The Constitutional Court of South Africa dismissed ABSA Bank Limited’s appeal in a structured investment tax dispute, upholding SARS’s GAAR-based recharacterisation of income.
The Constitutional Court of South Africa has dismissed the appeal in Absa Bank Ltd and Another v CSARS (CCT 72/24), a case concerning a ZAR 1.9 billion structured investment scheme, in a judgment delivered on 22 April 2026.
The dispute involved ABSA Bank Limited and its subsidiary United Towers (Pty) Limited, which invested between 2011 and 2015 in preference shares issued through PSIC3 under an arrangement designed by the Macquarie Group. The funds were routed through a series of intermediaries, including PSIC4 and the D1 Trust, and linked to Brazilian government bond interest swaps. The structure converted what would ordinarily be taxable interest income into tax-free dividend income.
SARS later determined that the arrangement constituted an impermissible avoidance arrangement under the Income Tax Act 1962 (ITA) and issued additional assessments in 2019, recharacterising ABSA’s tax-exempt dividends as taxable interest.
ABSA challenged the assessments, arguing it was not a “party” to the broader scheme as it had no knowledge of downstream transactions and did not obtain a tax benefit, only an economic return.
The Constitutional Court rejected these arguments. It held that, for purposes of the General Anti-Avoidance Rules (GAAR), a taxpayer does not need to know every step in a complex arrangement. It is sufficient if the taxpayer’s conduct forms a constitutive link in the causal chain of an arrangement that produces a tax advantage. The Court also found that ABSA obtained a tax benefit, as its returns would otherwise have been treated as taxable interest rather than tax-exempt dividends.
The Court affirmed SARS’s authority to apply GAAR on a substance-over-form basis and to recharacterise transactions designed primarily for tax avoidance. The appeal was dismissed with costs, upholding SARS’s assessments.
