Case: Absa Bank Ltd and Another v Commissioner for the South African Revenue Service
Court: Constitutional Court of South Africa
Case number: CCT 72/24
Citation: [2026] ZACC 15
Judgment date: 22 April 2026
Majority judgment: Majiedt J
Dissenting judgment: Rogers J
Tax: Income Tax
Legislation: Sections 80A to 80L of the Income Tax Act 58 of 1962
Issue: Application of the General Anti-Avoidance Rules (GAAR), including what constitutes an impermissible avoidance arrangement, who qualifies as a party to such an arrangement, and whether the taxpayer assessed must personally have obtained the tax benefit.
1. Overview
The Constitutional Court’s decision in Absa Bank Ltd and Another v Commissioner for the South African Revenue Service is one of the most significant South African tax avoidance judgments in recent years.
The case concerned the General Anti-Avoidance Rules contained in sections 80A to 80L of the Income Tax Act 58 of 1962.
Importantly, the Constitutional Court noted that this was the first time the courts had been required to interpret the current GAAR provisions following their substantial amendment in 2006.
The dispute arose from a complex series of preference share and funding transactions involving Absa Bank Limited, its subsidiary United Towers (Pty) Ltd, entities associated with the Macquarie Group and several special-purpose entities.
At the heart of the case were two fundamental questions:
- Can a taxpayer be a party to an impermissible avoidance arrangement even if it did not know all the steps in the broader arrangement?
- Can SARS apply the GAAR against a taxpayer where the taxpayer did not itself directly avoid the tax liability, but ultimately received the benefit generated by the structure?
The majority of the Constitutional Court answered both questions broadly in favour of SARS.
The Court dismissed Absa and United Towers appeal with costs, including the costs of two counsel.
2. Why the judgment is important
The importance of the case extends far beyond Absa and the particular structured-finance transaction involved.
The judgment gives South African taxpayers, tax advisers and SARS important guidance on the operation of the post-2006 GAAR.
In particular, the majority judgment indicates that:
- the existence and purpose of an avoidance arrangement are assessed objectively;
- a taxpayer does not necessarily need knowledge of every step of an arrangement to qualify as a party to it;
- participation in the causal chain of an avoidance arrangement may be sufficient;
- the GAAR should not be interpreted in a manner that permits taxpayers to benefit from deliberately remaining ignorant of downstream tax-avoidance mechanisms;
- the taxpayer subjected to a GAAR adjustment need not necessarily be the entity at which the tax was initially avoided; and
- SARS has broad remedial powers under section 80B once an impermissible avoidance arrangement has been established.
The judgment therefore significantly strengthens the potential reach of the GAAR in complex multi-party transactions.
3. Background to the transactions
Between 2011 and 2015, Absa Bank Limited and its wholly owned subsidiary, United Towers (Pty) Ltd, entered into four preference share subscription agreements involving approximately R1.9 billion.
The preference shares were issued by PSIC Finance 3 (RF) (Pty) Ltd (PSIC3).
Absa received dividends on these preference shares which were treated as exempt from income tax.
The transactions had been introduced to Absa by the Macquarie Group.
Behind Absa’s investment lay a considerably more complicated arrangement involving, among others:
- PSIC3;
- PSIC Finance 4 (RF) (Pty) Ltd (PSIC4);
- Delta 1 Finance Trust (D1 Trust);
- Macquarie Securities South Africa Limited (MSSA); and
- transactions involving Brazilian government bonds.
Absa maintained that it was unaware of important downstream parts of this structure.
Its case was effectively that it understood itself to be making a preference share investment and receiving exempt dividends.
4. How the funding structure operated
The arrangement involved several interrelated transactions.
In broad terms:
- Absa subscribed for preference shares in PSIC3.
- PSIC3 used the funds to subscribe for preference shares in PSIC4.
- PSIC4 made capital contributions to the D1 Trust.
- The D1 Trust used the funds to make interest-bearing loans to MSSA.
- MSSA paid interest to the D1 Trust.
- The D1 Trust entered into transactions involving Brazilian government bond interest.
- The resulting income was treated as non-taxable under the applicable South Africa-Brazil double tax agreement and section 25B of the Income Tax Act.
- The income ultimately flowed through the structure as dividends to Absa.
The majority regarded the arrangement, in substance, as converting what would otherwise have been a taxable income stream into a tax-free income stream ultimately flowing to Absa.
5. SARS’ audit and assessments
In May 2018, SARS issued audit notifications to Absa and United Towers.
The subsequent investigation extended beyond the immediate preference share investment and examined the broader transactions involving PSIC4, the D1 Trust and the Brazilian bond structure.
Following the audit, SARS issued notices under section 80J of the Income Tax Act.
SARS indicated that it intended to disregard or re-characterise parts of the arrangement under the GAAR.
In October 2019, SARS issued additional assessments for the 2014 to 2018 financial years.
SARS treated the arrangement as an impermissible avoidance arrangement and re-characterised the exempt dividend income received by Absa as taxable interest income.
6. Absa’s central defence
Absa challenged the assessments on two principal grounds.
Absa argued that it was not a party to the full arrangement
Absa maintained that it had no knowledge of the downstream transactions involving PSIC4, the D1 Trust and the Brazilian bond arrangements.
It therefore argued that a person could not be regarded as a party to an arrangement of which it was unaware.
Absa argued that it had not obtained the relevant tax benefit
Absa further argued that the alleged tax avoidance occurred at the level of other entities within the structure.
According to Absa, the tax benefit identified by SARS arose principally at the level of the D1 Trust and PSIC4.
Absa contended that what it ultimately received was merely an economic or financial benefit in the form of dividends, rather than the particular tax benefit resulting from the avoidance of tax.
7. The two central issues before the Constitutional Court
The Constitutional Court identified two central issues on the merits.
The first concerned the meaning of party under section 80L.
In particular:
Must a taxpayer know all the steps of an avoidance arrangement before it can be regarded as participating in that arrangement?
The second concerned the meaning and location of the tax benefit.
The Court had to consider whether SARS could invoke the GAAR against a taxpayer that allegedly did not itself directly avoid the relevant tax but nevertheless participated in and benefited from the wider structure.
8. The current GAAR framework
The present GAAR is contained principally in sections 80A to 80L of the Income Tax Act.
Section 80A provides that an avoidance arrangement will be an impermissible avoidance arrangement where its sole or main purpose is to obtain a tax benefit and one or more of the prescribed tainted elements are present.
In a business context, these include circumstances where the arrangement:
- is entered into or carried out in a manner not normally employed for bona fide business purposes;
- lacks commercial substance;
- creates rights or obligations that would not normally arise between parties dealing at arm’s length; or
- results directly or indirectly in a misuse or abuse of the provisions of the Income Tax Act.
Section 80B gives SARS extensive powers to determine the tax consequences of an impermissible avoidance arrangement.
Those powers include disregarding, combining or re-characterising steps, reallocating income or expenditure and treating the arrangement as though it had not been entered into.
9. What is an impermissible avoidance arrangement?
The majority summarised the current GAAR requirements broadly as follows:
- there must be a transaction, operation or scheme;
- it must result in a tax benefit;
- its sole or main purpose must be to obtain the tax benefit; and
- one or more of the statutory tainted elements must be present.
One of the significant developments introduced by the 2006 GAAR amendments was an increased emphasis on objective characteristics of the arrangement.
The Court emphasised that the current legislation was intended to strengthen SARS’ ability to attack sophisticated tax avoidance arrangements.
10. Tax avoidance is not automatically unlawful
The Court expressly recognised an important starting principle.
There is nothing inherently unlawful about a taxpayer arranging its affairs so as to minimise its tax liability, provided that it acts within the limits permitted by law.
A taxpayer is generally entitled to choose the most tax-efficient way of implementing a genuine commercial transaction.
However, that freedom operates subject to specific and general anti-avoidance provisions.
The GAAR represents the statutory boundary beyond which arrangements regarded by Parliament as impermissible may be reconstructed for tax purposes.
11. The significance of the 2006 amendments
The Court devoted considerable attention to the history of South Africa’s anti-avoidance legislation.
The previous GAAR was contained in section 103(1) of the Income Tax Act.
SARS regarded that regime as increasingly ineffective against sophisticated tax structures.
The 2006 amendments therefore introduced the current sections 80A to 80L.
The objective was to create a GAAR sufficiently broad to address increasingly sophisticated avoidance arrangements while maintaining appropriate certainty for legitimate business transactions.
The legislative history was important to the majority’s interpretation of the current provisions.
12. The majority’s interpretation of party
Section 80L defines a party broadly to include a person who participates or takes part in an arrangement.
Absa argued that participation necessarily requires knowledge.
The majority rejected that narrow interpretation.
Majiedt J held that the enquiry should be approached objectively.
The relevant question is whether the taxpayer’s conduct objectively forms part of the chain of transactions constituting the avoidance arrangement.
The taxpayer does not need to understand or have detailed knowledge of every downstream mechanism.
The majority stated that:
Participation does not require omniscience.
What is required is an objective determination that the taxpayer participated in the causal chain forming part of the arrangement.
13. Knowledge of every step is not required
The majority considered it significant that the legislation uses the words participates or takes part rather than language expressly requiring knowledge.
If Parliament intended knowledge to be an element, it could have used wording such as:
knows or ought reasonably to have known.
The GAAR contains no such requirement in its definition of party.
The Court therefore concluded that knowledge of every component of the scheme is not a prerequisite for participation.
This is one of the most significant aspects of the judgment.
14. The majority’s concern about wilful ignorance
The majority was concerned that accepting Absa’s interpretation could create a significant loophole in the GAAR.
Promoters of tax structures could deliberately shield investors from details of downstream tax-avoidance steps.
The investor could then argue that because it did not know precisely how the arrangement achieved its tax result, it could not be subjected to the GAAR.
The majority regarded this outcome as inconsistent with the purpose of the post-2006 legislation.
It stated in substance that the GAAR should not allow institutional investors to benefit from tax avoidance structures simply by remaining ignorant of the mechanics through which the tax advantage was created.
15. Participation is an objective enquiry
The Court’s approach therefore places considerable emphasis on the taxpayer’s objective involvement.
Relevant considerations may include:
- whether the taxpayer supplied the funding;
- whether its transaction formed part of the broader series;
- whether subsequent steps depended on its participation;
- whether the taxpayer received returns generated through the arrangement; and
- whether the taxpayer’s participation formed part of the causal chain producing the avoidance result.
The enquiry is consequently wider than simply asking what the taxpayer subjectively knew.
16. Why Absa qualified as a party
The majority regarded Absa’s role as pivotal.
Absa supplied the initial capital.
That capital moved through the preference share subscriptions and other transactions which ultimately funded the downstream structure.
The majority considered that, without Absa’s investment, the downstream transactions would not have been possible in the form in which they occurred.
Absa also received the ultimate return generated through the structure.
Accordingly, the majority held that Absa objectively participated in the causal chain and was therefore a party to the arrangement for purposes of the GAAR.
17. The tax benefit issue
The second major question concerned the tax benefit.
Absa argued that the tax actually avoided arose at the level of other entities, particularly the D1 Trust and PSIC4.
It therefore contended that SARS should pursue the entities that actually avoided tax rather than re-characterising Absa’s exempt dividends as taxable interest.
The majority rejected this narrow approach.
18. The majority’s but-for approach
The majority considered that the appropriate enquiry was not whether Absa would have entered into no transaction at all if the structure had not existed.
The correct comparison was with the arrangement stripped of its tax-avoidance features.
The Court effectively asked:
What would the transaction have looked like but for the elements introduced to avoid tax?
The majority concluded that, stripped of the avoidance features, Absa’s return would in substance have been taxable interest rather than the exempt dividend stream ultimately received.
The tax benefit therefore flowed through the structure to Absa.
19. Conduits cannot necessarily shield the ultimate recipient
The majority rejected the proposition that SARS was necessarily confined to taxing entities such as PSIC4 or the D1 Trust merely because the initial tax avoidance occurred within those entities.
Those entities were regarded by the majority as conduits through which the funds and benefits flowed.
The majority considered the wider economic and transactional structure.
In its view, the purpose of the structure was effectively to convert a taxable income stream into a tax-free income stream ultimately flowing to Absa.
The presence of special-purpose entities between the source and ultimate recipient did not prevent SARS from applying the GAAR to the wider arrangement.
20. SARS’ powers under section 80B
Once an impermissible avoidance arrangement has been established, section 80B gives SARS broad remedial powers.
SARS may, depending on the circumstances:
- disregard individual steps;
- combine steps;
- re-characterise transactions;
- disregard accommodating or tax-indifferent parties;
- reallocate income, receipts, accruals or expenditure between parties;
- re-characterise income or expenditure; or
- treat the arrangement as though it had not been entered into.
The majority’s interpretation confirms that these powers should not necessarily be confined to the particular entity at whose level the first identifiable reduction in tax occurred.
21. The majority’s ultimate conclusion
The majority held that, on the objective facts, the structure constituted an impermissible avoidance arrangement.
It further held that there was no legal requirement that the particular taxpayer against whom the GAAR was invoked had itself initially generated the tax benefit.
In any event, the majority found that Absa did ultimately obtain the relevant tax benefit.
The tax benefit flowed from the D1 Trust through PSIC4 and PSIC3 to Absa.
According to the majority, the entities interposed between the source and Absa operated principally as conduits.
Absent the tax-avoidance features, the arrangement would, in effect, have amounted to a loan by Absa producing taxable interest.
Absa was therefore a party to the impermissible avoidance arrangement.
22. The dissenting judgment of Rogers J
The case is particularly noteworthy because Rogers J delivered a substantial dissenting judgment.
He disagreed with the majority on both the party issue and the tax benefit issue.
The dissent is important because it illustrates the competing interpretations that may continue to influence future GAAR disputes.
23. Rogers J: participation requires knowledge
Rogers J took a narrower view of the word party.
In his view, a taxpayer cannot meaningfully participate in or take part in an arrangement if the taxpayer does not know that the relevant arrangement exists.
His approach did not require the taxpayer to understand the tax consequences of every step.
However, the taxpayer should at least know of the steps comprising the arrangement and intend that they take place.
On the facts stated in SARS’ assessment letter, Rogers J considered that Absa knew about its own preference share investment and associated protections but did not know about important downstream steps.
He therefore concluded that Absa could not be regarded as a party to those undisclosed steps.
24. The dissent distinguished knowledge from knowledge of tax consequences
Rogers J drew an important distinction.
A taxpayer need not know that a transaction constitutes impermissible tax avoidance.
Nor does the taxpayer necessarily need to understand the legal or tax consequences of the steps.
But, in his view, the taxpayer must at least know that the steps themselves exist.
He therefore rejected an interpretation under which a taxpayer could become a party to transactions which took place entirely outside its knowledge.
25. The dissent’s approach to the tax benefit
Rogers J also disagreed with the majority’s treatment of the tax benefit.
In his view, the tax benefit created through the Brazilian interest transactions accrued to the D1 Trust and PSIC4.
Absa received an economic benefit from the arrangement, but that did not necessarily mean that it received the relevant tax benefit.
He warned against confusing an economic advantage with a tax benefit.
A party may benefit financially from another person’s tax-efficient arrangements without itself having avoided tax.
According to the dissent, the GAAR is directed at tax benefits, not merely economic advantages.
26. Tax benefit versus economic benefit
This distinction is one of the most interesting aspects of the dissent.
Rogers J considered that Absa’s preference share investment produced exempt dividends under the ordinary provisions of the Income Tax Act.
The fact that downstream tax savings may have enabled other entities to fund or enhance those dividends did not necessarily convert Absa’s exempt return into a tax benefit obtained by Absa.
The dissent therefore considered that SARS should direct its remedial powers primarily at the entities that obtained the actual tax benefit.
27. The majority rejected the dissent’s narrower approach
The majority considered that the dissent’s interpretation would materially weaken the GAAR.
It could permit promoters to isolate the ultimate investor from the details of the tax-avoidance steps while allowing that investor to receive the economic return generated by those steps.
The majority therefore preferred an interpretation based on objective participation in the complete causal chain.
That interpretation is now the binding decision of the Constitutional Court.
28. The final order
The majority dismissed the appeal.
The order of the Supreme Court of Appeal was therefore confirmed, although the Constitutional Court did so for different substantive reasons.
Absa and United Towers were ordered to pay costs, including the costs of two counsel.
Rogers J would have reached the opposite conclusion and would have upheld Absa’s appeal and restored the High Court’s order.
29. Practical implications for taxpayers
The judgment has major implications for taxpayers entering into structured transactions involving multiple entities.
The first practical lesson is that taxpayers cannot assume that their GAAR exposure ends with the contracts they have personally signed.
Where their transaction forms part of a broader funding or tax structure, SARS may examine the full chain.
Taxpayers should therefore understand, as far as reasonably possible:
- the commercial purpose of the overall transaction;
- the entities participating in the structure;
- the movement of funds through the arrangement;
- the tax consequences arising at each significant stage;
- the relationship between their return and tax advantages generated elsewhere in the structure;
- the role of special-purpose vehicles;
- whether any part of the arrangement lacks commercial substance;
- whether funds are effectively round-tripped;
- whether any entity is acting primarily as a conduit; and
- what the transaction would look like if the tax-driven steps were removed.
30. I did not know may no longer be sufficient
One of the clearest warnings arising from the majority judgment is that lack of detailed knowledge of a structure may not necessarily protect a taxpayer from the GAAR.
The relevant question may instead be whether the taxpayer objectively participated in the arrangement.
A taxpayer that supplies capital, receives the return generated by the structure and forms an essential part of the transactional chain may potentially qualify as a party even if the taxpayer was not informed about every intermediate step.
This is particularly important for banks, investment funds and large corporates participating in structured-finance arrangements designed by third parties.
31. Due diligence on structured transactions
The case reinforces the importance of tax due diligence before entering sophisticated funding arrangements.
Taxpayers should be cautious where an adviser or promoter effectively says:
You do not need to know how the tax structure works.
The majority judgment suggests that deliberate separation between the investor and the underlying tax mechanics will not necessarily provide protection against the GAAR.
Large institutional taxpayers should therefore consider requiring sufficient information to understand the material tax structure supporting their investment returns.
32. Documentation becomes even more important
Where a structured transaction is challenged, contemporaneous documentation may be critical.
Relevant documents may include:
- investment committee papers;
- board memoranda;
- tax opinions;
- transaction diagrams;
- cash-flow models;
- legal agreements;
- emails with promoters and advisers;
- commercial purpose memoranda;
- risk assessments; and
- calculations comparing post-tax returns under alternative structures.
These documents may assist in determining both the taxpayer’s role and the objective commercial substance of the arrangement.
33. The judgment does not make all tax planning impermissible
The case should not be read as prohibiting legitimate tax planning.
The Constitutional Court expressly acknowledged that taxpayers are generally entitled to arrange their affairs tax-efficiently.
The dividing line remains whether the arrangement falls within the statutory GAAR requirements.
A genuine commercial transaction does not become impermissible merely because tax considerations were taken into account.
However, taxpayers should be particularly cautious where artificial or commercially unnecessary steps are introduced primarily to generate or transmit a tax advantage.
34. The danger of special-purpose vehicles and conduits
The judgment is especially relevant where structures contain several special-purpose entities.
The existence of separate legal persons will not necessarily prevent SARS from examining the substance and interrelationship of the overall arrangement.
If entities merely receive and transmit funds, with little independent commercial function, SARS may contend that they operate as conduits within a broader impermissible avoidance arrangement.
Section 80B gives SARS considerable powers to disregard, combine or re-characterise such steps.
35. The correct counterfactual matters
The case also illustrates the importance of identifying the correct counterfactual when analysing whether a tax benefit exists.
The taxpayer’s preferred comparison may be:
If we had not entered into this transaction, there would have been no income and therefore no tax.
The majority’s approach permits a different question:
What would the commercial transaction have looked like if the artificial or tax-avoidance elements had been removed?
That comparison can produce a materially different result.
In the present case, the majority considered that the arrangement, stripped of its tax-driven features, would effectively have generated taxable interest for Absa.
36. Wider implications for tax advisers
The judgment has equally important consequences for tax practitioners, lawyers, accountants and transaction advisers.
When advising on complex structures, it may no longer be sufficient to analyse each agreement or entity separately.
The adviser should consider the entire arrangement and ask:
- What commercial outcome is being achieved?
- What tax result is being achieved?
- Which steps create that tax result?
- Would those steps exist independently of the tax benefit?
- Does the arrangement involve circular or round-trip financing?
- Are any entities effectively tax-indifferent parties or conduits?
- Does the legal form materially differ from the economic effect?
- Which taxpayer ultimately receives the benefit generated by the structure?
These are increasingly the questions likely to determine GAAR risk.
37. SA Tax Guide analysis
Absa Bank v CSARS materially changes the practical risk landscape for sophisticated tax planning in South Africa.
The most important feature of the majority judgment is its rejection of a narrow, contract-by-contract approach to the GAAR.
The Court instead emphasised the taxpayer’s objective role within the complete transactional chain.
A taxpayer may potentially be a party to an impermissible avoidance arrangement even though it does not know every step through which the tax advantage is generated.
This makes it considerably more difficult for taxpayers participating in externally designed structures to defend a GAAR challenge solely by saying that they were unaware of the downstream tax mechanisms.
At the same time, the strong dissent of Rogers J should not be overlooked.
His judgment highlights genuine rule-of-law concerns about imposing tax consequences on persons in relation to transactions of which they were unaware and about distinguishing a true tax benefit from a merely economic advantage.
The divide between the majority and dissent demonstrates how far-reaching the current GAAR can potentially be.
For practitioners, the prudent approach is clear:
Do not analyse a structured transaction merely at the level of the taxpayer’s immediate contract. Follow the money, identify every material step, identify where tax disappears, determine who ultimately benefits, and test the complete arrangement against sections 80A to 80L.
38. Conclusion
The Constitutional Court’s decision in Absa Bank Ltd and Another v CSARS is a landmark authority on South Africa’s General Anti-Avoidance Rules.
The majority confirmed that the GAAR is intended to operate broadly against sophisticated and multi-party avoidance structures.
Knowledge of every downstream step is not necessarily required before a taxpayer can be regarded as a party to an avoidance arrangement.
The enquiry is substantially objective and focuses on the taxpayer’s participation in the causal chain of the arrangement.
The Court also rejected the proposition that SARS must always confine its GAAR assessment to the entity at whose level the original tax saving arose.
Where special-purpose entities operate as conduits and the ultimate tax advantage flows to another participant, the GAAR may permit SARS to reconstruct the arrangement and determine the appropriate tax consequences for that participant.
The judgment therefore substantially increases the importance of transaction-wide tax due diligence, commercial-substance analysis and documentation.
For South African taxpayers and tax practitioners, the central lesson is:
Under the current GAAR, the tax consequences may depend not merely on the transaction you signed, but on the broader arrangement in which your transaction objectively participates.
Disclaimer: This article provides a general analysis of the judgment and does not constitute tax or legal advice. The application of the General Anti-Avoidance Rules is highly fact-specific and should be considered with reference to the complete transaction, the applicable legislation and relevant supporting documentation.