the facts as they stood in the Rule 31 statement, or, if
the Respondent sought to change its case, it should have been required to
do so properly and at a much earlier stage, with due regard to the prejudice
to the Appellant.
Rule 32 (3) appeal
to the Appellant.
Rule 32 (3) appeal
[59] The Appellant further appealed against the decision of the Tax Court in
refusing its amendment to introduce two issues out of five it had brought in
19
terms of Rule 32 (3). In essence those two issues were: firstly, the failure
by the Respondent to take into account the two amounts of R27 million and
R49 m totaling to R77 million in computing the Appellant ’s earnings before
interest and tax (EBIT), thus resulting in the assess ment of R114
157,077.00 million. According to the Appellant, had these amounts been
included, the A ppellant’s profitability would be higher, its position on the
FCMU benchmark range would change, and the transfer pricing
adjustment would be materially redu ced. These amounts form the
composition of the R114 157,077.00 million assessment. They are not
additional and neither separable from the objected amount.
[60] Secondly, the Appellant wanted to introduce the compensation it received
for holding PGMS, for OEMS in the form surcharge levies. By introduction
of the compensation through the levies, it was bringing a new ground an
exercise which is not prohibited by Rule 32 (3).
[61] The Tax Court refused the amendment on the basis that the contention
was raised for the first time on appeal and was not foreshadowed in the
taxpayer’s notice of objection.
[62] Rule 32 (3) provides that "The appellant may include in the statement a
new ground of appeal unless it constitutes a ground of objection against a
part or amount of the disputed assessment not objected to …. under Rule
7".
[63] Rule 7 (2) (b) is relevant for the purposes of this appeal, and it provides
that:
“A taxpayer who lodges an objection to an assessment must (b) set out the
grounds of the objection in detail inclu ding— (i) specifying the part or
specific amount of the disputed assessment objected to; (ii) specifying
which of the grounds of assessment are disputed; and (iii) submitting the
documents required to substantiate the grounds of objection that the
taxpayer has not previously delivered to the Respondent for purposes of
the disputed assessment; ..”
20
[64] What were the grounds advanced in the objection? The following extracts
from the objection are relevant:
"The prices at which the Appellant purchased the PGMs from BASF Zug
were equal to the arm's length prices, as referred to in section 31(2) "The
prices at which the Appellant sold the PGMs to the OEMs [its customers]
were equal to the prices for which the Appellant purchased the PGMs from
BASF Zug. In addition , the Appellant was compensated by the OEMs for
the use of its working capital to make payment to BASF - Zug, including
interest on (sic) such capital.
The Appellant denies that the Relevant Purchases [the purchases of PGMs
from BASF Zug] were at prices w hich were not the arm's length prices for
such supplies. BASF SA denies tha t the amount determined by SARS,
as referred to in paragraph 10.3 above [a reference to the
R114,157,077.00] as determined by the TNMM method with a FCMU, i.e.:
the methodology used by SARS], represented arm's length prices for the
Relevant Purchases," [added emphasis].
The Appellant accordingly denies that the Commissioner was entitled to
adjust the consideration in respect of the Relevant Purchases in terms of
section 31(1) by the amount of the purported adjustment, or at all.
"On the contrary, the Commissioner (or SARS on his behalf) ... purported
to determine the EBIT of the alleged comparable companies from the
manufacture and distribution of self - manufactured catalysts and to
determine the EBIT of BASF SA relating to the sale or manufacture and
sale of catalysts on the basis of the median or the interquartile range
achieved by such companies.
In light of what is stated above, it is not necessary for BASF SA to traverse
each and every allegation made by SARS in the Audit Findings Letter, the
Assessment Letter and the Reasons Letter. The failure to deny any of the
allegations made by SARS in these letters must not be construed as an
admission of the correctness thereof. BASF will deal in due course with
admission of the correctness thereof. BASF will deal in due course with
such allegations to the extent necessary or relevant."
21
[65] What are the grounds advanced in the amendment of the Rule 32 notice in
the appeal?
“…. the Appellant seeks the Respondent's consent to amend its Rule 32
statement in the following respects: 1. By adding the following sentence to
the end of paragraph 12: *Moreover, the sales of PGMs by the Appellant
occurred at prices agreed to by the OEMs to whom the PGMs were
supplied.
By inserting the following in paragraph 13 thereof after "The market prices
of PGMs": "and the prices agreed to by the OEMs to which the PGMs were
supplied” 3. By amending paragraph 15.1 thereof to read as follows:
The Respondent incorrectly calculated the FCMU of the Appellant's
catalyst division. In particular, and without derogating from the generality
of that allegation, the Respondent failed to:
include income of R27,342,842.00, such amount representing trade
financing surcharges the Appellant levied on its customers in respect of
certain PGMs used in the manufacture of automotive catalysts by the
Appellant's catalyst division, and the net amounts charged to customers
pursuant to the monthly reconciliation of actual and contracted PGM prices;
and include income of R49,231,289, such amount comprising:
R4,936,177 relating to the proceeds of sale of completed catalysts not
manufactured by the Appellant; R33,760,954.00 relating to net foreign
exchange differences in favour of the Appellant in respect of the sale of
catalysts from its manufacturing business; R5,738,024.00 relating to
income received due to price corrections to products -supplied to an OEM
(Ford); and R4,796,134.00 relating to the reversal of a provision for a
"productivity" price reduction to be made to an OEM, which provision was
made in the 2010 tax year.
By adding the following new paragraph 30.7 "Moreover and in any event,
the prices paid by the Appellant for the supply of PGMs to it were the same
prices agreed to by the OEMs to whom the PGMs were supplied and the
22
price agreed, by the OEMs therefore also represented a CUP against
which to compare the Affected Supplies.
By inserting the following in paragraph 31.2.4 after "on any given day": and
the prices agreed to by the OEMs for the supply of PGMs to them
By inserting the following at the end of paragraph: and is in any event
compensated for through a surcharge to the OEM or an agreed entitlement
to retain a certain quantity of PGMs from the pool of PGMs held by the
Appellant for the OEM". By inserting the following in paragraph after "the
market price or PGR”, including the price actually negotiated with the
OEMs to wherein." PGMs were supplied,"
[66] Regarding the compensation for holding PGMS on behalf of OEMS, the
Appellant in the grounds of objection mentioned: “BASF SA was
compensated by the OEMs for the use of its working capital to make
payment to BASF- Zug, including interest on (sic) such capital”.
[67] The amendment sought to expand on the method used (being surcharges
and that the prices were agreed upon between the parties). The Tax
Court’s conclusion in paragraph 32 is as follows:
“This too is a novel claim. It was not raised in the rule 7 objection statement,
and there is no other allegation or averment in the rule 7 statement to which
it could be connected. It is entirely a new case.”
[68] With respect the Appellant made it clear in the objection that it was
compensated by OEMS. There is clearly a connection between what BASF
SA sought to introduce in Rule 32 (3) and what is contained in the objection.
[69] With regards to the amount of R77 Million, the Tax Court in paragraph 31
held: “…..This averment was not made at all in the rule 7 objection
statement. All that was said there was that the Commissioner incorrectly
calculated the FCMU of BASF’s catalyst division.”
23
Discussion
[70] It seems as if the Tax Cou rt wanted to see the amount of R77 Million
mentioned separately from the amount of R114 157,077.00 Million. The
amount of R77 million is linked to the incorrect calculation of the FCMU. It
has always been BASF SA’s case that the prices were at arm's length, thus
one had to apply the TNMM method which comprised the calculation of
FCMU.
[71] Properly understood the identification of the amount or part of the
assessment disputed is entirely separate from the grounds advanced in
support of the dispute. A taxpayer who has objected to the whole of an
adjustment is not confined to the grounds set out in its notice of objection;
it may advance new or alternative grounds in its Rule 32 statement or
thereafter, provided it does not thereby seek to dispute an amount or pa rt
previously uncontested. Herein, the amount has been identified as R114
157,077.00 Million, but Rule 32 (3) permits a new ground supporting the
challenge of the correctness of that amount. It does not have to be the
exact words mentioned in the objection, of importance is that the argument/
ground is linked to the disputed assessment.
[72] The question is whether the amendment the appellant sought to introduce
concerned a part of the assessment the appellant had previously objected
to. The appellant had objec ted to the entire transfer pricing adjustment of
R114,157,077 and to the interest levied. The proposed amendment
concerns errors in the calculation of the quantum of that very adjustment.
The adjustment was wholly disputed; the amendment does not seek to
challenge any part or amount that was acquiesced to in the objection.
[73] The taxpayer’s right to raise new grounds of appeal is circumscribed not
by the novelty of the ground, but by whether the ground constitutes an
objection to a part or amount of the assessment that was not objected to in
terms of Rule 7. This was the explicit holding of the Court in ITC 19127,. It
7 ITC 1912 80 SATC para 10.
24
was held that the only restriction on new grounds of appeal to be raised by
a taxpayer in its Rule 32 statement is where they constitute an objection to
parts or amounts of the assessment not objected to in the taxpayer's notice
of objection. The identification of what amount was objec ted to is entirely
separate from the grounds for the objection.
[74] A taxpayer who has objected to the whole of an adjustment is not confined
to the grounds set out in its notice of objection; it may advance new or
alternative grounds in its Rule 32 statement or thereafter, provided it does
not thereby seek to dispute an amount or part previously uncontested. In
essence the Appellant ‘s argument is understood to be this: If the
Respondent had reflected on the two amounts, its profitability would not
have been at the level envisaged by the Respondent therefore influencing
the amount of assessment, R114 157,077.00 Million. The Respondent
would not have arrived at that amount of assessment.
[75] The Respondent’s reliance on Baseline Civil Contractors (Pty) Ltd v Th e
Commissioner for the South African Revenue Service (Baseline) 8 (to
which we were referred after the hearing without objection), does not avail
it. There, the taxpayer sought to raise a new ground of appeal in the
alternative, which introduced a receipt/ accrual ground, whereas it had
earlier declared the relevant amount as part of its gross income and
claimed it as an expenditure. The Tax Court found that the new ground
constituted an entirely new case on appeal, aimed at the reduction of an
amount not pr eviously objected to. Both the Full Court and the Supreme
Court of Appeal endorsed the finding that the new ground was
impermissible and amounted to a new objection which was not previously
raised as it constituted a new factual or legal basis pertaining to a different
portion or amount of the disputed assessment which had not been
previously objected to.
portion or amount of the disputed assessment which had not been
previously objected to.
[76] In the present instance, the new ground relied on constituted a new reason
or argument on appeal, rather than a new objection, raising a new case.
8 (893/2024) [2026] ZASCA 20 (24 February 2026)
25
Baseline is thus factually distinguishable. In any event, applying the
principles set out in Baseline, as the Appellant advances a new argument
or different legal approach to attack the same part or amount that was
already objected to, this is permissible as long as the new argument does
not change the substance of the original objection. The Court conclude s
that it does not and that it is not directed at an issue not covered or
foreshadowed in the appellant’s initial objection and the notice of appeal.
It covers, in substance, the objection against the s 31(2) transfer pricing
adjustment.
[77] In Matla Coal Ltd v Commissioner for Inland Revenue 9, it was held that
where a taxpayer had objected to the disallowance of a capital loss in its
entirety, it was entitled to plead a wholly new basis for recognition of that
loss. The fact that the new ground was not mentioned in the objection was
of no consequence.
[78] In Capitec Bank Ltd v Commissioner for the South African Revenue
Service10 the Court reaffirmed this principle. The taxpayer had objected to
the full disallowance of a deduction. Although it had not pleaded a n
alternative entitlement to an apportionment, the Court held that such an
alternative was permissible:
“[Capitec’s] failure to advance an alternative objection against only a part
of the disallowance would not have precluded it from inc luding this
alternative in its appeal to the Tax Court. What the Tax Court Rules
preclude is the raising of a new ground that constitutes a new objection
against a part or amount of a disputed assessment that was not objected
to under rule 7. Since Capitec had objected to the whole of the disputed
assessment, the alternative would not have involved an attack on a part or
amount not previously objected to.”
9 1987 (1) SA 108 A
10 [2024] ZACC 1; 2024 (7) BCLR 841 (CC); 2024 (4) SA 361 (CC); 84 SATC 369 (12 April 2024)
26
[79] It follows that an analysis of whether a ground is “novel” or “differs radically”
from the grounds of objection is legally irrelevant. The only relevant inquiry
is whether the part or amount of the assessment to which the new ground
relates was placed in dispute in the objection.
[80] The Tax Court erred in treating as fatal the fact that the calculation e rrors
were not mentioned in the notice of objection. In so doing, it conflated the
ground of objection with the subject matter of the objection. The former
may be supplemented or refined; the latter defines the scope of the dispute
and is fixed by the objection. Since the subject matter (the full adjustment)
was disputed, the taxpayer is at liberty to advance any legal or factual basis
for its reduction or discharge.
[81] Accordingly, the Appellant is not precluded from pleading that the
Respondent ’s calculati on of its EBIT was erroneous, or that specific
amounts ought to have been included. Such contentions go to the quantum
of the adjustment already in dispute [ onset from the objection] and are
properly raised on appeal. The EBIT amounts form the composition of the
objected amount of assessment. They are not additional and neither
separable from the objected amount, however the Appellant seeks to
introduce new computation which is not barred.
[82] In conclusion, for the reasons advanced the Tax Court erred in granting the
Respondent the amendment which novated the respondent’ grounds of
assessment and rejecting the amendments sought by the Appellant which
were overshadowed in the notice of objection. This court is at large to
interfere with the Tax Court’s decision. The appellant’s appeal should
succeed in entirety.
[83] Costs follow the result. Considering the complexities involved, costs on
scale C and the employment of two counsel was justified. That was not in
dispute between the parties. In the result the following order is granted:
ORDER
dispute between the parties. In the result the following order is granted:
ORDER
1 The appeal is upheld with costs on Scale C, including the costs of two
counsel.
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2. The order of the Tax Court is substituted as follows:
2.1. The Respondent is refused leave to amend its Rule 31 statement of
grounds of assessment, specifically to make those additions and deletions
which comprise the proposed amendments in the proposed Rule 31
statement, which was served on the Appellant on 2 February 2023.
2.2. The Appellant is granted leave to amend its Rule 32 as stated in
paragraphs 3 and 6 of its notice in terms of Rule 35.
2.3. The Respondent is ordered to pay the costs on Scale C, including
costs of two counsels.
N.P. MALI
JUDGE OF THE HIGH COURT ,
GAUTENG DIVISION ,
JOHANNESBURG
I agree,
pp
F. DIPPENAAR
JUDGE OF THE HIGH COURT
GAUTENG DIVISION , JOHANNESBURG
S. MEERSINGH
ACTING JUDGE OF THE HIGH COURT
GAUTENG DIVISION , JOHANNESBURG
28
APPEARANCES
For the Appellant:
MW Janisch SC
A H Morrissey
Briefed by: Bowman Gilfillan Inc.
For the Respondent:
A Sholto-Douglas SC
K Reynolds
Briefed by: Cliffe Dekker Hofmeyer Inc.
Heard: 8 OCTOBER 2025
Delivered: 13 March 2026