Case  CCT 72/24
[2026] ZACC 15

Hearing Date:  23 September 2025

 Judgement Date: 22 April 2026

Post Judgment Media Summary  

The following explanatory note is provided to assist the media in reporting this case and is not binding on the Constitutional Court or any member of the Court.

On 22 April 2026, the Constitutional Court handed down judgment in an appeal concerning the interpretation and application of the General Anti-Avoidance Rules (GAAR) contained in sections 80A to 80L of the Income Tax Act 58 of 1962 (ITA).

The applicants were Absa Bank Limited (Absa) and its wholly owned subsidiary, United Towers (Pty) Limited. The respondent was the Commissioner for the South African Revenue Service (SARS). The appeal concerned the lawfulness of additional tax assessments issued by SARS for the 2014 to 2018 tax years.

This case arose from a complex funding structure involving multiple entities within the Macquarie Group. Between 2011 and 2015, Absa and United Towers invested approximately R1.9 billion in preference shares issued by PSIC Finance 3 (RF) (Pty) Limited. These investments yielded dividends treated as tax exempt. Unknown to the applicants, the funds flowed through additional entities, including PSIC Finance 4 and the Delta 1 Trust, before ultimately returning to entities within the Macquarie Group.

Through a series of transactions, taxable interest income was converted into tax exempt income derived from Brazilian government bonds. This income was then channelled back through the structure and distributed to Absa as dividends.

Following an audit, SARS invoked the GAAR provisions and issued notices under section 80J of the ITA. SARS determined that the arrangement constituted an impermissible avoidance arrangement, recharacterised the dividends as taxable interest, and issued additional assessments.

Absa challenged the assessments in the High Court, contending that it was not a “party” to the avoidance arrangement and that it had not obtained a “tax benefit” as contemplated in the ITA. The High Court set aside the assessments. The Supreme Court of Appeal overturned that decision, finding that the issues raised were not purely legal and that the High Court should not have entertained the review.

In earlier proceedings before this Court, leave to appeal was granted and the High Court’s jurisdiction to determine the matter was confirmed. The present appeal concerned the substantive merits of the assessments.

Two principal issues arose. First, whether Absa was a “party” to an impermissible avoidance arrangement within the meaning of section 80L of the ITA, notwithstanding its asserted lack of knowledge of the full structure. Secondly, whether Absa obtained a “tax benefit” as contemplated in the GAAR provisions.

The First Judgment

The majority judgment, penned by Majiedt J, concurred in by Mlambo DCJ, Kollapen J, Mathopo J, Mhlantla J, Musi AJ, Savage AJ, Theron J and Tshiqi J, dismissed the appeal.

On the first issue, the majority judgment adopted a purposive and objective interpretation of “party”. It held that participation in an avoidance arrangement did not require knowledge of every step in the structure. The enquiry was whether, viewed objectively, the taxpayer’s conduct formed part of the chain of transactions constituting the arrangement. This reflected the design of the post-2006 GAAR, which deliberately shifted the focus away from subjective intention and towards the objective effect and structure of the arrangement as a whole.

The Court found that Absa’s capital investment was a constitutive element of the scheme. Without that investment, the downstream transactions would not have occurred. Its role was not incidental, but foundational to the operation of the structure. Absa therefore participated in, and was a party to, the arrangement within the meaning of the Act. To hold otherwise would permit a taxpayer to facilitate an avoidance structure while avoiding its consequences by disclaiming knowledge of its inner workings.

On the second issue, the Court held that Absa did obtain a tax benefit. It emphasised that the proper analysis required the arrangement to be assessed with its avoidance features stripped away, so as to reveal its economic substance. This avoided an over-reliance on the formal characterisation of the transactions and ensured that the enquiry was directed at what the arrangement, in substance, achieved.

On that basis, the economic substance of the transaction was that of a loan generating taxable interest, rather than a genuine preference share investment yielding tax exempt dividends. The dividend form was the product of the structure, not its commercial reality. The Court concluded that the arrangement converted what would otherwise have been taxable income into tax exempt income, resulting in an enhanced return to Absa. This constituted a tax benefit within the meaning of the GAAR, because the exemption flowed from the structuring of the transaction rather than from any independent commercial rationale.

The Court further held that, in any event, the GAAR permitted SARS to determine the tax consequences for any party to an impermissible avoidance arrangement, and was not confined to the party that directly obtained the tax benefit. This underscored the breadth of the remedial powers conferred by the statute and ensured that the operation of GAAR was not defeated by the use of intermediary entities or the fragmentation of complex arrangements.

The majority judgment emphasised that the purpose of the 2006 amendments to the GAAR was to strengthen the regime and to prevent sophisticated, multi-layered avoidance schemes. A narrow interpretation requiring full knowledge of all steps would undermine that purpose and enable avoidance through deliberate ignorance.

The Second Judgment

The second judgment (dissenting), authored by Rogers J, disagreed with the majority judgment on two key issues: whether Absa was a “party” to the alleged impermissible tax avoidance arrangement; and whether it obtained any “tax benefit” from that arrangement.

On the first issue, the second judgment emphasised that under section 80B of the Income Tax Act, SARS may impose consequences only on a “party” to an arrangement. This required SARS to clearly define the arrangement and show Absa’s participation in it. Rogers J stressed that being a “party” entails at least knowledge of the arrangement and an intention to participate in it. One cannot be said to participate in an arrangement they are unaware of.

Against this background, the second judgment found that Absa’s involvement was limited to its initial investment (subscription for preference shares in PSIC3) and related protective mechanisms. The subsequent steps, including the critical Brazilian interest swap that allegedly triggered a tax advantage, were implemented without Absa’s knowledge. Accordingly, Absa could not be regarded as a party to the full arrangement as characterised by SARS. Treating it as such was, in his view, a legal error.

On the second issue of whether Absa derived a “tax benefit” (on the assumption that it was a “party” to the entire arrangement), Rogers J concluded it did not. The alleged tax benefit arose from the Brazilian swap and accrued to other entities (the D1 Trust and PSIC4), not Absa. Determining a tax benefit requires comparing the actual outcome with a counterfactual scenario excluding the impermissible step. Had it not been for the Brazilian interest swap, the interest earned by the D1 Trust and distributed to PSIC4 through the conduit principle would have been taxable in the hands of PSIC4. In the premises, D1 Trust and PSIC4, not Absa, avoided tax liability and got a tax benefit.

The second judgment further held that the GAAR is designed to eliminate the tax benefit in the hands of the party that obtained it. It does not permit SARS to impose tax consequences on a different party who neither benefited nor participated in the avoidance. Absa’s returns (dividends from preference shares) were exempt under ordinary tax rules and were contractually secured, meaning its position was unaffected by the downstream tax structuring. Any indirect economic gain did not amount to a GAAR “tax benefit”.

The second judgment rejected SARS’ argument that it could target any participant regardless of who obtained the benefit, noting that both the statutory text and established practice focus on the tax-benefitted party. A survey of comparative approaches from selected jurisdictions similarly supports the restriction of the taxing authority’s remedial powers to denying the tax benefit only in the hands of the actual beneficiary. Accordingly, the second judgment concluded that the approach adopted in the first judgment was internationally unprecedented.

Accordingly, the second judgment held that SARS overreached by targeting Absa. Rogers J maintained that SARS could have pursued the entities that actually obtained the tax benefit or defined the arrangement more narrowly. His approach, he noted, preserves SARS’ anti-avoidance powers while ensuring they are exercised within proper legal limits. The second judgment would have upheld Absa’s appeal, reinstated the High Court’s order and awarded costs in its favour.

The Court makes the following order:

The appeal is dismissed with costs, including the costs of two counsel.

The Full judgment  here