Kumba Announces Favourable Settlement with SARS on Transfer Pricing Dispute
14 March 2017
By Owen Murphy, Head of Africa Desk, BDO SA
In 2016 we commented on the prospects of SARS settling a transfer pricing dispute with a subsidiary of Kumba Iron Ore Ltd (Kumba) in an article entitled “KUMBA vs SARS – TOO BIG TO SETTLE?”
The gist of the article was that since SARS has recently been reluctant to settle disputes and since recent decisions of the courts have gone against the remission of penalties, there was a fair chance that this dispute would go to court. This would have provided insight into the question of what constitutes an arm’s length price for the various costs that formed the subject of the dispute. However, Kumba said in its Annual Results announcement on 14 February 2017 that it had reached a settlement of R2.5 billion which was considerably less than the R6.5 billion claimed initially by SARS.
This seems to be a favourable outcome for Kumba. The press release stated that the R2.5 billion is the settlement payment to SARS and did not mention the possibility that Kumba may obtain relief by way of corresponding adjustments in the other jurisdictions involved in the marketing transactions. If such relief is obtained, the cost of the settlement could be mitigated; however, obtaining consent from foreign revenue authorities for corresponding adjustments is not an easy process and could take a few years.
It seems that Kumba has secured a relatively favourable settlement bearing in mind the amount that was claimed initially, and both parties have avoided the expensive and lengthy litigation that potentially lay ahead.
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