Absa and the Modern GAAR: What the Landmark Judgment of the Constitutional Court Regarding the post- 2006 GAAR Means for Taxpayers

by | Jul 16, 2026 | BTCLQ, BTCLQ V17 I2

Absa and the Modern GAAR: What the Landmark Judgment of the
Constitutional Court Regarding the post-2006 GAAR Means for Taxpayers

Author: Milton Seligson SC

ISSN: 2219-1585
Affiliations: Honorary Member, Cape Bar; Michael Rudnicki, Executive, Bowmans; and Mohammed Makda, Candidate Attorney, Bowmans
Source: Business Tax & Company Law Quarterly, Volume 17 Issue 2, 2025, p. 1 – 13

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.

The Sanctity of a GAAR Assessment: Why SARS Cannot Alter the Basis for its Determination

by | Jul 16, 2026 | BTCLQ, BTCLQ V17 I2

The Sanctity of a GAAR Assessment: Why SARS Cannot Alter the Basis for its Determination

Author: Fareed Moosa

ISSN: 2219-1585
Affiliations: Professor: Department of Mercantile & Labour Law, Faculty of Law, Univ ersity of
the Western Cape
Source: Business Tax & Company Law Quarterly, Volume 17 Issue 2, 2025, p. 14 – 24

Abstract

The GAAR provisions in the Income Tax Act 58 of 1962 (the ITA) empower the Commissioner of SARS to deal effectively with schemes of arrangement which have the undesirable effect of avoiding, through artificial means, an income tax liability that would otherwise accrue. Section 80B(1) of the ITA authorises the Commissioner to raise an additional or compensatory assessment which is geared to counteract the consequences of an offending scheme. Before issuing any such assessment, the Commissioner must be satisfied that facts exist which indicate the existence of a transaction, operation, scheme, agreement, or understanding whose sole or main purpose is to obtain a tax benefit and that the ‘arrangement’ was entered into or carried out in a manner which would not normally be employed for bona fi de business purposes, other than obtaining a tax benefit. In its recent decision in CSARS v Erasmus, the SCA authoritatively held that in matters where the Commissioner seeks to justify a GAAR assessment on a different factual basis from that relied on when the power in section 80B(1) was exercised, then the Commissioner is, by law, obliged to withdraw the disputed assessment and issue another in its stead based on the different facts which he aims to use for that purpose. In any such instance, the Commissioner must follow the procedure laid down in section 80J(4). This article argues that the approach adopted in CSARS v Erasmus supra upholds the sanctity of a GAAR assessment and that the Commissioner cannot willy-nilly change the basis of any such assessment, and certainly not without following due process of law. The author motivates the view that the decision of the SCA gives meaningful expression and effect to fairness and justice, both of which are basic tenets engrained in the rule of law and in the resolution of tax disputes in accordance with section 34 of the Constitution. The article concludes that the SCA was correct in holding that the Commissioner cannot be permitted to raise a GAAR assessment on one set of facts, but then be allowed to justify that assessment, in the course of appeal proceedings to the Tax Court, on a materially different set of facts.

VAT Apportionment: The Good, the Bad and the Not so Ugly

by | Jul 16, 2026 | BTCLQ, BTCLQ V17 I2

VAT Apportionment: The Good, the Bad and the Not so Ugly

Author: Des Kruger & Joon Chong

ISSN: 2219-1585
Affiliations: Consultant, Webber Wentzel; Partner, Webber Wentzel
Source: Business Tax & Company Law Quarterly, Volume 17 Issue 2, 2025, p. 25 – 37

Abstract

This article examines the scope and operation of VAT apportionment under the Value-Added Tax Act, with particular focus on selected topics, namely the treatment of capital gains, interest, dividends and distributions from trusts. BGR (binding general ruling) 16 prescribes the apportionment formula that is required to be applied where goods or services are acquired only partly for the purpose of making taxable supplies, namely the turnover-based method of apportionment. The apportionment ratio is essentially the ratio of the value of all taxable supplies to the aggregate value of (i) taxable supplies, plus (ii) exempt supplies, plus (iii) the sum of any other amounts of income derived by the vendor, whether in respect of a supply or not, in the tax period. BGR 16 nevertheless recognises that to include all amounts without taking into account their uniqueness would not result in a fair and reasonable apportionment, and the ruling accordingly provides for certain exclusions and adjustments. Specifically excluded from the apportionment formula are amounts derived in respect of the supply of capital assets because, as accepted in BGR 16, including such income would distort the apportionment ratio. BGR 16 provides useful guidelines for determining the nature of a receipt of a capital nature, with some reliance on the ‘tests’ developed by our courts in deciding whether a receipt is of a capital or revenue nature for income tax purposes. As regards interest income, BGR 16 provides for certain adjustments. Where the vendor carries on lending activities, that is, borrows money to on-lend, the ruling permits vendors to adopt the net interest approach. This approach allows the vendor to deduct interest paid from interest received prior to inclusion of the net amount of exempt income in the denominator. (The use of gross interest instead of net interest in the denominator would have reduced the vendor’s apportionment percentage.) Importantly, provision is made for situations where no interest is charged or paid, such as where moneys are lent from own resources and where loans are made between connected persons. These required adjustments are often overlooked in practice. As regards vendors who derive interest in consequence of their investment activities (whether investing in equities, cash or other financial instruments), the exempt interest need only be included on the basis of: interest received for the year x (Prime Rate — JIBAR). The rationale for this differential (Prime Rate — JIBAR), which recurs throughout BGR 16, is that it serves as a proxy for the value of the vendor’s own intermediation activity rather than the gross return on the underlying funds: JIBAR broadly approximates the cost of funding and the prime rate the rate at which funds are on-lent or invested, so the spread isolates the margin attributable to the activity that consumes the mixed-purpose resources, while excluding the underlying capital return that would otherwise overstate exempt turnover in the denominator and distort the apportionment ratio. Whilst dividends are generally not included in apportionment methods in other VAT jurisdictions, BGR 16 specifically includes dividends in the denominator (thereby reducing the apportionment percentage). BGR 16 notes that the investment activity associated with the holding of investments (whether in subsidiaries or associated companies, for example) must be fairly reflected in the apportionment formula. BGR 16 requires that dividends must be included on the basis of: a 3-year moving average of dividends received x (Prime Rate — JIBAR). Provision is also made for proxies where, for example, dividends are not received in the relevant periods, and where adjustments are required to be made to interest receipts. These proxies and their attendant effect on the apportionment are also often overlooked in practice. It is doubtful if this situation is mandated in the legislation. BGR 16 does not deal with distributions from trusts. However, in interactions with the authors of the article, SARS has indicated that it does not accept that the conduit principle applies and argues that the distributions must be dealt with on the same basis as dividend receipts, that is, ignoring the nature of the individual components of the distribution (interest, dividends or capital gains). The article motivates the position that it is strongly arguable that the conduit principle does apply and that the components of the distribution, such as capital gains, interest and dividends should fall to be dealt with on the same basis as those amounts that are individually dealt with in BGR 16.

The Travel Allowance Deduction and the Electric Vehicle: A Drafting Gap in Section 8(1)(b)

by | Jul 16, 2026 | BTCLQ, BTCLQ V17 I2

The Travel Allowance Deduction and the Electric Vehicle: A Drafting Gap in Section 8(1)(b)

Author: Karel Jacobus Burger Engelbrecht

ISSN: 2219-1585
Affiliations: University of Johannesburg
Source: Business Tax & Company Law Quarterly, Volume 17 Issue 2, 2025, p. 38 – 44

Abstract

The travel allowance deduction under section 8(1)(b) of the Income Tax Act 58 of 1962 is technology-neutral on its face, and an electric vehicle (EV) is a ‘motor vehicle’ for purposes of the section. The right to claim the deduction therefore exists. The harder question is how the deduction is calculated, given that both the actual-cost method under section 8(1)(b)(ii) and the deemed-cost method under section 8(1)(b)(iii) were drafted with the internal combustion engine in mind. The deemed-cost Schedule published annually under the section embeds petrol pump prices in its fuel-cost component, and Interpretation Note 14 (Issue 5) makes no reference to EVs. This article argues that the deemed-cost method, applied to an EV, produces a material over-recovery of the taxpayer’s actual energy cost, and that the actual-cost method leaves EV taxpayers in an evidentiary vacuum. The article proposes targeted amendments to the Schedule and to SARS guidance to align the regime with the policy direction set by the Just Energy Transition Partnership and by section 12V.