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

Atlas Copco South Africa (Pty) Ltd, a subsidiary of a Swedish parent company, carried on business selling, leasing and servicing imported machinery and equipment. In its 2008 and 2009 income tax returns, it wrote down the value of its closing trading stock in accordance with a group accounting policy based on IAS 2/IFRS. The policy applied a fixed write-down of 50% for stock not sold within 12 months and 100% for stock not sold within 24 months. SARS disallowed the write-downs, added back approximately R30 million (2008) and R33 million (2009), and issued additional assessments on the basis that no diminution in value as contemplated in section 22(1)(a) of the Income Tax Act 58 of 1962 had been established. The Tax Court upheld the taxpayer’s appeal, but SARS appealed to the Supreme Court of Appeal.

The appeal by SARS was upheld with costs. The order of the Tax Court was set aside and replaced with an order dismissing the taxpayer’s appeal and confirming the additional assessments for the 2008 and 2009 years of assessment.

The case reinforces the distinction in South African law between accounting principles and tax law, confirming that IFRS/IAS-based valuations such as NRV cannot automatically justify deductions under section 22(1)(a) of the Income Tax Act. It affirms and applies the principles laid down in CSARS v Volkswagen, providing authoritative guidance on the valuation of trading stock and the limits of permissible write-downs for tax purposes.