Abstract

A transfer price is a price set by a taxpayer when selling to, buying from, or sharing resources with a related person. Taxpayers use transfer pricing to avoid tax by shifting profits from high-tax to low-tax jurisdictions or shifting expenses from low-tax to high-tax jurisdictions. In an effort to curb tax avoidance through transfer pricing, the law provides for an adjustment of transfer prices to accord with the price that independent and unrelated parties would charge – the so-called arm’s length price. The case of ABD Limited v Commissioner for the South African Revenue Service (IT 14302) is an important authority in the application of the arm’s length principle to transfer pricing in South Africa. It raises paramount considerations regarding the preference for the comparable uncontrolled price method in determining the arm’s length price. This case note analyses the decision and expands on the rationale for choosing the comparable uncontrolled price method over other methods of determining the arm’s length price. This note also comments on the admissibility of new techniques for proving the most appropriate arm’s length method and the effect of changes to the law after 2012.