Abstract:
South Africa has adopted a general anti-avoidance rule (GAAR) as one of the methods to combat the innovative tax avoidance schemes into which taxpayers may enter. Nevertheless, since its introduction it has undergone numerous amendments due to weaknesses highlighted by its failures in court. Yet, since its most recent amendment in 2006, the efficacy of the South African GAAR has not been established as it has not been tested in the courts. This study addresses this concern by employing a ‗structured pre-emptive analysis‘ to identify the weaknesses of the South African GAAR when compared to its New Zealand counterpart.
This approach is essentially qualitative and combines the typical doctrinal or black letter law approach used in law with that of reform-oriented approaches. Firstly, the South African and New Zealand GAARs were analysed and compared using a doctrinal approach to gain an understanding of the interpretation and application of the two GAARs. This allowed for the identification of weaknesses in the South African GAAR, whilst also making suggestions for its improvement. Thereafter, the South African GAAR was applied to the facts of a case from New Zealand by making use of a reform-oriented methodological approach. In applying the South African GAAR to the facts of the case, a framework of the South African GAAR was used to enhance the reliability of the findings by reducing subjectivity and improving replicability.
The findings from the doctrinal and reform-oriented approaches revealed the weaknesses in the current South African GAAR when compared to its New Zealand counterpart. These weaknesses may be addressed in three ways. Firstly, guidance should be provided in order to address uncertainties in the interpretation and application of the South African GAAR so as to prevent inconsistencies that may limit its efficacy. Secondly, the purpose requirement and tainted elements could be consolidated into one requirement, where the presence of one of the tainted elements informs the objective purpose of the arrangement. Thirdly, the purpose requirement should be amended so that it need not be the sole or main purpose, but rather should be one of the purposes, provided it was not merely incidental. It is acknowledged that while the South African and New Zealand GAARs are directed to achieve the same end, the proposals for amendment would arguably go some way towards improving the efficacy of the South African GAAR.
