Navigating the process of challenging a SARS tax assessment is no simple task. The legal and procedural hurdles can be both intricate and daunting. This complexity is clearly illustrated in the recent Supreme Court of Appeal (SCA) decision in Commissioner for SARS v ABSA Bank Ltd and United Towers (Pty) Ltd, which sheds light on the nuanced and often contentious nature of tax disputes in South Africa.

Case Background

ABSA Bank entered into an intricate offshore investment structure that included multiple related transactions. SARS scrutinised the arrangement and concluded that it constituted an impermissible tax avoidance scheme under sections 80A to 80L of the Income Tax Act 58 of 1962. These anti-avoidance rules empower SARS to disregard the legal form of a transaction and instead assess it based on its real economic substance.

Following an audit, SARS issued notices to ABSA in accordance with section 80J, explaining its preliminary view that the arrangement fell foul of section 80B. Before ABSA’s deadline to respond expired, it submitted a request under section 9(1) of the Tax Administration Act 28 of 2011 asking SARS to withdraw the notices. SARS declined.

ABSA challenged both the refusal to withdraw the notices and the resulting assessments in the High Court.

The High Court’s Findings

The High Court was called to resolve four central issues:

1. Whether section 104 of the Tax Administration Act precludes a taxpayer from launching legal proceedings outside of the prescribed dispute resolution framework;
2. How the dispute should be legally characterised;
3. ABSA’s involvement and understanding of the tax structure in question; and
4. Whether SARS’s refusal to withdraw the section 80J notices was open to judicial review.

Section 104 lays down the standard procedure for challenging a tax decision, namely, objection and appeal. Section 105, however, allows deviation from this route if authorised by the High Court. Both parties agreed that the court had discretion to permit such deviation but disagreed on what qualified as “exceptional circumstances”.

The High Court adopted a pragmatic view: “exceptional” didn’t mean rare or unusual, but rather that there must be a compelling reason to bypass the default procedure. In this case, it found that because the matter hinged solely on a question of legal interpretation and not disputed facts it qualified.

The High Court also concluded that SARS had accepted ABSA’s assertion that it was unaware of the scheme’s full implications. On that basis, the dispute involved no factual contest only the legal question of whether ABSA could be liable under the anti-avoidance provisions without knowledge or intention.

The court determined that while the initial issuing of section 80J notices was not reviewable (being preliminary), SARS’s refusal to withdraw them could be challenged, as it had real legal consequences. Ultimately, the High Court set aside both the section 80J notices and the assessments based on them.

The Supreme Court of Appeal (SCA) Judgment

The appeal dealt with two key points:

• Whether SARS’s refusal to withdraw a section 80J notice under section 9(1) could be judicially reviewed; and
• Whether the High Court was correct in describing the dispute as a matter of pure law.

The SCA disagreed on both counts.

It held that SARS’s refusal to withdraw the notices was not subject to review because the decision lacked finality and thus did not constitute administrative action. Only final actions like tax assessments can be challenged under review.

Regarding the nature of the dispute, the SCA disagreed that it was purely legal. It pointed out that:

• The section 80J notices did not affirm ABSA’s claim that it lacked knowledge of the scheme;
• SARS had, in fact, challenged ABSA’s assertions during their correspondence; and
• Affidavits submitted by SARS indicated a clear factual dispute around ABSA’s awareness and involvement.

As a result, the SCA concluded that the matter involved contested facts and that ABSA had to follow the formal dispute procedures set out in section 104. The High Court’s order was overturned, and the review application dismissed.

Reflections on the Judgment

The SCA’s ruling on the non-reviewability of SARS’s refusal to withdraw section 80J notices seems legally sound. A refusal to undo a non-final action (such as issuing a notice of intention) logically cannot be more reviewable than the original act itself. The High Court’s reasoning on this point relied on precedent that the SCA found factually distinguishable.

The deeper divergence between the two courts lies in how each interpreted the facts. While the High Court saw SARS as tacitly accepting ABSA’s ignorance of the tax scheme, the SCA was convinced that SARS had continuously disputed that narrative. This difference in approach significantly narrows a taxpayer’s ability to bypass standard dispute channels.

Practical Implications

This decision offers several important insights for taxpayers:

• A section 80J notice or SARS’s refusal to withdraw such a notice cannot be reviewed unless it constitutes a final administrative action;
• If a tax assessment is issued and the dispute involves only a point of law, the High Court may entertain a review under section 105;
• Taxpayers must carefully determine whether a dispute contains factual disagreements. If so, they must use the objection and appeal process in section 104; and
• Choosing the wrong forum can delay the process significantly, especially under South Africa’s “pay now, argue later” principle. Potentially leaving a taxpayer financially exposed for years.

Note: Section 9(1) of the Tax Administration Act allows SARS to amend or withdraw a decision or notice that is not a formal assessment, either on its own initiative or at the request of the affected party.