The New General Anti-Avoidance Rules
With effect from 2 November 2006 the general anti-avoidance rules contained in section 103 of the Act have been repealed and replaced with the new sections 80A to 80L, housed within the inserted Part IIA of Chapter III of the Act. The new provisions are the result of lengthy discussions and much debate following the release of an earlier discussion document. The new provisions are broken down into manageable pieces of legislation, sections 80A – 80L which ensure the easier understanding and interpretation of these complex and lengthy provisions. The reasons for the changes are, in SARS’ view, the inconsistent and ineffective deterrent that the previous provisions have proved to be in the face of increasingly sophisticated forms of tax avoidance. In addition, a number of conflicting Court decisions have created uncertainty in the application of these provisions. Changes have also been made in order to keep abreast of international general anti-avoidance provisions.
In effect, the new sections 80A – 80L comprise the old section 103 provisions which have been greatly expanded upon to ensure a wider application of the general anti-avoidance rules. Section 103(1), as it has been applied for a number of years, consists of four requirements that must all be met for the provision to apply: 1. There must be a transaction, operation or scheme; 2. It must result in the avoidance, reduction or postponement of tax (tax benefit); 3. It must have been entered into or carried out in a manner not normally employed for bona fide business purposes (in the context of business) or in a manner that would not normally be employed for a transaction, operation or scheme of that nature (in the context outside of business), other than obtaining a tax benefit or have created rights and obligations that would not normally be created between persons dealing at arm’s length for a transaction, operation or scheme of that nature (abnormality requirement); and 4. It must have been entered into solely or mainly for the purposes of avoiding, postponing or reducing any liability for the payment of any tax, duty or levy imposed under any law administered by the Commissioner (purpose requirement). Once the second requirement is satisfied, a rebuttable presumption arises that the fourth requirement i.e. the sole or main purpose to obtain a tax benefit, is met. Under the new provisions, the first requirement above i.e. the transaction, operation or scheme is termed an arrangement. An avoidance arrangement is an arrangement that results in a tax benefit i.e. the avoidance, reduction or postponement of any liability of tax (second requirement above). In terms of section 80A, only impermissible avoidance arrangements are subject to the general anti-avoidance provisions. An avoidance arrangement is impermissible if: