The Supreme Court of Appeal (SCA) has recently upheld an appeal by the South African Revenue Service (SARS) against a ruling by the North Gauteng High Court in a longstanding tax dispute with Absa and its subsidiary, United Towers.
The tax dispute dates back to 2016 when SARS initiated an investigation into a series of transactions conducted by Absa and its subsidiary during the 2015, 2016, and 2017 tax periods.
After conducting an audit of these transactions in 2018, SARS issued a tax notice accusing the bank of participating in an “impermissible tax avoidance arrangement”.
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Absa responded to SARS in February 2019, arguing that the revenue authority had made an “error of law” and that it was not involved in any tax avoidance arrangement. However, SARS refused to withdraw its tax notices and disputed the bank’s submissions.
Subsequently, Absa applied to the high court in March 2019, seeking a review of SARS’ refusal to withdraw the initial tax notices.
However, before the high court could make a ruling, SARS levied additional taxes on the bank under a different section of the Income Tax Act. As a result, Absa amended its initial review application to include the new tax assessments.
In a surprising turn of events, the high court found in favor of Absa, declaring the SARS tax assessments as unlawful and setting them aside. However, SARS was not willing to accept the high court’s decision and applied for leave to appeal to the SCA.
The Supreme Court of Appeal ultimately found that the high court had erred in its decision, stating that exceptional circumstances were not present to justify the exercise of jurisdiction in the tax dispute.
The SCA set aside the high court ruling and ruled in favor of SARS, ordering Absa to comply with the tax assessments and pay the corresponding taxes.
In response to the ruling, Absa issued a statement expressing their acceptance of the decision and their commitment to comply with it.
They acknowledged that differences in interpretation of complex tax matters are common in the business world and stated their intention to continue engaging with SARS constructively on such matters.
