Abstract:
General anti-avoidance rules (GAARs) are rules in income tax legislation
intended to curtail impermissible tax avoidance. GAARs have another
critical function, namely informing taxpayers of the limits of permissible tax
avoidance. A GAAR is therefore an important provision which must be
effective. A study of the historical and current experience with GAARs in
South Africa, Canada, and Australia, however, shows that the efficacy of
GAARs is limited. The GAARs of the countries studied show some
similarities but also some fundamental differences. In spite of these
differences, certain common factors working against the efficacy of these
GAARs can be identified. It is argued that these factors entail the inherent
weakness of GAARs, controversial indicators of impermissible tax
avoidance, uncertainty, the role of the judiciary, taxpayer aggression, and
the limitations of the law as a weapon against impermissible tax avoidance.
Admittedly, some of these limiting factors are difficult to overcome. For
instance, a precise definition of impermissible tax avoidance has proved
elusive and this status quo is likely to persist. Nevertheless, it is argued that
these factors need to be acknowledged and addressed in order to create more
effective GAARs in future.
