Corporate Law · Tax
Absa and the GAAR
The Constitutional Court’s first-ever interpretation of South Africa’s general anti-avoidance rules. What the Court actually held — set out in its own words, with every proposition quoted verbatim from the judgment.
Written by
Martin Kotze
Attorney, Conveyancer & Notary Public
Contents
A note on method. This page reports what the Court held. Wherever a proposition is attributed to the Court, the actual words of the judgment are reproduced in a labelled verbatim extract box with its paragraph number, so you can see the source and follow the link to the full judgment. Plain-language framing is ours; the holdings are the Court’s. Commentary by other firms is attributed to them by name.
The facts and the assessment
The case concerned tax assessments issued by SARS against Absa Bank and its subsidiary, United Towers, for the 2014 to 2018 financial years. The Court recorded the underlying investment as follows.
The Court recorded that SARS, following an audit, issued notices under section 80J of the Income Tax Act and “re-characterised the tax-exempt dividend income received by Absa as taxable interest income” (at [9]), on the basis that the funds had passed through intervening entities (PSIC4 and the Delta 1 Finance Trust) and Brazilian government bond transactions that eliminated a tax liability. Absa, for its part, contended that it was unaware of the transactions beyond its investment in PSIC3 and its ancillary agreements with the Macquarie Group (at [10]). That factual contention frames the central legal question the Court had to decide: could Absa be a “party” to an arrangement whose downstream steps it said it did not know about?
The two issues
The Court identified two central issues on the merits:
- the party issue — what constitutes a “party” under section 80L, and in particular whether being a party requires knowledge of all the steps of an avoidance arrangement; and
- the tax-benefit issue — whether Absa obtained a “tax benefit”.
It framed the significance of the case at the outset, noting that it was the first time the GAAR provisions had come before the courts since they were rewritten in 2006.
An objective enquiry
Against the narrower reading (which the Court associated with the dissent), the majority adopted a broader, purposive construction and described the enquiry as objective.
The Court acknowledged the competing risks of the two approaches in terms, before preferring the broader one.
Who is a “party”
On the party issue, the majority held that section 80L directs attention to participation in the arrangement, not to knowledge of each sub-step.
The majority reasoned that the narrower, knowledge-based reading would confine liability to those least likely to be reachable.
It concluded, on the party issue:
The tax-benefit counterfactual
On the tax-benefit issue, the Court held that the arrangement must be assessed with its avoidance features removed, and that on that basis Absa obtained a tax benefit.
The reach of section 80B
The Court also addressed the breadth of SARS’ remedial power and the role of the section 80G presumption.
The dissent (Rogers J)
Rogers J dissented on the party issue. He took the view that participation presupposes knowledge of the arrangement, and cautioned against the consequences of the objective approach for taxpayers who are unaware of the scheme.
The dissent is the minority view. It does not represent the law, but it records a reasoned disagreement on the scope of the “party” concept, and several commentators (below) treat it as marking the boundary that future cases will have to work out.
The order
What the commentators say
The judgment was widely analysed by South African tax practitioners. The following are their published views, attributed to each firm or author. They are commentary, not the Court’s holdings.
Cliffe Dekker Hofmeyr
Mariska Delport · 21 May 2026
CDH reads the judgment as adopting a strongly purposive and objective approach, under which a taxpayer “need not have explicit knowledge of every downstream component” to be a party — participation in a constitutive step may suffice. It highlights increased exposure for banks, institutional investors and funders in layered transactions where participants have differing visibility over the structure. Read the CDH alert.
Deloitte
Le Roux Roelofse & Jadyne Devnarain · 24 April 2026
Deloitte frames the decision as rejecting knowledge-based defences and settling that the purpose test is objective, with participation turning on involvement rather than mental state. It notes the judgment leaves open when “legitimate tax planning morphs into impermissible tax avoidance”. Read the Deloitte analysis.
ENSafrica
Peter Dachs, Andries Myburgh & Emilé Cronje · 23 April 2026
ENSafrica summarises the majority’s test on the party issue as turning on what a taxpayer “did” and its role in the arrangement, not what it “knew”, and notes that section 80B allows SARS to assess the ultimate economic beneficiary. Emilé Cronje is reported as observing that “compliance teams and everyone involved in the transaction must understand the architecture of the arrangement in which they participate”. Read the ENSafrica note.
PvdZ Consulting
PvdZ focuses on the “party” and “tax benefit” questions and raises concerns about the majority’s functional-equivalence reasoning (treating exempt dividends as equivalent to taxable interest), including how it interacts with the specific anti-avoidance rules for preference shares in sections 8E and 8EA. Read the PvdZ commentary.
Moneyweb
Amanda Visser · 23 April 2026
Moneyweb reports the outcome for the market, describing it as a landmark loss for Absa arising out of R1.9 billion of preference-share arrangements, and noting practitioner views that the judgments “require further analysis to understand the impact on current and future structures”. Read the Moneyweb report.
Practical implications
The following points follow directly from the passages quoted above and from the attributed commentary. They are general observations, not advice on any particular arrangement.
Not knowing the whole structure may not be a defence. On the majority judgment, a taxpayer can be a “party” through objective participation in a constitutive step, even without knowledge of downstream steps (at [76]). Rogers J disagreed (at [127]–[128]); the majority is the law.
Funders and institutional investors are squarely in view. The Court expressed concern about “institutional actors who benefit from arrangements while disclaiming knowledge of their structure” (at [56]), and commentators (CDH, ENSafrica) read the judgment as raising exposure for banks and funders in layered transactions.
The counterfactual strips out the avoidance features. A “tax benefit” is tested by comparing the transaction with its artificial elements removed, not against “no transaction” (at [79], [82]). This is the same comparator later applied by the Tax Court in the dividend-stripping judgment.
SARS’ remedial power is broad. Section 80B(1) reaches “any party” (at [78]), and the section 80G presumption goes to the burden of proof, not the scope of liability (at [81]).
Frequently asked questions
What did the Constitutional Court decide in the Absa GAAR case?
The Court dismissed Absa’s appeal with costs. It held that the general anti-avoidance rules (GAAR) applied: Absa was a "party" to an impermissible avoidance arrangement even though it said it did not know of the downstream steps, and Absa obtained a "tax benefit" when the arrangement is assessed stripped of its avoidance features. It is the first judgment interpreting sections 80A to 80L since their 2006 amendment.
Do you have to know about every step of a scheme to be a "party" under the GAAR?
No, on the majority judgment. The Court held that section 80L asks whether an entity "participates" in the arrangement, not whether it knows each sub-step; participation is objective involvement in a constitutive step. Rogers J dissented, taking the view that a person cannot participate in an arrangement of which they do not know.
What is the correct counterfactual for a "tax benefit"?
The majority held that the comparison is not with "no transaction", but with the transaction stripped of its avoidance features. On that comparison, Absa’s tax-exempt dividends were, in substance, taxable interest, so a tax benefit arose.
Is the Absa judgment binding?
Yes. It is a majority judgment of the Constitutional Court, the highest court in South Africa, and binds all lower courts. It was decided by nine judges, with one judge (Rogers J) dissenting on the "party" issue.
Related: Dividend stripping and the GAAR — how the Tax Court applied these principles to a company sale.
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This article is general legal information, not legal or tax advice for a specific matter. It reports the majority judgment in Absa Bank Ltd and Another v CSARS [2026] ZACC 15 (Majiedt J, with Rogers J dissenting on the party issue). Quoted extracts are reproduced from the reported judgment on SAFLII with paragraph references. For advice on a particular arrangement, contact martin@mjkinc.co.za.
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Why you can trust this: Martin Kotze has been an admitted Attorney of the High Court of South Africa, registered Conveyancer, and Notary Public since 2014, practising from Pretoria. The firm is regulated by the Legal Practice Council under firm registration 17444.
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