Adidas's R1.9 billion tax case transfer request denied by Gauteng High Court

Adidas International and its South African licensee have failed in their attempt to move the SA Revenue Service’s (Sars’) bid to recover almost R1.9 billion in unpaid taxes from Gauteng to the Western Cape.

The German sports apparel giant, which is registered in Switzerland, and Cape Town-based Adidas South Africa, had asked the Gauteng High Court, Pretoria for the matter to be heard in the Western Cape division of the high court as it would be more convenient.

The legal battle emanates from Adidas’s challenge to Sars’ value determination in terms of the Customs and Excise Act.

Adidas South Africa is licensed to sell branded products in its licensed territory including South Africa, Botswana, Lesotho, Malawi, Mauritius, Mozambique, Namibia, Swaziland, Zambia and Zimbabwe.

According to court papers, the value determination was the customs value of Adidas-branded goods, which were imported into the country between August 2007 and February 2013.

Sars determined that the customs value should include the price paid by Adidas South Africa to Adidas International rather than the price paid by Adidas International to foreign manufacturers and this resulted in a customs duty and VAT (value-added tax) assessment including penalties and interest of just over R1.87bn as of June 30, 2018.

One of the reasons Adidas cited for requesting the transfer of the case from Gauteng to the Western Cape was the mandatory mediation directive issued in April 2025 by the then Gauteng Judge President, Dunstan Mlambo, who was appointed Deputy Chief Justice in July of the previous year.

The companies complained that mandatory mediation could further delay access to justice for cases that require judicial resolution, as parties would need to go through mediation before obtaining a trial date.

They argued that mandatory mediation was not suitable and would result in increased costs in addition to travel and accommodation costs.

“The directive's blanket approach to mandatory mediation does not account for cases like this matter, which are not suitable for alternative dispute resolution,” the Gauteng High Court, Pretoria heard.

In addition, according to the companies, the audit by Sars customs and border management into Adidas’s compliance was conducted in Cape Town and the letter of demand dated in June 2018 was issued from Sars’s Cape Town office.

“Therefore, the cause of action arose within that jurisdiction. The majority of the applicants’ (Adidas’s) factual witnesses reside in Cape Town including the one witness intended to be called by the respondent (Sars),” the companies stated.

They added that their international witnesses have confirmed that Cape Town would be more convenient for them and because the trial is expected to exceed three weeks, holding proceedings in Cape Town would be less disruptive to the witnesses’ everyday lives.

Sars has already indicated that it does not agree to the proposal to move the hearing of the matter to Cape Town, which was first mooted at a pre-trial conference in June 2024.

The tax revenue collection agency also explained that the Gauteng High Court, Pretoria has available trial dates in the fourth term of 2026 or the first or second term of 2027, which is comparable to or earlier than the dates available in Cape Town.

Sars also warned that transferring the case to Cape Town would significantly increase costs for both parties due to the need for travel and accommodation for legal teams and witnesses based in Gauteng.

“Since the majority of witnesses, legal teams and parties involved are based in Gauteng, transferring the case to Cape Town would result in increased travel and accommodation costs for both parties,” the taxman cautioned.

Additionally, Sars agreed that mediation in the matter would be inappropriate due to its public-law nature and the substantial amount involved. It stated that Adidas’s claim of trial roll congestion is no longer valid due to the directive, which resolved the backlog and allows for trial dates to be allocated within 18 months.

“I find that the applicants (Adidas) have failed to prove that the trial roll congestion or mediation requirements in the Pretoria High Court would justify the transfer of proceedings. The applicants’ contention that mandatory mediation in the Gauteng division would further delay proceedings is unfounded,” ruled Acting Judge Phuti Manamela last month.

She said transferring the case to Cape Town would result in significant additional expenses for travel and accommodation particularly for the legal teams and witnesses based in Gauteng.

“This would contradict the principle of ensuring cost-effective litigation. On that score, I also find that the cost efficiency argument does not support the transfer of proceedings to Cape Town,” stated Acting Judge Manamela, adding that transferring the matter to Cape Town would create logistical challenges and inconvenience for the majority of participants.

She dismissed with costs Adidas’s application for the removal of the trial proceedings to the Western Cape High Court.

Cape Times