Authored By: Shrreya Subban
University of Witwatersrand
Case Citation and Basic Information
Full case name: ABSA Bank Limited and United Towers (Pty) Limited v Commissioner for the South African Revenue Service
Citation: [2026] ZACC 15
Court: Constitutional Court of South Africa
Date of decision: 22 April 2026
Bench: Mlambo DCJ, Kollapen J, Majiedt J, Mathopo J, Mhlantla J, Musi AJ, Rogers J, Savage AJ, Theron J, and Tshiqi J (10 Judges)
Introduction
The Constitutional Court’s judgement in ABSA Bank Ltd and Another v Commissioner for the South African Revenue Service [2026] ZACC 15 is a landmark decision in South African tax law on 22 April 2026, it marks the first occasion on which any court has been called upon to interpret the General Anti-Avoidance Rules (GAAR). This was amended and consolidated in sections 80A to 80L of the Income Tax Act 58 of 1962 (ITA). The last amendment was in 2006.[1] The case arose from a complex structured finance arrangement involving ABSA Bank Limited (ABSA) and its subordinate, in which the South African Revenue Services (SARS) assessed both entities under the GAAR despite ABSA’s disagreement that it had no knowledge of the process and steps in the arrangement that generated the alleged tax benefit. The Court’s majority adopted a purposive and expansive interpretation of the GAAR, holding that neither knowledge of the steps in the arrangement nor personal receipt of a tax benefit is required for a tax payer to fall within its reach.[2] The fundamental decision reshapes the landscape of tax avoidance law in South Africa and carries far-reaching implications for banks and financial institutions participating in structured finance transactions.
Facts of the Case
The dispute arose from a number of events of structured preference share investments made between 2011 and 2015. ABSA and it’s owned subordinate, United Towers (Pty) Limited, entered into four preference share subscription agreements with PSIC Finance 3 (RF) (Pty) Limited (PSIC 3), investing a total of R1.9 billion. In return, ABSA received tax-exempt dividends on these preference shares. The transactions were introduced to ABSA by the Macquarie Group, and ABSA concluded related agreements with Macquarie Securities South Africa Limited (MSSA) directly, when in fact they were with PSIC Finance 4 (RF) (Pty) Limited.[3]
Unbeknown to ABSA and the United Towers, the invested funds flowed well beyond PSIC 3. The funds passed through PSIC 4 and into the Delta 1 Finance Trust (D1 Trust), which lent the funds to MSSA through interest-bearing notes. The D1 Trust received interest payments from MSSA on these notes, which it used to acquire the Brazilian government bond interest through buy/sell-back transactions with a bank. This bond interest was distributed to PSIC 4 as non-taxable income under the South Africa-Brazil double tax agreement and section 25B of the ITA, and was ultimately distributed upwards as tax-exempt dividends to PSIC 3 and then to ABSA.[4] The practical effect of this structure was to convert what would otherwise have been taxable interest income into tax-exempt dividend income. ABSA claimed that it had no knowledge of this conversion.
In 2018, SARS issued audit notifications to ABSA and United Towers, seeking information on PSIC 4, the D1 Trust, and the Brazilian bond transactions.[5] ABSA responded that it was not aware of these entities. Following the audit, SARS issued notices under section 80J of the ITA, stating its intention to disregard the intervening entities and to re-characterise the tax-exempt dividend income received by ABSA as taxable interest income. In 2019, SARS issued formal assessments for the 2014 to 2018 financial years, alleging that ABSA and United Towers were parties to an impermissible avoidance arrangement under the GAAR and that the arrangement resulted in a tax benefit within the meaning of section 1 of the ITA.[6]
ABSA challenged the assessments by way of review in the High Court, Gauteng Division, Pretoria, arguing that the assessments were flawed on: first, that it could not be a “party” to the arrangement under section 80L of the ITA, given its ignorance of the downstream steps; and second, that it had not personally received a “tax benefit” as defined. The High Court set aside the assessments. SARS appealed to the Supreme Court of Appeal, which overturned the High Court’s decision on jurisdictional grounds.[7] The Constitutional Court subsequently confirmed the High Court’s jurisdiction and directed that the substantive merits be determined, bringing the matter before the Court in its present form.[8]
Legal Issues
The Constitutional Court was called upon to determine two central legal issues:
Issue 1: Whether Absa Bank Limited and United Towers (Pty) Limited were “parties” to an impermissible avoidance arrangement as contemplated in section 80A, read with section 80L of the Income Tax Act 58 of 1962, in circumstances where they had no knowledge of the downstream steps in the arrangement through which the alleged tax benefit was achieved.
Issue 2: Whether SARS could lawfully invoke the General Anti-Avoidance Rules against a taxpayer who did not personally obtain a “tax benefit” as defined in section 1 of the Income Tax Act 58 of 1962, but who allegedly received an enhanced financial return derived from a tax benefit obtained by other entities within the arrangement.
Arguments Presented
- ABSA’s Arguments
Absa advanced two principal contentions in support of setting aside SARS’ assessments.
On the party issue, Absa submitted that it could not lawfully be regarded as a “party” to an impermissible avoidance arrangement under section 80L of the ITA in circumstances where it had no knowledge of the downstream steps (specifically, the transactions involving PSIC4, the D1 Trust, and the Brazilian bond arrangements) through which the alleged tax benefit was achieved.[9] Absa argued that knowledge of the steps generating the tax benefit is an essential legal requirement for participation in an arrangement within the meaning of the GAAR, and that SARS’ own assessment letter acknowledged that Absa’s internal documents made no reference whatsoever to PSIC4, the D1 Trust, or any of the transactions undertaken by them.[10] Since SARS could not proclaim that Absa knew of these steps, the assessments were, on their own factual premises, fatally defective.
On the tax benefit issue, Absa contended that the tax benefit identified by SARS arose at the level of the D1 Trust and PSIC4, not at the level of Absa itself.[11] Relying on the earlier decisions in King, Hicklin, and Sasol Oil, Absa argued that a “tax benefit” must be interpreted as the avoidance of the assessed taxpayer’s own anticipated tax liability, applying a “but-for” test: would the taxpayer, excluding the arrangement, have incurred the tax in question?[12] On this test, Absa maintained that it had received only a financial benefit, not a tax benefit, and that a taxpayer who does not personally avoid an anticipated tax liability can never be subjected to a GAAR assessment.[13]
- SARS’ Arguments
SARS advanced an expansive interpretation of both the “party” and “tax benefit” requirements under the GAAR.
On the party issue, SARS submitted that a total of thirteen entities participated in the scheme, which was a predetermined arrangement designed to swap a taxable income stream into a tax-free income stream.[14] SARS argued that Absa’s participation consisted of its investment in the scheme and its derivation of an enhanced income stream from it, conduct that constituted “taking part” in an arrangement within the meaning of section 80L, irrespective of Absa’s knowledge of its downstream mechanics.[15]
On the tax benefit issue, SARS contended that Absa had itself obtained a tax benefit, properly understood. Relying on section 80G of the ITA, SARS submitted that the scheme was presumed to have been entered into for the sole or main purpose of obtaining a tax benefit.[16] SARS further argued that the correct counterfactual comparison was not between the arrangement and no transaction at all, but between the arrangement and the same transaction stripped of its avoidance features, on which basis that Absa’s investment returns would have been taxable interest rather than tax-exempt dividends, and Absa had plainly benefited from the avoidance structure.[17]
Court’s Reasoning and Analysis
Majority Judgment (Majiedt J)
The majority approached both central issues through a purposive and objective interpretive lens, grounding its analysis in the text, context, and legislative history of the GAAR provisions.
On the threshold question, the majority first established that the arrangement before it constituted an impermissible avoidance arrangement under section 80A of the Income Tax Act. The 2006 amendment to the GAAR, it held, deliberately moved away from the subjective purpose test that had characterised the predecessor provision, section 103(1), toward an objective enquiry focused on the economic substance and effect of the arrangement rather than on the taxpayer’s stated intentions.[18] The majority emphasised that the 2006 reforms were enacted precisely because the previous GAAR had proven an ineffective dissuasion. This meant it was susceptible to manipulation because taxpayers could too easily justify the commercial purpose of even artificial structures.[19] On the party issue, the majority rejected Absa’s argument that knowledge of all steps in an arrangement is a precondition to being a “party” under section 80L. Majiedt J adopted a broad, purposive construction of the phrase “participates or takes part in an arrangement”, holding that participation is an objective rather than epistemic enquiry: the question is not whether the taxpayer cognitively apprehended each downstream step, but whether, viewed objectively, the taxpayer’s conduct formed a constitutive link in the composite arrangement generating the avoidance result.[20] The majority drew particular attention to the Legislature’s deliberate use of the phrase “any party” (a formulation of an intentionally wide scope) and noted that, if a knowledge requirement had been intended, Parliament could easily have adopted familiar language such as “knows or ought reasonably to have known”, as it had done in other statutes.[21] The majority further observed that to accept a knowledge requirement would create a dangerous precedent enabling financial institutions to profit from avoidance arrangements while deliberately remaining ignorant of their downstream mechanics (precisely the mischief the 2006 amendments sought to foreclose).[22] On the objective facts, Absa’s capital injection was the indispensable enabler of the downstream avoidance steps; without it, no avoidance would have been possible.[23]
On the tax benefit issue, the majority held that the correct counterfactual comparison under the GAAR is not between the actual arrangement and no transaction at all, but between the actual arrangement and the same transaction stripped of its avoidance features.[24] On this basis, once the artificial downstream steps were removed, what Absa received was economically equivalent to taxable interest income dressed up in dividend form, and Absa had therefore plainly obtained a tax benefit. The majority drew support from Canadian and Australian comparative jurisprudence, particularly the Supreme Court of Canada’s decision in Copthorne Holdings, which applied the GAAR to taxpayers who did not know all steps in a series of transactions, provided their participation formed part of the objective avoidance chain.[25]
Dissenting Judgment (Rogers J)
Rogers J dissented on both issues. On the party issue, he reasoned that one cannot participate or take part in an arrangement of which one has no knowledge, a proposition he regarded as axiomatic.[26] Drawing on Lord Denning’s dictum in Newton, he argued that an “arrangement” necessarily implies understanding between persons, and that the shift to an objective purpose test says nothing about who the parties to an arrangement were, only about how their purpose is assessed once participation is established.[27]
On the tax benefit issue, Rogers J held that the benefit identified by SARS (the Brazilian interest swap) resulted to the D1 Trust and PSIC4, not to Absa. Absa received exempt dividends regardless of the downstream tax treatment, and was insulated by a gross-up guarantee; its position was entirely unrelated to the tax treatment of other elements of the arrangement.[28]
The Judgement and the Ratio Decidendi
The Decision
The Constitutional Court dismissed the appeal with costs, including the costs of two counsel, and upheld SARS’ assessments against Absa Bank Limited and United Towers (Pty) Limited for the 2014 to 2018 financial years.[29] On the party issue, the Court held that Absa and United Towers were parties to an impermissible avoidance arrangement within the meaning of sections 80A and 80L of the Income Tax Act, notwithstanding their lack of knowledge of the downstream steps through which the tax benefit was achieved.[30]
On the tax benefit issue, the Court held that Absa had obtained a tax benefit within the meaning of section 1 of the ITA, on the basis that the correct counterfactual comparison revealed that what Absa received was economically equivalent to taxable interest income restructured into tax-exempt dividend form.[31] No specific compliance directions or remedial orders beyond the costs order were issued, as the matter was determined on review of the legal validity of SARS’ assessments rather than as a substantive tax appeal.[32]
Ratio Decidendi
The ratio decidendi of the majority judgment operates on two levels, corresponding to the two central issues.
On the party issue, the ratio is that participation in an impermissible avoidance arrangement is an objective enquiry, assessed by reference to whether the taxpayer’s conduct formed a constitutive part of the composite arrangement that generated the avoidance result; irrespective of whether the taxpayer had knowledge of all steps in the arrangement.[33] A taxpayer cannot escape GAAR liability by pleading ignorance of downstream steps in a structured transaction in which its capital participation was objectively indispensable.
On the tax benefit issue, the ratio is that the existence of a tax benefit under the GAAR must be assessed by comparing the actual arrangement with the same arrangement stripped of its avoidance features, rather than by comparing it with no transaction at all.[34] On this objective counterfactual test, a taxpayer who receives economically enhanced returns obtains a tax benefit for the purposes of the GAAR, even if those avoidance steps were undertaken by third parties.
Combined, the ratio decidendi establishes that the GAAR, as amended in 2006, operates as a broadly purposive anti-avoidance instrument: both the concept of “party” and the concept of “tax benefit” are to be interpreted objectively, by reference to the economic substance and effect of the composite arrangement, rather than by reference to the subjective knowledge or personal tax position of the individual taxpayer.[35]
Critical Analysis
Significance of the Decision
Absa Bank Ltd and Another v Commissioner for SARS [2026] ZACC 15 is the most significant development in South African tax avoidance law since the 2006 amendment of the GAAR. Prior to this judgment, the GAAR provisions in sections 80A to 80L of the ITA had never been authoritatively interpreted by any court, leaving the scope of the post-2006 regime substantially uncertain.[36] The decision resolves this uncertainty in two important respects: it definitively establishes that the 2006 amendments replaced the subjective purpose test of the predecessor provision with an objective enquiry into economic substance, and it provides authoritative guidance on the meaning of both “party” and “tax benefit”, the two definitional gatekeepers through which SARS must pass before invoking the GAAR against any taxpayer.
The decision also aligns South African GAAR jurisprudence with the prevailing approach in comparable common law jurisdictions. The majority’s reliance on the Supreme Court of Canada’s decision in Copthorne Holdings and on Australian GAAR jurisprudence reflects a deliberate convergence with international anti-avoidance principles, placing South Africa firmly within the mainstream of jurisdictions that approach general anti-avoidance provisions as broadly purposive instruments directed at economic substance rather than legal form.[37]
Implications and Impact
The practical implications of this decision for South African financial institutions are immediate and far-reaching. The majority’s rejection of a knowledge requirement for GAAR “party” status imposes a significant due diligence obligation on banks and institutional investors participating in structured finance transactions: it is no longer sufficient to focus only on the legal steps to which one is a direct party. A financial institution whose capital forms an objectively indispensable part of a composite arrangement may now be assessed under the GAAR even where it had no knowledge of the downstream avoidance mechanics.[38]
This has a direct bearing on common financial instruments such as preference share investments, repurchase agreements, and other structured products where financial institutions regularly invest without full visibility of how funds are applied downstream. The decision in effect requires such institutions to conduct enhanced due diligence into the full economic architecture of arrangements they fund, or to seek contractual protection against GAAR exposure from the promoters of such arrangements.[39] The decision has already attracted significant attention from tax practitioners, who have noted that it substantially narrows the scope for financial institutions to rely on “I didn’t know” as a protection against GAAR assessments.[40]
Critical Evaluation
The majority judgment is compelling in its purposive approach and its concern for the integrity of South Africa’s anti-avoidance framework. The observation that a knowledge requirement would encourage deliberate structured ignorance, enabling financial institutions to profit from avoidance while maintaining plausible deniability, identifies a genuine policy risk and provides a sound practical justification for the Court’s objective approach.[41]
However, Rogers J’s dissent raises a genuinely powerful objection: the concept of “arrangement” implies an understanding between persons, and it is difficult to say that a party participates in a transaction it does not know exists.[42] The majority’s response (that the objective purpose test governs how purpose is assessed, not who the parties are) is logically coherent but does not fully address the intuitive force of Rogers J’s point. A taxpayer who is objectively ignorant of the avoidance elements of an arrangement is in a materially different position from one who designs or knowingly executes it, and the majority’s broad objective test may catch both with equal force. The ratio as stated holds that any taxpayer whose participation is “constitutively indispensable” to an avoidance arrangement may be assessed under the GAAR, regardless of the degree of their knowledge or the size of their benefit. This potentially exposes investors, whose capital enables downstream avoidance, to the same GAAR consequences as deliberate architects of tax avoidance schemes.
Conclusion
Absa Bank Ltd and Another v Commissioner for the South African Revenue Service [2026] ZACC 15 is a crisis in South African tax law. The Constitutional Court’s first authoritative interpretation of the post-2006 GAAR establishes two foundational principles: that participation in an impermissible avoidance arrangement is assessed objectively, without reference to a taxpayer’s knowledge of all steps in the arrangement; and that the existence of a tax benefit is determined by comparing the actual arrangement with the same arrangement stripped of its avoidance features, rather than with no transaction at all. Taken together, these principles confirm that the 2006 GAAR amendments created a genuinely broad and purposive anti-avoidance instrument, one that courts will interpret expansively in favour of economic substance over legal form.
The lasting significance of this judgment lies in the due diligence burden it places on South African financial institutions. Banks and institutional investors can no longer confine their legal risk assessment to the steps in which they directly participate. The 9–1 majority leaves little doubt about the direction of South African anti-avoidance law, but Rogers J’s powerful dissent signals that the boundaries of GAAR “party” status remain an area of live legal debate. Future litigation and legislative clarification will be needed to determine whether the absence of any proportionality mechanism in the majority’s formulation produces outcomes that are fair as well as legal.
Bibliography
Cases
Absa Bank Ltd and Another v Commissioner for the South African Revenue Service [2026] ZACC 15
Absa Bank Limited v Commissioner for the South African Revenue Service [2021] ZAGPPHC (High Court, Gauteng Division)
Commissioner for Inland Revenue v I H B King; Commissioner for Inland Revenue v A H King 1947 (2) SA 196 (A)
Commissioner for Inland Revenue v Conhage (Pty) Ltd (formerly Tycon (Pty) Ltd) [1999] ZASCA 64; 1999 (4) SA 1149 (SCA)
Commissioner for the South African Revenue Service v Absa Bank Limited [2023] ZASCA 125; 2024 (1) SA 361 (SCA)
Copthorne Holdings Ltd v Canada 2011 SCC 63; [2011] 3 SCR 721
Hicklin v Secretary for Inland Revenue 1980 (1) SA 481 (A)
Newton v Commission of Taxation of Commonwealth of Australia [1958] 2 All ER 759 (PC)
Sasol Oil Proprietary Limited v Commissioner for the South African Revenue Service [2019] 1 All SA 106 (SCA)
United Manganese of Kalahari (Pty) Limited v Commissioner of the South African Revenue Service and four other cases [2025] ZACC 2; 2025 (5) BCLR 530 (CC)
Legislation
Income Tax Act 58 of 1962 (South Africa), ss 80A–80L
Tax Administration Act 28 of 2011 (South Africa), s 105
Secondary Sources
Bizcommunity, ‘ConCourt sets precedent with first GAAR interpretation, Absa loses appeal’ (Bizcommunity, 29 April 2026) https://www.bizcommunity.com/article/concourt-sets-precedent-with-first-gaar-interpretation-absa-loses-appeal-514900a accessed 21 June 2026
Daily Maverick, ‘Understanding the Absa GAAR judgment and its tax implications’ (Daily Maverick, 20 May 2026) https://www.dailymaverick.co.za/article/2026-05-20-understanding-the-absa-gaar-judgment-and-its-impact-on-tax-avoidance-practices/ accessed 21 June 2026
Deloitte South Africa, ‘A lack of knowledge is no defence’ (Deloitte, 24 April 2026) https://www.deloitte.com/za/en/services/tax/perspectives/a-lack-of-knowledge-is-no-defence.html accessed 21 June 2026
ENSafrica, ‘Constitutional Court gives a new reach to the GAAR in Absa case’ (ENSafrica, 23 April 2026) https://www.ensafrica.com/news/detail/11698/constitutional-court-gives-a-new-reach-to-the accessed 21 June 2026
ENSafrica, ‘Looking beyond the headline: the Absa GAAR judgment explained’ (Mondaq, 26 May 2026) https://www.mondaq.com/southafrica/income-tax/1788722/looking-beyond-the-headline-the-absa-gaar-judgment-explained accessed 21 June 2026
Moneyweb, ‘Absa loses landmark tax battle at ConCourt’ (Moneyweb, 23 April 2026) https://www.moneyweb.co.za/mymoney/moneyweb-tax/absa-loses-landmark-tax-battle-at-concourt/ accessed 21 June 2026
Pidduck N and Swanepoel T, ‘”Semantic gyrations” — When are Naartjies Oranges? Beneath the Surface of Absa Bank Limited v CSARS’ (2022) 33 SA Mercantile Law Journal 470
Shepstone & Wylie, ‘Absa Judgment’ (Shepstone & Wylie, 6 May 2026) https://www.wylie.co.za/Articles/Read/11530/ABSA-JUDGEMENT accessed 21 June 2026
[1] Income Tax Act 58 of 1962 (South Africa), ss 80A–80L; Absa Bank Ltd and Another v Commissioner for the South African Revenue Service [2026] ZACC 15 para 1.
[2] Absa Bank Ltd and Another v Commissioner for the South African Revenue Service [2026] ZACC 15 paras 60–78.
[3] Absa Bank Ltd and Another v Commissioner for the South African Revenue Service [2026] ZACC 15 paras 4–5.
[4] ibid paras 5–6.
[5] ibid para 7.
[6] ibid paras 8–9.
[7] Commissioner for the South African Revenue Service v Absa Bank Limited [2023] ZASCA 125; 2024 (1) SA 361 (SCA) paras 31–35.
[8] United Manganese of Kalahari (Pty) Limited v Commissioner of the South African Revenue Service and four other cases [2025] ZACC 2; 2025 (5) BCLR 530 (CC) para 385.
[9] Absa Bank Ltd and Another v Commissioner for the South African Revenue Service [2026] ZACC 15 para 18.
[10] ibid para 18.
[11] ibid para 19.
[12] Commissioner for Inland Revenue v I H B King; Commissioner for Inland Revenue v A H King 1947 (2) SA 196 (A); Hicklin v Secretary for Inland Revenue 1980 (1) SA 481 (A); Sasol Oil Proprietary Limited v Commissioner for the South African Revenue Service [2019] 1 All SA 106 (SCA); Absa [2026] ZACC 15 para 20.
[13] Absa [2026] ZACC 15 para 21.
[14] ibid para 22.
[15] ibid para 23.
[16] Income Tax Act 58 of 1962 (South Africa), s 80G; Absa [2026] ZACC 15 para 23.
[17] Absa [2026] ZACC 15 para 24.
[18] Absa Bank Ltd and Another v Commissioner for the South African Revenue Service [2026] ZACC 15 paras 50–51.
[19] ibid paras 33–34.
[20] ibid paras 53–57.
[21] ibid para 58.
[22] ibid para 60.
[23] ibid para 59.
[24] ibid paras 79–82.
[25] Copthorne Holdings Ltd v Canada 2011 SCC 63; [2011] 3 SCR 721 para 43; Absa [2026] ZACC 15 paras 109–110.
[26] Absa [2026] ZACC 15 para 122 (Rogers J dissenting).
[27] ibid paras 122–123, citing Newton v Commission of Taxation of Commonwealth of Australia [1958] 2 All ER 759 (PC).
[28] ibid paras 135–139.
[29] Absa Bank Ltd and Another v Commissioner for the South African Revenue Service [2026] ZACC 15, order at para 2.
[30] ibid paras 57–60.
[31] ibid paras 79–85.
[32] ibid, order at para 2.
[33] ibid paras 57–60.
[34] ibid paras 79–82.
[35] ibid paras 98–100.
[36] Absa Bank Ltd and Another v Commissioner for the South African Revenue Service [2026] ZACC 15 para 1; PWC South Africa, ‘Constitutional Court rules on General Anti-Avoidance Rules for first time’ (PWC, April 2026) https://www.pwc.co.za/en/press-room/general-anti-avoidance-rules.html accessed 21 June 2026.
[37] Copthorne Holdings Ltd v Canada 2011 SCC 63; [2011] 3 SCR 721; Absa [2026] ZACC 15 paras 109–110.
[38] Absa [2026] ZACC 15 paras 57–60; ENSAfrica, ‘ABSA Bank Ltd and Another v Commissioner for SARS’ (ENSAfrica Tax, April 2026) https://www.ensafrica.com/news/detail/4803/absa-bank-ltd-and-another-v-commissioner-for-sar accessed 21 June 2026.
[39] ENSAfrica (n 3).
[40] ibid.
[41] Absa [2026] ZACC 15 para 60.
[42] ibid para 122 (Rogers J dissenting).
