THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case no: 596/2021
In the matter between:
THE COMMISSIONER FOR THE SOUTH
AFRICAN REVENUE SERVICE APPELLANT
and
ABSA BANK LIMITED FIRST RESPONDENT
UNITED TOWERS PROPRIETARY
LIMITED SECOND RESPONDENT
Neutral citation: The Commissioner for the South African Revenue Service v
Absa Bank Limited and Another (596/2021) [2023] ZASCA
125 (29 September 2023)
Coram: DAMBUZA AP, SCHIPPERS , MATOJANE and GOOSEN JJA
and MALI AJA
Heard: 8 March 2023
Delivered: 29 September 2023
2
Summary: Tax law – General Anti-Avoidance Provisions – legality review of
refusal to withdraw a notice issued in terms of s 80J of Income Tax Act - s 9 of
Tax Administration Act –– subsequent assessments made in terms of s 80B of
Income Tax Act – review of failure to withdraw s 80J notices academic – review
of assessments not wholly question of law – high court lacking jurisdiction to
adjudicate review.
3
________________________________________________________________
ORDER
________________________________________________________________
On appeal from: Gauteng Division of the High Court, Pretoria (Sutherland
ADJP, sitting as court of first instance) reported sub nom Absa Bank Limited and
Another v Commissioner for the South African Revenue Service [2021]
ZAGPPHC 127; 2021 (3) SA 513 (GP):
1 The appeal is upheld with costs, including the costs of two counsel.
2 The orders of the high court are set aside and substituted with the following
order:
‘The application is dismissed with costs, including the costs of two counsel.’
________________________________________________________________
JUDGMENT
________________________________________________________________
Goosen JA (Dambuza AP, Schippers and Matojane JJA and Mali AJA
concurring):
[1] This appeal concerns the exercise of the High Court's review jurisdiction
in the context of a tax assessment raised in terms of s 80B of the Income Tax Act
58 of 1962 (the ITA). The Gauteng Division of the High Court, Pretoria (the high
court), set aside a decision by the Commissioner of the South African Revenue
Service (SARS), refusing to withdraw notices issued in terms of s 80J of the ITA
to the respondents, Absa Bank Limited (Absa) and its wholly owned subsidiary,
United Tower s Proprietary Limited (United Towers) , respectively. It also set
aside subsequent notices of assessment, issued in terms of s 80B of the ITA.
Leave to appeal was granted by the high court.
4
The facts
[2] It is common ground that Absa and United Towers entered into an
investment arrangement which involved a series of interlinked transactions , the
details of which are as follows. Absa and United Towers subscribed for
preference shares in PSIC Finance 3 (Pty) Ltd (PSIC3). The ir investment was
secured by other entities in the ‘group’. PSIC3 used the proceeds of the share
issue to subscribe for preference shares in PSIC Finance 4 (Pty) Lt d (PSIC4). In
turn PSIC4 made a capital contribution to Delta 1 Finance Trust ( D1 Trust). D1
Trust applied the capital contribution to make interest-bearing loans to Macquarie
Securities South Africa Ltd (Ma cquarie). The D1 Trust invested the interest
earned on the Macquarie loans in Brazilian Government Bonds , which in terms
of the Double Taxation Agreement between South Africa and Brazil, provided a
tax-free income stream to the D1 Trust. D1 Trust distributed the income stream
to P SIC4. The latter paid th is to P SIC3 as dividends, and P SIC3 in turn paid
dividends to Absa and United Towers.
[3] SARS initiated an investigation of the Macquarie Group investment
scheme during 2016. Pursuant to this investigation, it sought and obtained
information from Absa and United Towers. In May 2018, SARS issued notices
to Absa and United Towers in terms of s 42 of the Tax Administration Act 28 of
2011 (the TAA), signifying an audit of their tax affairs for the 2015, 2016 and
2017 years of assessment. These notices stated that the audit would relate to the
tax treatment of the dividends received by Absa and United Towers from PSIC3.
The audit notices included a request for further information in terms of s 46 of
the TAA. Absa and United Towers responded to these notices on 18 June 2018.
[4] On 30 November 2018, SARS issued notices to Absa and United Towers
in terms of s 80J of the ITA. The notices were, essentially, in identical terms.
5
They indicated that SARS had completed its preliminary audit of the arrangement
entered with entities in the Macquarie ‘group’. The notices set out an intention to
raise assessments in terms of the General Anti-Avoidance Rule (GAAR)
provisions of the ITA .1 Absa and United Towers were afforded a period of 60
days to respond to the preliminary audit findings.
[5] The response period w as extended , at the request of Absa and United
Towers, to 28 February 2019. On 15 February 2019, Absa and United Towers
submitted a request to SARS, in terms of section 9(1) of the TAA, to withdraw
the s 80J notices. Absa and United Towers also requested a further extension of
the period within which to respond to the notices, pending SARS's consideration
of its request for withdrawal of those notices. SARS duly extended the period to
31 March 2019. On 5 March 2019, SARS informed Absa and United Towers that
it was not withdrawing the s 80J notices. It stated that any objections they had to
the notices should be raised in submissions made in their responses to those
notices, as required by s 80J.
Proceedings before the high court
[6] On 29 March 2019, Absa and United Towers launched an application in
the high court seeking an order reviewing the decision not to withdraw t he
s 80 J notices and directing that the decision be substituted with one withdrawing
the notices, alternatively that the request for withdrawal be remitted to SARS (the
s 9 review). They simultaneously submitted their responses to the s 80J notices
to SARS in terms of s 80J (2) of the ITA. The s 9 review proceedings continued
while SARS was considering the responses to the s 80J notices.
1 These are s 80A to L of the ITA aimed at preventing abuse of certain sections of the Act through abnormal
arrangements, schemes, or agreements concluded with the main aim of obtaining tax benefits , including the
avoidance, postponement, or reduction of liability for tax.
6
[7] On 17 October 2019, SARS issued Letters of Assessment and Additional
Assessments to Absa and United Towers for the 2014, 2015, 2016 and 2017
tax years. It determined that they had participated in an avoidance arrangement
and assessed their tax liability on the basis that the ir investment returns in the
scheme constituted taxable income. After these additional assessments were
raised by SARS, Absa and United Towers applied for leave to amend the notice
of motion in the s 9 review, to extend its reach to include the review and setting
aside of the assessments (the assessment review). The application was opposed.
Leave was granted, however, and the application was broadened to include the
assessment review.
[8] The application was heard by the high court, which granted orders setting
aside the decisions not to withdraw the s 80J notices; withdrawing the notices;
and setting aside the additional assessments. The high court concluded that the
decisions refusing to withdraw the s 80J notices were subject to review based on
the principle of legality notwithstanding that the y were not final . It held, in
relation to the assessment review, that a taxpayer is not obliged only to pursue the
remedies for disputing tax liability as provided by s 104 of the TAA. The taxpayer
may apply directly to court for relief in exceptional circumstances. Exceptional
circumstances would include a dispute that turned wholly upon a point of law.
The high court found that the s 8 0J notices were premised upon an acceptance
that Absa and United Towers were ignorant of the terms of the arrangement or
scheme. Upon that premise they could not be parties to the avoidance
arrangement. It held further, that since the notices of assessment were issued upon
the factual premise of the s 80J notices, the assessments were tainted by an error
of law. The high court concluded that the s 80J notices and the assessments were
inextricably linked and, accordingly, set aside both sets of decisions.
7
The issues on appeal
[9] The appeal concerns two distinct review applications in a composite notice
of motion. The first relates to the refusal or failure to withdraw the s 80J notices
upon a request made in terms of s 9 of the TAA. It was founded upon the
contention that SARS was wrong in its view that the objections to the
s 80J notices raised by Absa and United Towers, should be addressed in their
responses to the notices. It was also contended that the principle of legality was
breached since the issuing of the notices was based upon an error of law. The
error was that Absa and United Towers were parties to an avoidance arrangement
even though they had no knowledge of the arrangement and had derived a tax
benefit from it, to which they would otherwise not have been entitled.
[10] The second review concerned the additional tax assessments raised by
SARS. This review engaged the exercise of the high court’s review jurisdiction
to set aside the assessments either under the Promotion of Administrative Justice
Act, Act 3 of 2000 (PAJA) or the principle of legality. It was founded upon the
same grounds as the attack on the s 80J notices.
[11] The following issues arise in relation to these two reviews:
(a) Is a ‘decision’ not to withdraw a s 80J notice reviewable in terms of s 9 of
the TAA, either prior to or after the issuing of a notice of assessment in terms of
s 80B of the ITA?
(b) Was the high court correct to characterize the challenge to the assessments
as wholly a question of law which entitled it to exercise its jurisdiction in terms
of s 105 of the TAA?
(c) Was the high court correct in its determination of the dispute?
8
The GAAR provisions
[12] Tax avoidance, whether in part or in whole, is not per se unlawful or
impermissible.2 Sections 80A to 80L of the ITA deal with arrangements entered
by a taxpayer which have the effect of conferring a tax benefit through the
avoidance of a tax liability that would otherwise accrue. These anti -avoidance
provisions confer upon SARS the authority to investigate the transactions and to
raise additional or compensatory assessments to counteract the consequences of
such avoidance schemes or arr angements. In terms of s 80A, an ‘avoidance
arrangement’ is defined as an impermissible avoidance arrangement if its sole or
main purpose was to obtain a tax benefit and,
‘. . .
(a) in the context of business-
(i) it was entered into or carried out by means of or in a manner which would not normally
be employed for bona fide business purposes, other than obtaining a tax benefit; or
(ii) it lacks commercial substance, in whole or in part …
(b) …
(c) in any context –
(i) it has created rights or obligations that would not normally be created between persons
dealing at arm’s length; or
(ii) it would result directly or indirectly in the misuse or abuse of the provisions of this
Act.’
[13] Section 80B allows the Commissioner to determine the tax consequences
of any impermissible avoidance arrangement. This is done by making
2 Commissioner for Inland Revenue v Conhage (Pty) Ltd (formerly Tycon (Pty) Ltd) 1999 (4) SA 1149 (SCA) (CIR
v Conhage ) para 1, where Hefer JA said, ‘Within the bounds of any anti -avoidance provisions in the relevant
legislation, a taxpayer may minimise his tax liability by arranging his affairs in a suitable manner. If, for example,
the same commercial result can be achieved in different ways, he may enter into the type of transaction which
does not attract tax or attracts less tax. But, when it comes to considering whether by doing so, he has succeeded
in avoiding or reducing the tax, the Court will give effect to the true nature and substance of the transaction a nd
will not be deceived by its form.’
9
compensating adjustments to assessments to ensure consistent treatment of all
parties to the arrangement. Section 80L defines important terms. An
‘arrangement’ includes any ‘transaction, operation, scheme, agreement or
understanding, including all steps therein or parts thereof .’ An ‘avoidance
arrangement’ is one that results in a tax benefit. A ‘party’ is any person, enti ty,
partnership, or joint venture who ‘participates in or takes part in an arrangement.’
[14] Section 80G(1) provides that an avoidance arrangement is presumed to
have been entered into or carried out for the sole or main purpose of obtaining a
tax benefit. A party obtaining a tax benefit is required to prove that, in the light
of the relevant facts and circumstances, obtaining a tax benefit was not the sole
or main purpose of the avoidance arrangement. Subsection (2) provides that the
purpose of a step in or part of an avoidance arrangement may be different from a
purpose attributable to the arrangement as a whole. In terms of s 80H, the
Commissioner may apply the GAAR provisions to steps in or parts of an
arrangement.
[15] Section 80J regulates the procedure to be followed prior to the
determination made in terms of section 80B. It provides , in peremptory terms
that:
‘ (1) The Commissioner must, prior to determining any liability of a party for tax under section
80B, give the party notice that he or she believes that the provisions of this Part may apply in
respect of an arrangement and must set out in the notice his or her reasons therefor.
(2) A party who receives notice in terms of subsection (1) may, within 60 days after the
date of that notice or such longer period as the Commissioner may allow, submit reasons to
the Commissioner why the provisions of this Part should not be applied.
(3) The Commissioner must within 180 days of receipt of the reasons or the expiry of the
period contemplated in subsection (2) -
(a) request additional information in order to determine whether or not this Part applies in
respect of an arrangement;
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(b) give notice to the party that the notice in terms of subsection (1) has been withdrawn; or
(c) determine the liability of that party for tax in terms of this Part.
(4) If at any stage after giving notice to the party in terms of subsection (1), additional
information comes to the knowledge of the commissioner, he or she may revise or modify his
or her reasons for applying this part or, if the notice had been withdrawn, give notice in terms
of subsection (1).’
The section 9 review
[16] Section 9(1) of the TAA provides that:
‘A decision made by a SARS official or a notice to a specific person issued by SARS under a
tax Act, excluding a decision given effect to in an assessment or a notice of assessment that is
subject to objection and appeal, may in the discretion of a SARS of ficial described . . . at the
request of the relevant person, be withdrawn …’
[17] The section appears in Part B of Chapter 2 of the TAA, under the heading
‘powers and duties of SARS and SARS officials’. It serves to describe
discretionary powers which may be exercised by SARS officials. It contains an
internal limiter. Decisions ‘given effect to in an assessment’ may not be
withdrawn. So too, a notice of assessment that is subject to objection and appeal.
The high court ventured a construction of the first category as relating to
‘assessments already given effect to.’ There is no need to interpret this section. It
was common cause that s 9 contemplates the withdrawal of a notice such as one
issued under s 80J. Indeed, s 80J(3) provides explicitly that such notice may be
withdrawn upon consideration of the taxpayer's response to the s 80J notice.
[18] The review of the refusal to withdraw the s 80J notices was launched
simultaneously with the submission of responses to the notices and some months
prior to the letters and notices of assessment issued in terms of s 80B of the ITA.
The application was founded upon two grounds. The first was that the
Commissioner’s contention that the objection to the notices ought to be raised in
11
the responses to the notices was wrong in law. It was averred that this approach
impermissibly limited the ambit of s 9 and that it denied a taxpayer a remedy
which was available to it. The second was that disagreement about the
interpretation and application of GAAR perpetuated the error of law in the issuing
of the notices. Absa and United Towers contended that since the notices would
have adverse effect irrespective of the issuing of assessments, the decision not to
withdraw them was reviewable.
[19] The high court accepted, correctly in my view, that the decision to issue a
s 80J notice was not a ‘final’ decision which placed any adverse burden upon the
recipient. It was, the high court held, plainly not administrative action as
contemplated by PAJA. The high court, however, found that a decision not to
withdraw a notice, even if not final, had adverse consequences. It held that such
a decision ‘was plainly a decision by an organ of stat e exercising a statutory
power and its notional non-final attribute is not a bar [to review] precisely because
it nevertheless had an impact’. The high court relied, in support of the proposition,
upon two judgments of this Court, namely Commissioner for the South African
Revenue Service v Langholm Farms (Pty) Ltd,3 and Commissioner for the South
African Revenue Service v United Manganese of Kalahari (Pty) Ltd. 4
[20] In those matters, however, the applicants sought declaratory relief relating
to the interpretation of statutory provisions. The expressed interpretation of the
provisions by SARS was held to be sufficiently definitive to warrant declaratory
relief despite the fact that no final administrative decision h ad been taken. The
circumstances of this matter are wholly different. In this case we are concerned
3 Commissioner for the South African Revenue Service v Langholm Farms (Pty) Ltd (1354/2018) [2019] ZASCA
163 (29 November 2019).
4 Commissioner for the South African Revenue Service v United Manganese of Kalahari (Pty) Ltd [2020] ZASCA
16; 2020 (4) SA 428 (SCA).
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with a decision not to withdraw a notice. The question is what effect or impact
the decision has upon the taxpayer concerned?
[21] The short answer, it seems to me, is that such decision itself can have no
adverse impact or affect. Its effect is to leave the s 80J notice in place until the
process contemplated by the section is completed. If the issuing of a notice does
not constitute administrative action susceptible to review then, as a matter of
logic, a decision to keep it extant cannot constitute administrative action.
[22] Section 80J(3) sets out the powers and obligations of the Commissioner in
relation to the application of the GAAR provisions. It contemplates three possible
decisions that might be taken by the Commissioner in relation to a response
submitted in terms of s 80J(2). The Commissioner may request further
information from the taxpayer, thus deferring a final decisi on regarding the
application of GAAR. In such a case, the s 80J notice necessarily remains extant
until the further information is received, and the Commissioner takes a final
decision. There are two possible final decisions. The notice may be withdrawn.
In that event the Commissioner must give notice to that effect. The process of
applying the GAAR provisions may be re -commenced, but then only upon the
issue of a new s 80J notice. If, as a matter of fact, the notice is not withdrawn, the
Commissioner must determine the taxpayer’s liability for tax within the time
period stipulated by the section. Once the Commissioner has decided the tax
liability under GAAR and has issued an assessment, the prior notice issued to the
taxpayer c eases to have any relevance, save to the extent that its existence
evidences the peremptory requirements of s 80J. Its content may be relevant in
proceedings consequent upon the issuing of the assessment. Apart from this, the
s 80J notice, is overtaken by events. At that stage the taxpayer is faced with a
final decision to impose a tax liability by assessment. It must then be dealt with
13
in accordance with the prescribed dispute resolution procedure provided by s 104
of the TAA.
[23] Section 80J(3) does not contemplate a separate decision not to withdraw
the notice as a precondition for the decision to determine a tax liability under
s 80B. The statutory power exercised by the Commissioner is to determine a tax
liability under the GAAR provisions. Until that determination is made the issuing
of a s 80J notice or a refusal to withdraw it, can have no adverse effect or impact.
These steps are not reviewable . The high court, in my view, lost sight of the
provisions of s 80J(3). It ought to have found that a decision not to withdraw the
notice is not subject to review outside of a challenge to the decision to impose a
tax liability pursuant to s 80B of the ITA.
[24] It is not necessary to decide the ambit of s 9 of the TAA and to address the
‘jurisprudential bristles’ to which the high court referred. As I have stated the s 9
review, accepting for the sake of argument that it is competent, is, on the facts of
this case, entirely academic. Furthermore, for reasons which I shall set out below,
the substantive basis of the review of both the refusal to withdraw the notices and
the assessments is flawed, and the orders made in relation to the s 9 review cannot
stand.
The assessment review
[25] Two questions arise: was the high court correct to characterise the dispute
as wholly a question of law, and therefore exercise jurisdiction in terms of s 105
of the TAA? A negative answer is dispositive of the appeal since the high court
then did not have jurisdiction to review the assessments. The second question,
namely whether the high court was correct in its findings on the substantive
review, only arises if the first question is answered affirmatively.
14
[26] This Court has recently stated the law in relation to the interpretation and
application of s 105 in unequivocal terms. In Commissioner for the South African
Revenue Service v Rappa Resources (Pty) Ltd (Rappa Resources),5 Ponnan JA
stated that:
‘The purpose of s 105 is clearly to ensure that, in the ordinary course, tax disputes are taken to
the tax court. The high court consequently does not have jurisdiction in tax disputes unless it
directs otherwise. In Wingate-Pearse it was put as follows: “Tax cases are generally reserved
for the exclusive jurisdiction of the tax court in the first instance. But it is settled law that a
decision of the Commissioner is subject to judicial intervention in certain circumstances . . . In
its amended form, s 105 thus makes it plain that “unless a High Court otherwise directs”, an
assessment may only be disputed by means of the objection and appeal process.”’
[27] In this instance the high court recognised that it could only exercise its
jurisdiction in exceptional circumstances. It considered that a dispute concerning
a question of law would constitute an exceptional circumstance entitling it to
exercise its jurisdiction. It held that the dispute regarding the refusal to withdraw
the s 80J notices and the legality of the assessments, involved a question of law.
For this reason, it exercised its discretion to adjudicate the dispute.
[28] This Court in Rappa Resources endorsed the high court’s approach to the
exceptional exercise of its jurisdiction in terms of s 10 5 of the TAA. 6 The
question, however, is whether the high court was correct in its characterisation of
the nature of the dispute.
[29] The high court took the view that the s 80J notices and the assessments
were ‘inextricably linked’. It stated that the factual basis upon which SARS
5 Commissioner for the South African Revenue Service v Rappa Resources (Pty) Ltd (Rappa Resources) [2023]
ZASCA 28; 2023 (4) SA 488 (SCA) para 20. See also United Manganese of Kalahari (Pty) Ltd v Commissioner
for the South African Revenue Service (1231/2021) [2023] ZASCA 29 (24 March 2023).
6 Rappa Resources fn 5 above para 22.
15
decided to apply the GAAR provisions was set out in the notices. It held that
SARS had accepted the facts disclosed in the notices. On this basis, the high court
held that SARS did not dispute that Absa and United Towers had no knowledge
of the arrangement in which they had participated. They could therefore not have
been parties to an arrangement which, unknown to them, had sought to avoid the
payment of tax which they would otherwise have been required to pay. The high
court therefore found that the application of the GAAR provisions in
circumstances where they did not, as matter of fact, apply, was irrational and
offended the principle of legality. Neither the assessments nor the s 80 J notices
could stand.
[30] The high court’s finding that SARS had accepted the facts as stated by
Absa and United Towers, and in particular, their assertion that they had no
knowledge of the nature and ambit of the scheme or arrangement, is incorrect.
The notices do not state that SARS accepts the claim that Absa and United Towers
had no knowledge of the full ambit of the scheme. The notices set out reasons for
the belief that the GAAR provisions apply, no more. They are not statements of
the accepted factual basis for application o f the GAAR provisions. The
correspondence relating to the s 80J notices pertinently states that SARS disputes
the contentions raised by Absa and United Towers. These statements form part
of the reasons given by SARS as to why it would not withdraw the s 80J notices.
These averments are set out in the answering affidavits filed in opposition to the
s 9 review. These affidavits were filed prior to the issuing of the notices of
assessment which are the subject of the assessment review. There is accordingly
no room for the conclusion that SARS accepted that Absa and United Towers
were not parties to the avoidance arrangement. In the light of this the application
of the GAAR provisions was not solely a question of law.
16
[31] On the common cause facts Absa and United Towers participated in steps
forming part of an ‘arrangement’, the full ambit of which was described in the
s 80J notices. Whether they had knowledge of the full nature of the transactions
which comprised the arrangement, and whether their sole or main purpose in
participating was to secure a tax benefit, are matters of disputed fact. Whether the
‘arrangement’ constituted an ‘impermissible avoidance arrangement’ is a factual
enquiry. The same is true in respect of the ‘tax benefit’ requirement. Whether
Absa and United Towers obtained a tax benefit by avoiding an anticipated tax
liability that might otherwise have accrued from the transactions, is a question of
fact. It is not a mere question of law, determinable upon the basis of the
assessment as framed by SARS.
[32] In CIR v Conhage this Court held that the effect, purpose, and normality of
a transaction are essentially questions of fact.7 What must be determined in every
case is the subjective purpose of the taxpayer.8 In that matter the court was dealing
with s 103(1) of the ITA which contained an anti-avoidance provision pre-dating
the comprehensive GAAR provisions now set out in the ITA . Nevertheless,
similar considerations relating to the determination of the purpose and effect of
the transaction or arrangement applied.
[33] The high court predicated its finding that it had jurisdiction to review the
assessments on the basis that the challenge to the assessments involved solely a
question of law. That, as I have indicated, was incorrect. Since the dispute did not
involve solely a question of law, no exceptional circumstances existed to justify
the high court assuming jurisdiction in the matter. It follows that in relation to the
7 CIR v Conhage fn 1 above para 12.
8 Ibid.
17
assessment review, it did not have the required jurisdiction to deal with the matter.
The high court ought therefore to have dismissed the application.
[34] In the circumstances, the orders granted by the high court cannot stand.
The merits of any challenge to the notices of assessment must be adjudicated in
accordance with the dispute resolution process provided by s 104 of the TAA.
The appellant sought the costs of three counsel. Such order will only be made in
rare circumstances. This, however, is not such a matter. The employment of two
counsel was warranted.
[35] I make the following order:
1 The appeal is upheld with costs, including the costs of two counsel.
2 The orders of the high court are set aside and substituted with the following
order:
‘The application is dismissed with costs, including the costs of two counsel.’
____________________
G GOOSEN
JUDGE OF APPEAL
18
Appearances
For the appellant: A R Sholto-Douglas SC (with E W Fagan SC
and B E Mbikiwa)
Instructed by: State Attorney, Cape Town
State Attorney, Bloemfontein
For the respondents: M Janisch SC (with S Budlender SC
and L Mnqandi)
Instructed by: Allen & Overy, Sandton
Symington De Kok Attorneys, Bloemfontein