When Tax Structuring Stops Being About Tax

There are certain judgments that stay neatly within the legal profession. This is not one of them. 

The Constitutional Court’s decision in Absa Bank Ltd v SARS will probably be discussed most intensely by tax advisers, structuring specialists and finance teams over the next few months. Fair enough. It is the first time the Constitutional Court has properly grappled with South Africa’s General Anti-Avoidance Rules (GAAR), and the implications are significant. 

But limiting this case to “a tax matter” would miss what is actually happening here. 

This judgment is really about something much bigger: the growing willingness of regulators, courts and enforcement authorities to look straight through carefully engineered structures and ask a far simpler question: 

“What was really going on here?” 

That question is becoming increasingly dangerous for businesses that have spent years convincing themselves that technical compliance alone is enough. 

One of the more interesting aspects of the judgment is that the Court showed relatively little patience for the old corporate comfort blanket of compartmentalisation. The argument that a participant only understood one part of a broader structure and therefore should not be viewed as part of the overall arrangement did not land particularly well. 

Anyone involved in large corporate transactions will recognise the dynamic immediately. 

Modern deal structures often involve layers of advisers, offshore entities, treasury functions, SPVs, tax inputs, financing arrangements and governance committees, all carefully arranged in ways that allow participants to maintain varying degrees of “distance” from the overall commercial picture. 

Sometimes that distance is perfectly legitimate. 

Sometimes it is theatre. 

And regulators globally are becoming far less willing to play along. 

Over the past few years, there has been a noticeable shift in the way authorities approach corporate conduct. Whether you are dealing with tax enforcement, anti-bribery regulation, competition law, sanctions compliance, ESG disclosures or financial reporting, the direction of travel is broadly the same: authorities are becoming increasingly sceptical of structures that technically work on paper but feel commercially artificial. 

Frankly, this was inevitable. 

For a long time, large corporates operated on the assumption that if enough smart advisers signed off on a structure, the structure somehow acquired immunity from challenge. The global financial crisis should probably have ended that mindset permanently, but old habits die hard in corporate environments. 

The Absa judgment feels like another nail in that coffin. 

Importantly, this judgment doesn't necessarily mean businesses should suddenly become paralysed about legitimate structuring, tax efficiency or transaction planning. That would be a complete overreaction, and a commercially naive one at that. 

Sophisticated structuring is part of modern business. It always will be. 

The real issue is whether organisations can articulate a coherent commercial rationale for what they are doing beyond simply producing a more favourable outcome on a spreadsheet. 

That distinction matters far more now than it did a decade ago. 

Having spent years advising on complex M&A transactions, restructurings and cross-border corporate matters, we have noticed that the strongest businesses are usually not the ones trying hardest to “outsmart” regulators. They are the ones that understand regulatory scrutiny is now part of the commercial environment itself. 

Those businesses ask better questions earlier. 

Would this arrangement still make commercial sense if the tax treatment changed? 

Would management be comfortable explaining the structure publicly? 

Does the governance process genuinely reflect independent commercial decision-making? 

Could this survive scrutiny beyond the four corners of the legal agreements? 

That last point matters more than many executives realise. 

Because increasingly, regulators are not only reading the contracts. They are reading the emails, the board papers, the presentations, the transaction models and the internal discussions around intent. Once you understand that, the old distinction between “form” and “substance” becomes very real very quickly. 

The uncomfortable truth for many corporates is that governance theatre is becoming easier to spot. 

And the Constitutional Court appears to have little interest in rewarding it. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.