SARS Nails Taxpayer for R46 Million in Major Anti-Avoidance Victory
The South African Revenue Service (SARS) has won another major court battle, recovering R46 million from a taxpayer who used an offshore structure to avoid paying income tax.
How the Scheme Worked
The taxpayer channelled their remuneration through foreign entities to generate Secondary Tax on Companies (STC) credits. This arrangement reclassified their income as tax-free dividends instead of taxable earnings.
SARS, however, invoked the General Anti-Avoidance Rules (GAAR) to reclassify these payments as ordinary income, arguing that the structure lacked genuine commercial substance and existed primarily to avoid tax.
Court Ruling
The Tax Court agreed with SARS, finding that the taxpayer’s main purpose was to gain a tax benefit and that, “but for” the structure, substantial tax would have been payable.
The ruling reaffirmed the long-standing principle that substance outweighs form — meaning SARS can look beyond how a transaction is presented and tax it according to its true economic reality.
Part of a Broader Crackdown
This judgment adds to a growing list of recent SARS victories:
According to Tax Consulting SA, these cases highlight SARS’ more aggressive and strategic enforcement approach.
“SARS is increasingly using its legislative tools to dismantle artificial, tax-driven structures,” the firm said. “This reflects a clear shift from reactive enforcement to pre-emptive intervention.”
A Warning to Taxpayers
Sections 80A–80L of the Income Tax Act empower SARS to disregard or recharacterise any arrangement that delivers a tax benefit but lacks commercial purpose.
Tax Consulting cautioned that executive remuneration models, cross-border structuring, and corporate reorganisations that prioritise tax savings over real business intent are now firmly in SARS’ sights.
“Put simply, when tax drives the transaction rather than follows it, the arrangement is at risk,” the experts said. “Complex, multi-layered structures will no longer offer protection.”
Awaiting Constitutional Court Clarity
The application of GAAR remains under judicial scrutiny, with a pending Constitutional Court judgment in a long-running case between SARS and Absa expected to clarify how far SARS’ powers extend.
However, this latest Tax Court ruling signals that courts are backing SARS’ tougher stance on avoidance schemes.
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