Tax Controversy 2026 Comparisons

For taxes administered under the Tax Administration Act (TAA) – such as income tax, VAT and mineral royalties – tax controversies typically arise when the South African Revenue Service (SARS) issues an additional assessment following an inspection, verification or audit.

Disputes relating to these taxes are ordinarily pursued under Chapter 9 of the TAA through the objection and appeal process, which constitutes a bespoke statutory dispute-resolution framework. Customs and excise matters, by contrast, fall outside the TAA and are governed by the Customs and Excise Act (CEA). In that context, disputes typically arise when SARS, inter alia:

• issues a letter of demand following an audit;
• issues a tariff, origin or value determination following a request from a client; or
• issues a notice of detention or seizure of goods. Customs and excise disputes are ordinarily pursued under Chapter XA of the CEA.

In recent years, there has been a marked increase in disputes concerning the scope and exercise of SARS’s administrative powers under the TAA. Such challenges are commonly pursued directly in the High Court, rather than through the Chapter 9 objection and appeal process.

According to SARS’s 2024/25 annual report, VAT verifications generated the largest revenue yield, with VAT refund fraud remaining a central enforcement priority. Personal income tax (PIT) and corporate income tax (CIT) audits also contributed materially. In the year under review, SARS closed approximately 1.7 million verification cases, generating ZAR95 billion, while 3,757 specialised audits resulted in additional assessments totalling ZAR46 billion.

Although the overall number of tax appeals declined during this period, appeals involving amounts exceeding ZAR1 million increased by 12%. This trend points to a growing concentration of disputes in higher-value, technically complex matters.

SARS has also intensified its focus on specific risk areas, including customs and excise (especially the use of rebate and refund items by importer, exporters and other licensees), the employment tax incentive scheme, lifestyle audits, the security industry and illicit trade, particularly VAT refund fraud. Enforcement action in these areas frequently gives rise to disputes.

Tax controversy may be mitigated through a combination of ex ante certainty mechanisms, sound compliance governance and, where necessary, corrective disclosure.

From a preventive perspective, taxpayers may make use of the advance ruling system under the TAA, including private and class rulings, to obtain binding certainty on the tax consequences of proposed transactions. SARS continues to engage actively in the ruling process. Under the CEA, clients may request tariff, origin or value determinations from SARS to obtain certainty on the customs and excise treatment and consequences of certain import, export or manufacturing activities.

Risk may also be mitigated through reliance on professional advice from a registered tax practitioner, particularly in relation to complex positions. Where a taxpayer’s position is subsequently challenged and penalties are imposed, such reliance is generally regarded as a mitigating factor. Another means of mitigating risk is through adherence to official SARS publications, including Interpretation Notes, which reflect SARS’s stated view on the application of the law.

Where historic non-compliance is identified, the Voluntary Disclosure Programme (VDP) under Part B of Chapter 16 of the TAA remains a significant remedial tool, offering relief from penalties and, where applicable, criminal prosecution, provided the statutory requirements are met. The CEA currently does not provide for a formal VDP process. In 2025, the Draft Tax Administration Laws Amendment Bill proposed the introduction of a VDP under the CEA, which would extend the VDP relief to customs and excise matters.

It is difficult to assess conclusively whether the implementation of the OECD’s BEPS recommendations and related international anti-avoidance measures has, in aggregate, reduced or increased tax controversy in South Africa.

What can be observed is that BEPS-aligned reforms have reshaped the dispute landscape, particularly in relation to transfer pricing. Transfer pricing rules, expanded documentation and reporting obligations, and increased access to cross-border information have coincided with a heightened enforcement focus by SARS in this area, with a corresponding increase in transfer pricing-related disputes.

SARS’s participation in international transparency and information-exchange frameworks, including the Common Reporting Standard (CRS) and country-by-country (CbC) reporting, has further strengthened cross-border risk detection. In 2024/25, SARS received 775 CRS and 712 CbC information packages, supporting more targeted audits.

Overall, while BEPS-driven measures have strengthened SARS’s ability to identify and challenge perceived base-erosion risks, their net effect on the volume of tax controversy remains unclear, with the most discernible impact being an increase in the complexity and intensity of transfer pricing disputes.

Under the TAA, the general rule is that a tax liability reflected in an additional assessment issued by SARS (including the tax capital, interest and penalties) is payable notwithstanding the lodging of an objection or appeal. A taxpayer’s entitlement to pursue administrative or judicial remedies is not conditional on prior payment; however, the tax liability levied under the assessment remains due unless payment is formally suspended by SARS.

A taxpayer may apply for a suspension of payment under Section 164 of the TAA pending the resolution of an objection or appeal. The granting of such relief is discretionary. In exercising that discretion, SARS will typically consider factors including the presence of fraud, the risk to the fiscus, the taxpayer’s compliance history and whether payment would cause irreparable hardship to the taxpayer. SARS may also require the provision of security as a condition of granting the suspension.

If a suspension of payment is not obtained, SARS is entitled to proceed with collection and enforcement measures, including foreclosure proceedings, notwithstanding that the underlying assessment is under dispute.

Penalties are commonly imposed as part of the additional assessment and are therefore themselves subject to objection and appeal, with payment likewise capable of suspension. Interest, by contrast, continues to accrue on the outstanding tax liability for the duration of the dispute, even where a suspension of payment has been granted.

Similarly, under the CEA, the general rule is that any liability reflected in a letter of demand issued by SARS (including the capital, interest and penalties) is payable notwithstanding the lodging of an internal administrative appeal or High Court appeal. A client’s entitlement to pursue administrative or judicial remedies is not conditional on prior payment; however, the liability levied under the letter of demand remains due unless payment is formally suspended by SARS. Clients may apply for suspension of payment under Section 77 of the CEA and the rules thereto, pending finalisation of an internal administrative appeal or a decision by a court. The granting of such relief is also discretionary.

Criminal proceedings for tax offences (and offences under the CEA) are separate from, and unaffected by, the civil dispute process or a suspension of payment. While the existence of criminal proceedings does not bar a taxpayer from pursuing objections or appeals, it may be relevant to SARS’s exercise of discretion when considering an application for suspension of payment if it relates to fraud.

Under the TAA, SARS has broad statutory powers to initiate an inspection, verification or audit of any taxpayer, on the basis of risk assessment, random selection or any other relevant consideration. This is also the case under the CEA.

While SARS does not publish formal qualifications for “high-risk” companies or high net worth individuals, taxpayers with complex affairs, significant transaction volumes, cross-border activities or persistent compliance anomalies are more likely to attract scrutiny. Entities that have not been audited for extended periods may also be selected as part of periodic compliance reviews.

In addition, SARS maintains dedicated audit teams for certain targeted industries, including mining, where taxpayers are routinely subjected to multi-year income tax and mineral royalty audits. Similar focused programmes are applied to other sectors identified as presenting elevated risk. SARS also launched a High Wealth Individual Unit in April 2021 to deal with the complexity of individual taxpayers with a gross asset value exceeding ZAR75 million.

In practice, SARS increasingly applies a risk-based compliance approach supported by artificial intelligence, machine learning and real-time data analytics.

Commencement of an Audit

A tax audit is ordinarily initiated by SARS issuing a notification of audit to the taxpayer. Where an audit may result in a material adjustment, SARS is required to provide the taxpayer with a document setting out the audit findings and the proposed grounds of any adjustments to the taxpayer’s original assessment, after which the taxpayer must be afforded an opportunity to respond before any additional assessment is raised by SARS.

Similarly, a customs or excise audit is ordinarily initiated by SARS issuing a notification of audit to the taxpayer or initiated by SARS following an inspection of goods at the border.

Duration of an Audit

There is no prescribed statutory time limits within which audits must be initiated or completed. In practice, audit duration varies significantly depending on the complexity of the taxpayer’s affairs, the scope of information requested and the nature of the issues under review. It is not uncommon for audits – particularly those involving CIT, VAT, customs and excise, or transfer pricing – to extend over a period of 12 months or longer.

Prescription

The statute of limitations (prescription) operates to limit SARS’s ability to raise additional assessments, but it does not preclude the initiation of an audit. In terms of the TAA, SARS may not issue an additional assessment more than three years after the relevant date in the case of an original assessment by SARS, or more than five years in the case of self-assessment taxes. In terms of the CEA, SARS may only audit customs and excise transactions completed up to two years before the date of initiation of the audit. These limitation periods are subject to important exceptions, including cases involving fraud, misrepresentation or non-disclosure of material facts.

Accordingly, SARS may initiate or continue an audit even where an additional assessment may, prima facie, appear to be time-barred. This reflects the fact that SARS is entitled to rely on information uncovered during the audit to determine whether an exception to prescription is applicable.

The TAA also permits SARS, in specified circumstances, to extend the prescription period, including where the taxpayer consents to an extension or where the audit relates to transfer pricing.

Finally, the mere conduct of an audit does not suspend or interrupt prescription. SARS must therefore ensure that any assessment is issued within the applicable limitation period, unless reliance can properly be placed on an exception.

Audits are generally conducted off-site, through the submission of information and documents to SARS. In terms of the TAA and the CEA, SARS is entitled to request “relevant material” during an audit, which is typically provided electronically, although SARS may specify the place, manner and format in which such material is to be made available.

SARS may also conduct field audits at the taxpayer’s premises. In such cases, the taxpayer is required to provide reasonable assistance, including granting access to premises, answering questions and furnishing any relevant material requested.

In practice, tax audits in South Africa often focus on documentation integrity, substantive tax risk, and the taxpayer’s interpretation and application of the law.

From a documentation standpoint, auditors scrutinise contracts, invoices, customs documentation, excise returns, transfer pricing documentation, VAT substantiation (including zero-rating and input tax claims) and records supporting deductions, allowances and exemptions claimed.

A significant area of focus is whether the taxpayer’s interpretation of relevant statutory provisions has been correctly applied to the facts. Differences in legal interpretation are a common source of dispute between SARS and taxpayers.

While cross-border information-exchange frameworks and mutual administrative assistance have materially enhanced SARS’s access to foreign-sourced data, it is not readily discernible whether this has resulted in an overall increase in tax audits in South Africa.

By contrast, foreign tax authorities increasingly request information relating to South African taxpayers from SARS during audits conducted in their own jurisdictions, pursuant to bilateral exchange-of-information agreements.

Taxpayers should actively manage the audit process, rather than adopt a purely reactive stance. This includes maintaining a clear, co-operative, and continuous line of communication with the SARS auditors, and ensuring that engagement is conducted in good faith.

Information requests should be met with complete and accurate submissions, supported by clear explanations, particularly where financial data or transactions are complex and require contextualisation. Incomplete or poorly explained information often lead to protracted audits and a multitude of adverse findings.

Audits are best managed with the assistance of experienced tax professionals, who can help structure responses, manage process and maintain consistency in the positions taken. Maintaining such consistency in addressing audit queries is important, particularly should the matter advance to the objection, appeal and subsequent dispute resolution phases. A key objective throughout should be to narrow and clarify the issues under review, with a view to limiting the matters that may ultimately proceed to objection if an additional assessment is raised by SARS.

Where an additional assessment is issued in terms of the TAA, the taxpayer may lodge an objection under Chapter 9 of the TAA within 80 business days of the date of assessment. An objection is a jurisdictional prerequisite to any subsequent appeal and must be submitted to SARS in the prescribed form and manner.

An objection may be preceded by a request for reasons for the additional assessment. In that event, the objection must be lodged within 80 business days of the date on which the reasons are provided.

An application for condonation may be made for the late filing of an objection, subject to the statutory requirements. However, no objection may be lodged more than three years after the date of the additional assessment, after which the assessment becomes final and conclusive.

By contrast, disputes in respect of determinations or demands issued under the CEA must instead be pursued through the internal administrative appeal mechanisms provided for in that Act, followed by proceedings in the High Court.

In terms of the TAA, SARS is required to decide an objection within 60 business days of receipt. This period may be unilaterally extended by SARS in prescribed circumstances. Where SARS requests additional substantiating information after an objection has been lodged, the decision must be issued within 45 business days after the taxpayer provides the requested information.

Similarly, SARS is required to decide an internal administrative appeal within 60 business days of receipt. This period may be unilaterally extended by SARS by up to 45 business days in prescribed circumstances.

If SARS fails to issue a decision within the applicable statutory timeframes, this does not give rise to a deemed or tacit disallowance, and the taxpayer may not proceed directly to court on that basis.

Judicial tax litigation is initiated by lodging an appeal to the Tax Court. An appeal is commenced by filing a notice of appeal, which must be delivered within 30 business days after SARS issues its notice of disallowance of the objection.

Where the amount in dispute does not exceed the prescribed monetary threshold (currently ZAR1 million), the appeal proceeds to the Tax Board in the first instance, unless SARS and the taxpayer agree that the matter should be heard directly by the Tax Court. In all other instances, the appeal is made directly to the Tax Court.

Judicial litigation with respect to determinations issued by SARS under the CEA must be brought within a year of SARS’s determination. Judicial litigation with respect to a decision made by SARS under the CEA that is challenged under the Promotion of Administrative Justice Act must be brought within 180 days of such decision. Judicial litigation against SARS is initiated by filing a Section 96 notice of legal proceedings, which clearly sets out the cause of action and gives SARS one month’s notice of the impending legal proceedings.

Tax Court proceedings follow a structured sequence of procedural steps prescribed by the Tax Court Rules, promulgated under the TAA. Judicial tax litigation is initiated by the taxpayer lodging an appeal to the Tax Court, after which the parties exchange formal documents. These comprise SARS’s Rule 31 statement setting out the grounds of assessment and opposition to the appeal, the taxpayer’s Rule 32 statement setting out the grounds of appeal and SARS’s Rule 33 reply.

The pleadings phase is followed by discovery by both parties, the exchange of expert notices and reports where applicable, and the convening of a pre-trial conference. Once the preparatory steps have been completed, the matter is heard, and, in due course, the judgment is delivered.

A taxpayer may also indicate, in the notice of appeal, a willingness to participate in alternative dispute resolution (ADR). Where an appeal is referred to ADR, the matter will proceed to the Tax Court only if it is not resolved during the ADR process (discussed further in 6. Alternative Dispute Resolution (ADR) Mechanisms).

In customs and excise matters, litigation is conducted directly before the High Court, as the Tax Court has no jurisdiction. Proceedings are typically instituted by application (motion proceedings), with the exchange of a founding, answering and replying to affidavit, followed by heads of argument and a hearing. The High Court then delivers a judgment. The proceedings may also be instituted by action (trial) proceedings, where the pleadings phase is followed by discovery by both parties, the exchange of expert notices and reports where applicable, and the convening of a pre-trial conference.

Documentary and witness evidence are central to Tax Court proceedings. Both parties are entitled to discovery, and documents not disclosed are generally inadmissible, absent leave of the Tax Court (Rule 36(7)). Expert evidence must be identified in advance, with notice and a summary of opinions delivered in accordance with Rule 37.

Witnesses may be subpoenaed to give evidence or to produce documents relevant to the issues on appeal (Rule 43) and are subject to cross-examination at the hearing. In customs matters, the appeal may be brought through motion or trial proceedings.

In civil tax litigation, the burden of proof generally rests on the taxpayer. The standard of proof is a balance of probabilities. However, SARS bears the burden of proving the reasonableness of an estimated assessment and the facts underpinning the imposition of an understatement penalty. In criminal tax proceedings, the burden of proof rests on the state, which must establish the offence beyond reasonable doubt.

From a strategic perspective, taxpayers should consider the following during judicial tax litigation.

• Early and effective use of counsel, including specialist tax advocates, to shape the legal theory of the case, ensure procedural discipline, and present arguments with clarity and focus.
• Careful definition and limitation of the issues in dispute, including the use of a stated case or the confinement of the appeal to a pure point of law, where appropriate. This can materially reduce complexity and cost.
• Strategic deployment of expert evidence, ensuring that experts are properly qualified and independent, and that reports are prepared and exchanged in strict compliance with the Tax Court Rules.
• Active management of pleadings, including the consideration of exceptions, applications to strike out, or other interlocutory remedies where pleadings are defective or impermissibly expand or alter the grounds of assessment.
• Ongoing evaluation of settlement options, informed by the strength of the taxpayer’s case and cost considerations.

The Tax Court is not bound by its own decisions, although prior Tax Court judgments may carry persuasive value. Decisions of the Supreme Court of Appeal and the Constitutional Court are binding, while High Court judgments may be binding depending on the court and jurisdiction, or otherwise serve as persuasive authority.

Foreign jurisprudence is generally not binding on South African courts. However, it may be accorded persuasive weight, particularly in matters involving tax issues, such as the application of double tax treaties and transfer pricing, and has been referred to in such cases.

Similarly, academic commentary, administrative doctrine and international guidelines, including the OECD Model Tax Convention and OECD BEPS reports, are not binding but may be taken into account as interpretative aids, where relevant, by South African courts.

South Africa operates a tiered system of courts for the determination of tax disputes.

• Tax disputes are initially heard by the Tax Court. There is an automatic right of appeal from the Tax Court to a full bench of the High Court.
• Alternatively, where the Tax Court was specially constituted, or where leave is granted, an appeal may lie directly to the Supreme Court of Appeal.
• A party unsuccessful before the High Court may apply for leave to appeal to the Supreme Court of Appeal.
• Decisions of the Supreme Court of Appeal may, in turn, on application, be appealed to the Constitutional Court, subject to that Court having jurisdiction to hear the issue in question, which is confined to constitutional matters or matters falling within its extended jurisdiction.

The number of appellate stages is therefore not fixed and depends on the circumstances and the availability of leave to appeal, rather than the monetary value of the dispute alone.

Customs and excise disputes follow a slightly different path. As they are governed by the CEA and fall outside the TAA and Chapter 9 thereof, the Tax Court has no jurisdiction. Such disputes are heard at first instance by the High Court, with further appeals proceeding through the ordinary appellate hierarchy.

The Tax Court procedure is governed by the Tax Court Rules, as outlined in 4.2 Procedure for Judicial Tax Litigation. Appeals from the Tax Court proceed in accordance with the rules applicable to the relevant appellate court, including the High Court, Supreme Court of Appeal or Constitutional Court, each of which applies its own requirements for the seeking and granting of leave to appeal.

Accordingly, the precise stages of a tax appeal depend on the court seized with the matter, while the underlying process remains subject to court-specific procedural rules.

A Tax Court is ordinarily composed of a High Court judge sitting as president, an accountant and a representative of the commercial community. Where the appeal involves a question of law only, the president may sit alone. In complex matters requiring specialised expertise, the commercial representative may, at the direction of the court, be a person with relevant sector-specific experience.

On appeal, matters are heard by a full bench of the High Court, usually comprising three judges. Appeals to the Supreme Court of Appeal are usually determined by a panel of five judges. At final instance, the Constitutional Court hears matters falling within its jurisdiction and usually sits as a panel of nine judges.

Part C of the Tax Court Rules provides for ADR. A taxpayer may elect to pursue ADR in the notice of appeal, after which SARS must consider whether the matter is suitable for referral.

ADR proceedings are typically facilitated by a SARS official acting as facilitator. The process is conducted on a without-prejudice basis, and materials generated during ADR are confidential and generally inadmissible in subsequent proceedings. ADR is widely utilised in practice: according to SARS’s 2024–25 annual report, approximately 97% of appeals were resolved through ADR.

The facilitator does not issue a binding determination. Disputes may be resolved during ADR by agreement or settlement. If the matter is not resolved, the facilitator may make written recommendations, which are not admissible in any subsequent Tax Court proceedings. Where ADR does not result in resolution, the appeal proceeds to the Tax Court for adjudication.

In the CEA, if a client is not satisfied with the decision of an appeal committee, they may apply for the matter to be referred to ADR. A client’s application for ADR must be submitted within 30 days from the date of the appeal committee’s decision. The decision on whether the matter is appropriate for ADR rests with the Commissioner. ADR may also be proposed by SARS within ten days of receipt of a client’s Section 96 notice. SARS does this by issuing a notice to the client that they believe that the matter should be referred to ADR. The client must then decide whether or not to refer the matter to ADR or proceed with litigation as per their Section 96 notice.

In terms of the TAA, tax disputes may be settled during ADR in two principal ways, both of which are concluded by agreement between the taxpayer and SARS.

• Firstly, the dispute may be resolved by agreement, in whole or in part, where one party accepts the other party’s interpretation of the facts, the law or both. Any such agreement must be reduced to writing and signed by the parties and may be made an order of court. Where agreement is reached on all issues, SARS must issue an assessment to give effect to the agreement.
• Secondly, where ADR does not result in resolution despite reasonable efforts, the parties may seek to settle the dispute under the statutory settlement provisions in Part F of Chapter 9 of the TAA. Where there is a dispute between a taxpayer and SARS, settlement proceedings may be initiated by either party. Any settlement concluded under these provisions must likewise be recorded in writing, and SARS must issue an assessment giving effect to the settlement.

If the dispute is settled only in part, the taxpayer may continue the appeal on the unresolved issues. In all cases, settlements are concluded by agreement between the parties, rather than by determination of the ADR facilitator.

An agreement or settlement may be reached during ADR in respect of any of the issues in dispute. This may include the quantum of additional tax, penalties and the interest payable.

The TAA provides for binding advance rulings, including private and class rulings, which are designed to promote certainty by clarifying the tax consequences of proposed transactions. Sections 75 to 87 of the TAA regulate the scope, application, binding effect and withdrawal of such rulings, while Section 88 provides for non-binding private opinions.

These mechanisms are actively utilised in practice. According to SARS’s 2024–25 annual report, SARS issued 202 binding rulings and 851 non-binding opinions during the year, reflecting their role in enhancing certainty and mitigating disputes.

South Africa legislated a comprehensive advance pricing agreement (APA) framework in 2023, with implementation envisaged to commence through a phased pilot programme (see 8.4 Unilateral/Bilateral Advance Pricing Agreements for more on this).

ADR is available as an optional mechanism within the tax appeal process and is regulated by the TAA and the Tax Court Rules. In respect of customs and excise matters, ADR is regulated by the CEA and the rules thereto.

Scope and Type of Disputes

ADR may be used in respect of any tax dispute under appeal in terms of the TAA, regardless of the nature or value of the controversy. There are no prescribed monetary thresholds or subject-matter exclusions, although SARS retains a discretion to determine whether a matter is appropriate for ADR. The position is the same under the CEA.

Process and Timeframe

Under both the TAA and the CEA, once SARS notifies a taxpayer that a matter is appropriate for ADR, the process must be finalised within 90 business days, unless the parties agree to an extension.

Under the TAA, SARS must issue this notification within 30 business days of the filing of the notice of appeal. Under the CEA, the notification must be issued within 20 business days of receipt of the taxpayer’s application for referral to ADR, or within ten business days of receipt of a Section 96 notice, as applicable.

In both regimes, ADR is intended to provide an expeditious, less formal and less adversarial alternative to litigation.

Decision-Making and Appeal

ADR does not result in a binding determination by the facilitator. Any outcome arises solely by agreement or settlement between the taxpayer and SARS. If the dispute is not resolved, the appeal proceeds to the Tax Board or Tax Court, and there is no appeal from the ADR process itself. The same position applies under the CEA; however, if the dispute is not resolved, the proceedings are terminated, and the client can decide whether to proceed with an appeal to the High Court (as opposed to the Tax Board or Tax Court).

Facilitator

ADR is typically facilitated by a SARS official, but another person may be appointed, provided that the facilitator is a person of good standing with appropriate experience in tax matters, complies with the duties of a facilitator (as prescribed by the Tax Court Rules) and is acceptable to both parties. Only one facilitator is appointed.

Similarly, In terms of the rules to the CEA, SARS may appoint any person, including a person employed by SARS, to facilitate the alternative dispute resolution proceedings. ADR is typically facilitated by a SARS official.

Precedent and Applicable Principles

ADR outcomes do not create precedent and are conducted on a without-prejudice basis. The process is not adjudicative and is therefore not confined to strict legal determination; resolution may be reached on a pragmatic or equitable basis, provided it remains consistent with the statutory settlement framework.

The ADR process provided for under the TAA is, in principle, available in transfer pricing disputes, subject to SARS’s assessment of whether the matter is appropriate for ADR.

In cross-border transfer pricing cases, disputes may also be addressed through the mutual agreement procedure (MAP) available under applicable double tax treaties. MAP operates separately from the domestic ADR process.

Where SARS concludes, following an audit, that tax was underpaid – whether due to error, an incorrect deduction or allowance, or the application of the general anti-avoidance rule (GAAR) or specific anti-avoidance rules (SAARs) – the primary consequence is the issuance of an additional assessment. That assessment may include penalties.

Understatement penalties are behaviour-based and may range from 5% to 200% of the tax shortfall. In practice, SARS most frequently imposes penalties of 25% (lack of reasonable care) or 50% (no reasonable grounds for the tax position), although higher or lower penalties may apply depending on culpability. These penalties, together with any related administrative non-compliance penalties and provisional tax penalties, are ordinarily disputed together with the underlying additional tax through the objection and appeal process under Chapter 9 of the TAA.

Criminal liability is not a routine consequence of an adverse assessment. Criminal offences arise only where the conduct meets the statutory thresholds set out in Chapter 17 of the TAA, or at common law, and typically require wilful, negligent or fraudulent conduct. Criminal prosecution is therefore not inherent in the making of tax adjustments, including GAAR or transfer pricing adjustments. As discussed further in 7.3 Initiation of Administrative Processes and Criminal Cases, SARS does not have the power to impose any criminal sanctions.

Penalties, including understatement penalties and certain administrative non-compliance penalties, are ordinarily disputed through the same Chapter 9 objection and appeal process as the underlying additional assessment. In practice, challenges to penalties and to the additional tax are therefore not conducted as separate proceedings. For certain penalties, particularly late-filing or late-payment penalties, the TAA also provides for remission based on prescribed criteria, and taxpayers often pursue remission where the underlying tax is not in dispute.

Criminal proceedings are conceptually and procedurally separate from the civil tax dispute. Criminal liability is not dependent on the final determination of whether tax is due, or on the quantum of the assessment under appeal. While, as a matter of practice, civil and criminal processes may be sequenced, there is no statutory requirement that either process be suspended pending the outcome of the other.

Where a matter is referred for criminal investigation during the course of an audit, the TAA requires that information obtained after referral be managed separately, and that the investigation be conducted with due regard to the taxpayer’s constitutional rights. Notwithstanding such referral, an audit may continue, and additional assessments and penalties may still be issued.

Accordingly, neither an administrative penalty dispute nor a criminal investigation must be stayed while a court determines the correctness or quantum of the underlying tax assessment.

Under the TAA, administrative infringement processes are typically initiated on the finalisation of an audit, which is followed by the issuance of an additional assessment levying:

• understatement penalties, imposed based on defined categories of taxpayer behaviour; and
• administrative non-compliance penalties, addressing failures such as late payments.

Criminal tax cases may be initiated where SARS identifies a tax offence, such as fraud, intentional evasion or deliberate misrepresentation. In terms of Sections 43 and 44 of the TAA, if at any stage before or during an audit such conduct is suspected, the matter must be referred to a senior SARS official responsible for criminal investigations, who determines whether a criminal investigation should be pursued.

On completion of the investigation, SARS may lay a formal complaint with the South African Police Service (SAPS), after which the matter is referred to the National Prosecuting Authority (NPA), which decides whether to prosecute.

An administrative audit can therefore evolve into a criminal case, but this is not the norm. Criminal prosecution is generally reserved for wilful, negligent or fraudulent conduct, while the overwhelming majority of audits result only in additional assessments and penalties.

According to SARS’s 2024–25 annual report, SARS’s Criminal Investigations Unit finalised 165 cases in court through the NPA, achieving a conviction rate of 98.18%. Additionally, SARS handed over 319 cases to the NPA in the same period.

The administrative infringement process (civil) involves:

• audit, verification or inspection;
• the issuance of an additional assessment and imposition of penalties (or, in the case of customs and excise, a letter of demand or adverse determination);
• objection and appeal under Chapter 9 of the TAA (or administrative appeal in the case of customs and excise); and
• adjudication by the relevant court, with further appeals to higher courts as applicable.

The court determines the legality and correctness of the assessment and associated penalties.

The typical criminal process involves:

• referral for criminal investigation;
• criminal investigation by SARS;
• the laying of a complaint with SAPS;
• a decision to prosecute by the NPA; and
• trial, typically in the Magistrates’ Court.

The criminal court does not determine the correctness of the tax assessment as such but adjudicates criminal liability. The civil tax dispute and the criminal case therefore proceed in different forums, exercising distinct jurisdictions.

The upfront payment of an additional tax assessment does not, in itself, entitle the taxpayer to a reduction of any penalties, as the additional tax and the understatement penalty are imposed together under the TAA and are determined by reference to the taxpayer’s behaviour, rather than payment timing.

Relief from understatement penalties or criminal exposure may, however, be available under the VDP. A successful VDP application can result in full relief from understatement penalties and protection against criminal prosecution. Crucially, the VDP is available before SARS has notified the taxpayer of an audit or investigation and, in very limited circumstances, after that point. Once an additional assessment has been raised, it is too late to obtain relief under the VDP.

Notwithstanding the foregoing, the parties may, as part of a settlement, agree to a reduction or remission of penalties, in whole or in part.

The payment of tax, interest and penalties does not automatically prevent or terminate criminal proceedings. Criminal liability is conceptually distinct from civil tax liability. That said, in appropriate cases, criminal proceedings may be resolved through a plea and sentence agreement, as regulated by the Criminal Procedure Act. Such agreements are concluded between the accused and the NPA and may take into account factors such as:

• full payment of the outstanding tax, penalties and interest;
• co-operation with SARS and prosecuting authorities; and
• previous convictions of the accused.

This mechanism is subject to judicial oversight. It is not a tax-specific process and operates independently of the TAA.

Criminal tax cases are typically tried in the Magistrates’ Court. Appeals from the court of first instance follow the ordinary criminal appellate hierarchy:

• appeal to the High Court;
• further appeal, with leave, to the Supreme Court of Appeal; and
• appeal to the Constitutional Court, subject to its jurisdiction and the granting of leave.

These appeal routes are separate from, and do not affect, any appeals relating to any underlying civil tax assessment.

As a general rule, transactions challenged in South Africa under GAAR, SAARs and transfer pricing provisions give rise primarily to administrative tax disputes, rather than criminal proceedings.

In practice, SARS has raised additional assessments based on GAAR, SAARs and transfer pricing, with a marked increase in GAAR and transfer pricing challenges in recent years and a number of large, complex transfer pricing matters pending.

Notably, there has been only one transfer pricing judgment delivered by the Tax Court to date. In that matter, SARS was unsuccessful, and although SARS noted an appeal to the Supreme Court of Appeal, the dispute was ultimately settled before the appeal was heard. The limited body of transfer pricing jurisprudence reflects the fact that such disputes are frequently resolved through settlement, or are still ongoing.

Criminal proceedings in this area are rare and are generally confined to cases involving fraud, deliberate misrepresentation or other egregious conduct, rather than disputes centred on interpretation, valuation or transfer pricing methodology.       

In cross-border cases giving rise to double taxation following an additional assessment or adjustment, taxpayers may consider both domestic remedies and the MAP available under the applicable double tax treaty.

South Africa currently has approximately 79 bilateral tax treaties in force, the majority of which contain a MAP provision based on Article 25 of the OECD Model Tax Convention. However, South Africa has agreed to arbitration clauses in only a limited number of bilateral double tax treaties, being those concluded with Canada, the Netherlands and Switzerland. In this context, SARS maintains a dedicated MAP function responsible for administering MAP proceedings.

Where applicable, a taxpayer may pursue MAP and domestic objection and appeal proceedings in parallel. In practice, SARS may concurrently consider a MAP request submitted to the competent authority and an objection lodged under the TAA.

A MAP cannot override a judicial decision in the domestic context. Accordingly, where a domestic court has already ruled, any subsequent MAP must operate within the constraints of that decision. For this reason, SARS generally recommends the suspension of domestic litigation steps pending the conclusion of the MAP. Where agreement on such suspension cannot be reached, the competent authorities may defer the MAP until domestic remedies have been exhausted.

South Africa ratified the Multilateral Instrument (MLI) in September 2022 but has not opted into mandatory binding arbitration. As a result, the MLI’s impact on the resolution of double taxation disputes in South Africa has, to date, been incremental rather than transformative.

The interaction between GAAR, SAARs and double tax treaties in cross-border situations has not yet been directly tested in a definitive manner by the courts. As a result, there is no settled jurisprudence confirming the precise limits of the application of domestic anti-avoidance rules where treaty relief is claimed.

In principle, however, GAAR may be relevant in cross-border cases to the extent that an arrangement seeks to secure a “tax benefit” through the exploitation of treaty provisions that results in a tax advantage. On this footing, GAAR – and, by extension, applicable SAARs – should be capable of applying where the statutory requirements are met.

The introduction of the principal purpose test (PPT) through the MLI is expected to strengthen SARS’s position in combating BEPS-driven arrangements in cross-border contexts. However, at this stage, it is unclear how the South African courts will interpret and apply the PPT standard in practice. It is expected that taxpayers will challenge overly expansive applications of the PPT, and that courts will be required to develop principled limits to its operation. As matters stand, practical experience remains limited.

In practice, disputes are typically pursued under domestic tax law through the objection and appeal process and, where necessary, before the Tax Court, with cases resolved by settlement. Where double taxation arises, taxpayers may also seek relief under the MAP procedure in applicable double tax treaties, but MAP has historically been used less frequently than domestic remedies.

At present, unilateral and bilateral APAs are not a common mechanism in South Africa, as a formal APA programme has not yet become operational.

SARS first released a discussion paper on an APA programme for public comment in November 2020, followed by the publication of a high-level model and draft legislation in December 2021. SARS indicated that the principal constraint to implementation was the limited availability of transfer pricing expertise, requiring time and resources to build sufficient institutional capacity.

An APA framework was subsequently incorporated into the Income Tax Act. The framework regulates, among other matters, eligibility to apply, fees, pre-application consultations, the content, amendment and withdrawal of applications, grounds for rejection, processing and finalisation of APAs, annual compliance reporting, extension and termination, record-keeping, and the Commissioner’s power to prescribe procedures and guidelines for implementation.

Given the resource-intensive nature of an APA programme, it was announced that implementation of the programme will commence with a pilot phase. The pilot will initially accept bilateral APA applications only, allowing SARS to build experience and capacity before expanding the programme more broadly.

SARS recently announced that the initial resources for the APA programme have been put in place. It also issued draft subordinate legislation for public comment addressing, inter alia, the categories of persons eligible to apply for an APA, the prescribed fees, the information required to be included in a preliminary application, and the procedures and guidelines governing the implementation and operation of the regime.

Recent media reports indicate that SARS expects to begin accepting APA applications from multinational groups from June 2026, marking the anticipated transition from legislative framework to operational practice.

The cross-border area that currently generates the most sustained and complex litigation in South Africa is transfer pricing. Over the past few years, SARS has invested significantly in building specialist transfer pricing capacity, and this has translated into an increase in large, high-value transfer pricing audits and disputes. While only one transfer pricing dispute has so far proceeded to judgment in the Tax Court, this is likely because these disputes are frequently settled at the appeal stage. Many of these disputes are also ongoing.

By contrast, permanent establishment (PE) and withholding tax (WHT) disputes have not generated controversies on the same scale. PE disputes do arise in audits, but comparatively few have progressed to court. Similarly, while WHT issues feature in audits, they have not driven a significant volume of litigation.

Residence issues, particularly in relation to individuals (including high net worth individuals), have received increased attention in practice – especially following a wave of tax-residency cessations by individuals in recent years. However, notwithstanding this trend, there has been limited litigation in this area to date, and few cases dealing with residency determinations, based on both published jurisprudence and practitioner experience.

A notable exception in the broader cross-border space has been controlled foreign company (CFC) litigation, including a high-profile matter that ultimately reached the Constitutional Court.

As to mitigation, transfer pricing disputes are inherently difficult to eliminate given their fact-intensive and judgment-based nature. That said, the anticipated introduction of a formal APA programme in South Africa has the potential, once operational, to materially reduce future controversy by providing upfront certainty for qualifying multinationals. More generally, robust contemporaneous documentation and the use of experienced professional advisers remain critical in mitigating cross-border tax litigation, particularly in complex transfer pricing and restructuring contexts.

There is no applicable information in this jurisdiction.

There is no applicable information in this jurisdiction.

There is no applicable information in this jurisdiction.

There is no applicable information in this jurisdiction.

South Africa has not opted into Part VI of the MLI, which provides for mandatory binding arbitration in respect of unresolved MAP cases. While South Africa has not formally articulated its reasons for this position, it is consistent with a policy preference for resolving cross-border tax disputes through domestic remedies and MAPs. This approach reflects considerations commonly cited in similar jurisdictions, including preservation of fiscal sovereignty, retention of administrative discretion and concerns regarding the binding resolution of disputes without domestic judicial oversight.

Notwithstanding its position under the MLI, South Africa has agreed to arbitration clauses in a limited number of bilateral double tax treaties, being those concluded with Canada, the Netherlands and Switzerland. The existence of these clauses underscores South Africa’s selective and treaty-specific approach to arbitration, rather than a general acceptance of arbitration as a default mechanism.

Because South Africa has not opted into arbitration under the MLI, there is no general policy under South African treaty practice that expands or limits the subject matter capable of being submitted to arbitration through that instrument.

In the few bilateral double taxation agreements (DTAs) that do provide for arbitration, the relevant treaty provisions generally allow for arbitration of unresolved issues arising from a MAP case, without expressly limiting arbitration to particular categories of factual or legal disputes.

South Africa’s bilateral DTAs that provide for arbitration do not prescribe a specific arbitration format in the treaty text itself. Instead, these treaties generally defer the composition of the arbitration board, and the arbitration procedures to be determined by the competent authorities.

South Africa is not an EU member state and is therefore not subject to the EU Arbitration Directive. Instead, South Africa has ratified the MLI to implement BEPS-related treaty measures, while not opting into mandatory binding arbitration under Part VI of the MLI.

Apart from domestic remedies, South Africa applies treaty-based MAP as its primary international dispute-resolution mechanism. As already noted, arbitration exists only under a limited number of bilateral DTAs, and no public usage statistics are available for those provisions. The EU Arbitration Directive does not apply to South Africa.

South Africa has formally implemented Pillar Two through domestic legislation. The Global Minimum Tax Act, promulgated in December 2024, gives effect to the Pillar Two proposals by introducing an Income Inclusion Rule (IIR) and a domestic minimum top-up tax (DMTT) applicable to qualifying multinational groups for years of assessment commencing on or after 1 January 2024.

The implementation framework is supplemented by the Global Minimum Tax Administration Act, promulgated in January 2025, which sets out the administrative requirements, including Global Anti-Base Erosion (GloBE) information returns, refunds, penalties and interest. The GloBE registration and notification functionality on SARS’s eFiling platform, originally planned for December 2025, has been delayed.

While Pillar Two is intended to reduce base erosion through a co-ordinated minimum tax framework, it is expected – at least in the short-to-medium term – to generate new areas of complexity and potential dispute.

Although the applicable treaties defer the arbitration procedures to be determined by the competent authorities, information should generally be treated as confidential.

In practice, South Africa most commonly relies on domestic dispute resolution rules and MAP under bilateral DTAs. Arbitration is exceptional and limited to a small number of bilateral treaties, while EU-specific mechanisms are inapplicable.

Taxpayers commonly engage external advisers to prepare MAP requests, support the competent authority process and assist with technical analyses.

There are no fees or charges payable to SARS in connection with the administrative stages of a tax dispute, including audits, objections, appeals or ADR. The primary costs incurred at this level are the taxpayer’s own professional and advisory fees.

No court fees are payable in proceedings before the Tax Court, High Court, Supreme Court of Appeal or Constitutional Court. Accordingly, there are no upfront or end-stage court charges payable by either party in any judicial instance.

Cost exposure arises instead through professional fees and possible cost awards. In the Tax Court, the general rule is that each party bears its own costs, subject to limited exceptions. In appeals to the higher courts, the usual rule applies that costs follow the result.

In the Tax Court, a successful taxpayer will generally not recover its legal costs from SARS, nor will an unsuccessful taxpayer ordinarily be ordered to pay SARS’s costs. Exceptions apply, including where SARS’s grounds of assessment or the taxpayer’s grounds of appeal are found to be unreasonable.

On appeal to the High Court or higher courts, the ordinary rule applies that the unsuccessful party may be ordered to pay the successful party’s costs. If the disputed tax has been paid pending the outcome of the appeal and the taxpayer succeeds, SARS must refund the tax paid together with interest.

There are no court fees associated with ADR proceedings. Where ADR is facilitated by a SARS official, there are typically no fees payable by the taxpayer other than its own professional costs. If a third-party facilitator is appointed, this is usually done at the taxpayer’s cost, subject to agreement between the parties.

Publicly available statistics are limited. According to SARS’s 2024–25 annual report, 8,447 appeals were received during the year, with appeals exceeding ZAR1 million increasing by 12%.

During this period, SARS finalised 9,738 appeals (against the inflow of 8,447), of which 9,230 related to appeals under ZAR1 million – representing a 32% decrease compared to the previous year, attributed to increased complexity and pending trials. Appeals finalised in the Tax Court increased compared to the previous year.

Not all appeals proceed to the Tax Court, and no data is published on appeals pending by instance, aggregate value or average caseload per judge.

SARS does not publish a breakdown of initiated or terminated cases by tax type (such as CIT, PIT, VAT or custom duties), nor does it disclose corresponding values. As a result, no reliable disaggregated statistics are publicly available.

SARS reports that it was successful in 156 of 188 judgments delivered in 2024–25, reflecting an 83% success rate. Although no official statistics are published, SARS’s success rate in respect of appeals to the higher courts is typically high.

In addition to the considerations noted in 2.6 Strategic Points for Consideration During Tax Auditsand 4.5 Strategic Options in Judicial Tax Litigation, a number of practical strategic guidelines are worth considering when navigating a tax controversy.

• Choosing the right procedural route is critical. While the Chapter 9 objection and appeal process remains the default mechanism for disputes administered under the TAA, there are circumstances where review or declaratory relief in the High Court may be more appropriate. Recent Constitutional Court authority has, however, emphasised that bypassing the Tax Court is subject to strict requirements.
• Engaging experienced tax advisers early can materially influence the trajectory of a dispute. Tax controversies are often highly technical, and SARS is a well-resourced and sophisticated counterparty.
• Keeping proportionality under continuous review is equally important. This includes weighing the likely cost, duration and management distraction of the dispute against the amounts at stake and the broader commercial implications.
• Finally, maintaining strategic flexibility is key. Tax disputes rarely follow a linear path, and the most effective approach will depend on the evolving facts, the legal issues in play and the procedural posture of the matter. A strategy that is responsive and tailored to the circumstances is often the most effective.