The VAT General Anti-Avoidance Rules

Most tax Acts in South Africa contain a general overriding provision in the form of general anti-avoidance rules (“GAAR”).[1] In terms of these provisions, where the GAAR’s provisions apply, the Commissioner for SARS is entitled to generally treat the GAAR-able transaction in any which way it wishes to in order to address the tax avoidance effect achieved by that transaction.


The VAT Act’s[2] GAAR is contained in section 73 of that Act. It determines that a scheme would be subject to the VAT Act’s GAAR if “any scheme …

(a) has been entered into or carried out which has the effect of granting a tax benefit to any person; and

(b) having regard to the substance of the scheme –

(i) was entered into or carried out by means or in a manner which would not normally be employed for bona fide business purposes, other than the obtaining of a tax benefit; or

(ii) has created rights or obligations which would not normally be created between persons dealing at arm’s length; and

(c) was entered into or carried out solely or mainly for the purpose of obtaining a tax benefit…”


Many of the above words and terms are specifically defined in the VAT Act.[3] Put simply though, and very much like the Income Tax Act’s GAAR, the anti-avoidance provision may only be invoked if four elements are present, being that (i) a transaction has been entered into (ii) with the sole or main purpose (iii) to obtain some form of VAT benefit and (iv) that transaction contains abnormal features.


These provisions may apply even where the taxpayer has succeeded in circumventing a specific anti-avoidance rule that exists in the VAT Act and which seeks to prohibit certain VAT avoidance schemes. The GAAR’s provisions therefore present a powerful remedy for the Commissioner to apply to VAT avoidance schemes. However, his abilities are somewhat curtailed in that the GAAR’s provisions may only be applied as a remedial provision, and not as a penal or a taxing measure. In other words, the Commissioner may, by applying the VAT GAAR, determine the VAT liability of any relevant taxpayer in such a way necessary so as to address the avoidance of VAT by either treating the transaction as though it had not been entered into, or in such a manner as is necessary to prevent the manifestation of the relevant VAT benefit sought to be achieved.


[1] The Estate Duty Act, 45 of 1955, is a notable exception and which appear to rely exclusively on the Donations Tax regime in the Income Tax Act, 58 of 1962, to act as an anti-avoidance measure.

[2] 89 of 1991

[3] Section 73(2)


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