Absa Bank Ltd and Another v Commissioner for the South African Revenue Service (CCT 72/24) [2026] ZACC 15 (22 April 2026) (ABSA v CSARS)
In a judgment handed down by the Constitutional Court on 22 April 2026, the Court delivered the first major interpretation of South Africa’s post-2006 General Anti-Avoidance Rules (GAAR) in sections 80A to 80L of the Income Tax Act 58 of 1962 (the Act). The judgment materially strengthens the South African Revenue Services’ (SARS) ability to attack complex structured arrangements and signals a decisive move toward a substance-over-form, objectively assessed anti-avoidance regime.
The Facts
ABSA and its subsidiary, United Towers, subscribed for preference shares in a special purpose vehicle, PSIC3. SARS alleged that this formed part of a wider multi-entity funding structure designed by the Macquarie Group, in which funds moved through PSIC4 and the Delta 1 Trust, before being invested in a manner that converted what would ordinarily have been taxable interest into tax-free income, ultimately flowing back to ABSA as tax-exempt dividends. ABSA contended that it only knew of its direct investment into PSIC3 and related commercial protections, and did not know about the downstream steps involving PSIC4, the trust and the Brazilian bond transactions. SARS nevertheless invoked the GAAR and recharacterised the exempt dividends as taxable interest.
The Court therefore had to decide two central questions:
1. Whether a taxpayer can be a “party” to an impermissible avoidance arrangement even if it does not know all the steps in the structure.
2. Whether SARS can apply the GAAR where the taxpayer itself did not directly avoid tax, but benefited economically from a tax-avoidance structure.
The Judgment
The Court’s majority answered both questions in favour of SARS.
On the first question, the majority held that the definition of “party” in section 80L is to be interpreted broadly and purposively and therefore a “party” does not require full knowledge of the arrangement for GAAR purposes. As a result, a taxpayer may be party if it merely objectively participates in or forms part of, the chain of transactions constituting the avoidance arrangement even if it does not have knowledge of every downstream step of the arrangement. The Court’s rationale was that a taxpayer cannot avoid GAAR exposure simply because the tax-engineered features were embedded further down the structure by other parties.
On the second question, the Court held that the correct enquiry was not whether ABSA would have done “nothing” absent the structure, but what the position would have been if the arrangement were stripped of its avoidance features. In circumstances where ABSA did obtain a tax benefit, its supposedly exempt dividend return was, in substance, the equivalent of taxable interest. The intervening entities were treated as conduits and SARS was entitled to trace the tax benefit through the structure and assess the party that ultimately received the enhanced, tax-favoured return. Therefore, the GAAR are aimed at the economic reality of the arrangement and GAAR may indeed reach the ultimate economic beneficiary.
Regarding the “tax benefit” issue, the Court held that the GAAR analysis places substance over form and therefore it is the fiscal consequences which must be assessed. It further highlighted the “but-for” test to be used which assesses whether a tax liability would have been incurred if not for the tax avoidant features and the “dressing up of the transaction.”
However, in dissent, Justice Rogers stated that a person cannot be a “party” to an arrangement it did not know existed, and that ABSA received only an economic advantage rather than a tax benefit. The proper course, in his view, was for SARS to assess the entities that directly obtained the tax saving, rather than ABSA as a downstream recipient of the economic benefit.
The legal significance
This judgment has major implications for tax planning, structured finance and dispute strategy:
i. It confirms that upstream investors, funders and counterparties may fall within the GAAR even where they did not design the avoidance structure and may not have known all of its mechanics. Participation is now assessed objectively, not purely by reference to subjective knowledge.
ii. Substance will prevail over transactional form as evidenced by the Court endorsing a “strip out the avoidance features” approach. The consequence is that SARS and the Courts may look through labels such as “preference shares” or “dividends” and ask what the return amounts to in economic substance.
iii. The judgment confirms that the post-2006 GAAR is not just a restatement of the previous section 103(1) of the Act. It is broader, more purposive and better suited to deal with multi-step, multi-party arrangements, particularly where special purpose vehicles and tax-indifferent entities are used.
iv. Deliberate informational silos will not necessarily protect taxpayers and structured ignorance is not a shield against GAAR. Taxpayers involved in sophisticated cross-border or structured transactions will therefore need to conduct greater diligence into the wider arrangement and its tax effects.
For taxpayers and advisers, the message is clear, GAAR exposure is no longer confined to the architects of a tax structure. A taxpayer may be subject to recharacterisation where it objectively participates in a wider arrangement designed mainly to obtain a tax benefit, notwithstanding that the benefit is generated elsewhere in the transactional chain and only later flows through to it. This decision is likely to become a leading authority on South African anti-avoidance law, and it will shape how structured transactions are documented, diligenced and defended going forward.
In light of this judgment, taxpayers would be well advised to revisit existing business and funding structures, test whether each step can be justified on commercial grounds, and consider whether current arrangements would withstand scrutiny under the GAAR.
