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March 22, 2024, 3:00 PM GMT+1


SOUTH AFRICA COURT REJECTS RELATED-PARTY RATE REFLECTING US RULE


Analysis
J. Harold McClure



The South Africa Revenue Service, arguing to upwardly adjust a South African
company’s royalties charged to affiliates, used a profits-based approach that is
essentially the IRS look-back rule grounded in neither the OECD Transfer Pricing
Guidelines nor economic logic, according to economist J. Harold McClure.

In what could have been a classic transfer pricing battle over which methodology
is most appropriate, the approaches used by the South Africa Revenue Service’s
two expert witnesses had no basis in the OECD Transfer Pricing Guidelines or in
economic logic.

On February 14, 2024, the Tax Court of South Africa decided in favor of ABD
Limited that the intercompany royalty rate owed by the telecommunications
company’s 14 foreign operating affiliates throughout Africa should be only 1% of
revenues for the 2009-2012 period addressed in the litigation. While the
affiliates have minority shareholders, ABD’s South African parent is the
majority ...


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