Commissioner for the South African Revenue Service v Volkswagen South Africa (Pty) Ltd

Volkswagen South Africa (Pty) Ltd valued its trading stock on hand at the end of a tax year using net realisable value in accordance with IAS 2 of the International Financial Reporting Standards, as incorporated into South African GAAP (AC 108). The Commissioner for the South African Revenue Service (SARS) issued additional assessments on the basis that, under section 22(1)(a) of the Income Tax Act, trading stock must be valued at cost price, subject only to a just and reasonable allowance for diminution in value acceptable to the Commissioner. The Tax Court, Port Elizabeth, found in favour of Volkswagen, holding that valuation at net realisable value was permissible. SARS appealed to the Supreme Court of Appeal.

The appeal was upheld with costs, including the costs of two counsel. The additional assessments raised by the Commissioner for the South African Revenue Service were confirmed.

The case clarifies the relationship between accounting standards and South African income tax law, confirming that compliance with IFRS or GAAP does not override the specific provisions of the Income Tax Act. It reinforces the principle that trading stock must be valued at cost for tax purposes, subject only to a limited and discretionary allowance for diminution in value, and affirms the backward-looking nature of income tax assessment.