Abstract:
South Africa adopted a general anti-avoidance rule (GAAR) as one of its methods to
combat innovative tax avoidance schemes into which taxpayers may enter. Since the
South African GAAR was introduced for the first time in 1941 it has undergone numerous
amendments due to weaknesses highlighted by its failures in court. However, since its
most recent amendment in 2006, the efficacy of the South African GAAR is in doubt, as
not all of its requirements have been subjected to judicial interpretation and application.
This study aims to determine the effectiveness of the South African GAAR when compared
to that of its New Zealand counterpart by employing a ‘Structured Pre-emptive Analysis’
(SPA) to identify the weaknesses in the South African GAAR.
A SPA is a multimethod qualitative approach that combines doctrinal and reform-oriented
approaches. The study was carried out in three phases. Doctrinal research was used in
Phase 1 to obtain an understanding of the South African and New Zealand GAARs, in
order to understand how they should be interpreted and applied, as well as to identify
weaknesses and make suggestions for improvement in both. Reform-oriented research
was conducted in Phase 2 where the South African GAAR was applied to a case from
New Zealand, in order to propose amendments to the South African GAAR. In Phase 3,
triangulation was used in order to compare the findings gained in Phases 1 and 2 and thus
validate the findings of the research.
The comparison performed between South Africa and New Zealand revealed that
guidance should be provided in order to address the uncertainties in the interpretation and
application of the South African GAAR, so as to prevent inconsistencies that may limit its efficacy. In addition to this, the South African GAAR should be consolidated into a three-
part enquiry instead of the current four-part enquiry, which may be achieved by considering the tainted elements as part of the tax benefit requirement, instead of a
separate fourth requirement that would make the South African GAAR more onerous to
apply. Lastly, the sole or main purpose requirement should be amended so that it need not
be the sole or main purpose to avoid tax, but rather one of the purposes, provided that it
was not merely incidental.
