Although the taxpayer’s identity remains confidential, the Tax Court judgment in Mr Taxpayer G v Commissioner for the South African Revenue Service (IT 24502) [2025] ZATC (CPT) (30 September 2025) lays bare the facts. Over several years, the taxpayer channelled remuneration through foreign entities, generated Secondary Tax on Companies (STC) credits, and re-characterised compensation as tax-exempt dividends rather than taxable income. SARS disagreed and applied GAAR to re-characterise the receipts as ordinary income. The court agreed, finding that the sole or main purpose of the structure was to obtain a tax benefit and that, “but for” the arrangement, substantial income tax would have been payable, which SARS ultimately succeeded in levying.
GAAR Enforcement Gains Momentum
The decision is the latest in a series of avoidance-related issues where taxpayers have attempted to find loopholes, often resulting in disputes with SARS. It reflects a clear trend of SARS becoming increasingly assertive in challenging perceived tax-driven arrangements. Under sections 80A to 80L of the Income Tax Act, SARS is empowered to disregard, combine or re-characterise any arrangement that results in a tax benefit and lacks genuine commercial substance.
In this case, SARS demonstrated that the taxpayer’s structure, ostensibly designed to utilise STC credits and disguise income, lacked commercial substance. The court agreed, holding that the steps were executed in a manner not ordinarily employed for bona fide business purposes.
Notably, the court also confirmed that substance prevails over form: the fact that payments were styled as dividends did not prevent SARS from re-characterising them as income where the underlying reality supported that view.
The Balance Turns Against Taxpayers
The Tax Court’s application of the “but for” test proved decisive. The taxpayer’s contention that the transactions had legitimate business purpose collapsed against the economic reality that, absent the structure, ordinary income tax would have applied. The balance therefore turned squarely in SARS’ favour.
In practice, SARS is becoming increasingly proactive, using legislative tools to dismantle what it regards as artificial arrangements. This marks a clear shift from reactive enforcement to strategic, pre-emptive intervention.
Absa Judgment Still Looming
This ruling lands against the backdrop of a broader enforcement trend. Earlier this year, the Constitutional Court heard argument in the long-running Absa Bank Limited v SARS matter, which is expected to clarify key aspects of GAAR’s application. While judgment is still awaited in that matter, this latest Tax Court decision underscores the courts’ willingness to uphold SARS’ use of GAAR and reject tax-driven schemes lacking commercial rationale.
A Clear Warning for Corporate Transactions
The implications extend far beyond this taxpayer. Arrangements undertaken primarily for tax reasons, even when technically compliant, are now firmly in SARS’ sights. This includes executive remuneration models, cross-border structuring, corporate reorganisations, and financing arrangements that prioritise tax outcomes over economic substance.
Put simply, where tax drives the transaction rather than follows it, the arrangement is at risk. SARS has made it clear that complexity and multiple layers of entities will no longer provide protection.
Professional Advice Is No Longer Optional
While the court acknowledged that the taxpayer’s arguments were not entirely unreasonable given GAAR’s complexity and limited precedent, that did not alter the outcome: R46 million was included in taxable income. With SARS intensifying its enforcement, taxpayers must ensure their transactions are commercially and legally defensible from inception.
Those engaging in offshore structures, incentive planning, or complex financing should obtain professional advice early, before implementation. The principle is: nothing prohibits taxpayers from planning their affairs in a tax optimal manner; however, tax should be the consequence of commercial reality, not its primary motivation.
The bottom line: GAAR is no longer a theoretical tool. It is an active enforcement mechanism, and SARS is using it. Before implementing any complex transaction, taxpayers should seek professional advice to ensure that their arrangements are commercially defensible and do not expose them to costly disputes.
