MTN has successfully fended off allegations by SARS that it engaged in transfer pricing activities in its international operations, short-changing the tax agency.

Business Day report says SARS challenged the royalties paid to MTN by its international operations, saying they were kept as low as possible to avoid paying maximum taxes in SA.

The dispute ended up before the Tax Court, which found SARS over-reached in raising additional assessments against MTN.

The tax wrangle centres on the royalty payments made by 14 of the group’s entities overseas from 2009-2012.

MTN charged all of them the same royalty rate of 1% for the right to use its intellectual property. SARS contended that 1% was not an arms-length royalty and issued an additional assessment to increase the royalty.

An expert procured by SARS put the royalty at 3%, adding to the tax agency’s argument that MTN was underpaying taxes in SA.

MTN argued it had no incentive to charge its operations a lower royalty to avoid paying higher taxes in SA.

It based its argument on data showing that tax rates in the jurisdictions where the international companies were located, were mostly equal to or higher than the SA tax rate. 

The Tax Court said it appeared that MTN had no incentive to lower the royalties it received from its international entities.

Full Business Day report