Abstract

The ground-breaking judgment of the Constitutional Court in Absa Bank Ltd and Another v Commissioner for the South African Revenue Service [2026] ZACC 15 is the first substantive Constitutional Court interpretation of South Africa’s current General Anti-Avoidance Rules in sections 80A to 80L of the Income Tax Act 58 of 1962 following their introduction in 2006. The case concerned a preference share funding structure under which Absa and its subsidiary, United Towers, received tax-exempt dividends. SARS invoked the GAAR and recharacterised those dividends as taxable interest, which resulted in litigation and this landmark decision. This article summarises the judgment, which is nothing short of iconoclastic in rejecting long-held, established views in tax circles concerning the GAAR. The article further identifies the principal practical implications of the decision. The majority adopted a broad and objective approach to the modern GAAR. It held, contrary to the conventional wisdom, that a taxpayer may be a ‘party’ to an impermissible avoidance arrangement even without knowledge of every downstream step, and that the relevant tax benefit may be determined by examining the arrangement stripped of its avoidance features. The article also considers three issues arguably left unresolved by the judgment: the threshold for ‘participation’ under section 80L; the distinction between a tax benefit and an economic benefit; and the correct construction of the GAAR counterfactual scenario. Rogers J dissented, taking a narrower view of both participation in an arrangement and the location of the relevant tax benefit. The dissenting judgment reflects the traditional view of the GAAR amongst tax practitioners. The decision of the Constitutional Court is likely to affect many financing transactions which previously had been considered tax-efficient and immune from attack under the GAAR, and in particular those involving preference share funding.