Common Anti-Avoidance Rule: Tax Controversy and Worldwide Tendencies in Africa

In order to avoid uncertainty in transactions and tax controversies, the federal states have included provisions of the general anti-avoidance rule (GAAR) in their legislation. Under the GAAR regulations, the tax authority and the courts can examine the characteristics of the transaction to determine its purpose. The GAAR provisions are also intended to assist tax authorities in entering into potential tax avoidance arrangements that the legislature had not yet considered at the time the statute was drafted. However, in certain cases, specific tax avoidance legislation may be required to provide legal support for tax avoidance systems.

In some African countries, the tax authorities have made use of the GAAR. This article highlights cases in which the application of the legal provisions has received legal support.


In May 2020, the Zambian tax authorities raised a problem with the normal market character of a copper transaction by a mining company that the complainant sold to its shareholder company. At the heart of the Zambian Tax Authority’s argument was that copper prices sold to shareholders were significantly lower than similar sales to independent parties. The tax authority relied on the GAAR under Section 95 of the Zambia Income Tax Act, arguing that one of the main purposes of the complainant’s involvement in the transaction with his shareholder was to provide tax relief.

The Supreme Court ruled in favor of the tax authorities as its concerns about the reasonableness of the prices charged to shareholders in relation to the prices charged to independent parties appeared justified. It appears that the tax authority relied solely on GAAR as there were no detailed guidance on Transfer Pricing (TP) rules in Zambia at the time of the agreement.


In February 2020, the Tax Appeal Tribunal made a decision that supported the enforcement of the GAAR. After a tax audit, the tax authority refused to use the comparable method of uncontrolled price (CUP) and the transactional net margin. The CUP method was deemed inadequate as there were insufficient comparisons for benchmarking. According to the tax authority, the gross margin method was more appropriate in the circumstances. This method would eliminate potential biases and the use of errors that are comparable due to the inclusion of other income and operating costs unrelated to the controlled transaction.

While GAAR was not specifically mentioned in the Tribunal’s judgment, it appears that the substance over form principle was applied as the gross margin method better reflected the substance and circumstances of the transaction. A relevant fact is that the complainant only played a role resembling a trader with limited risk with no substantial added value for the product being resold in Nigeria.


In February 2018, the High Court in Ghana applied the GAAR in relation to an agreement between the complainant and a lessor operating in the telecommunications sector. The landlord has outsourced his tower business to the complainant under an agreement under which the complainant rented masts to other customers at a lower price than the landlord’s competitors.

The Court ruled that the Commissioner General (CG) had the power to re-characterize the agreement, which resulted in a 25% reduction in the fee payable under the agreement between the applicant and the landlord. The tax authority argued that the scheme was part of a tax avoidance system and found that the standard price charge would have increased VAT and income tax. The decision of the Court of Justice was in favor of the tax authority.


From 2011 to the present, there has been a dead end between the Uganda Revenue Authority and a telecommunications company resulting from “indirect transfers” of shares that were structured through offshore holding companies for sale. The Revenue Authority has appealed the High Court’s decision on the matter and the case has not yet received a final verdict.

The tax authorities tried to tax the sale of the shares using two alternative arguments:

  • The transaction represented the sale of Ugandan shares.
  • The transaction represented the sale of a stake in Ugandan real estate.

The Court ruled in favor of the applicant, concluding that no statutory provision gave the tax authority the power to levy taxes on the sale of the shares.

It will be interesting to assess how the Revenue Authority has used the GAAR and the underlying property rules of the Uganda Income Tax Act to aid their appeal. It is also unclear whether the court will follow a similar precedent set by the Supreme Court of India in January 2012 that established the principle that the indirect transfer was not taxable in India, partly because there was no specific provision that gave the tax authority the tax law.

South Africa

In June 2017, the courts in South Africa applied the substance over form principle in what the tax authority viewed as an agreement that constitutes a transaction or system structured with the aim of avoiding tax liability. The case followed a tax assessment by the tax authorities under Section 103 (1) of the South African Income Tax Act, which viewed a related party arrangement as a system to avoid income tax liability in South Africa. The court noted that the contracts, implementation, circumstances and unusual features of the transaction made it clear that it was a disguised contract designed as a means of tax avoidance.

Reasons for triggering GAAR

The above mentioned decision of the Supreme Court of Zambia provided the following guidelines for triggering the GAAR:

  • that the CG must have reason to believe that the purpose of the transaction is “tax avoidance”;
  • that the reasons must be reasonable;
  • This reasonable belief should be based on established facts established by the CG.

In the Ghanaian example, the trigger for the GAAR is that the CG forms an opinion that the transaction is part of a “tax avoidance agreement”. Before preparing an expert opinion, however, the CG must carry out an examination and assessment of the facts in order to obtain an appropriate assessment.

In determining what is meant by “tax avoidance”, there seem to be two common themes in most African countries. These are:

  • an agreement with the main purpose of granting a tax advantage, e.g. B. Avoiding, reducing or deferring a tax liability or increasing the right to a tax refund; and
  • Abuse of a provision of a tax law for the above purpose.

Planning points for multinational companies

With the growing tax controversy in Africa, Multinational Enterprises (MNCs) with a presence in the region should take a proactive approach. The most important measures to consider include:

  • Review current tax matters and approaches in accordance with applicable regulations and practices and conduct regular tax health reviews;
  • Review of TP policies and documentation (i.e. comparability analysis, TP methodology and tested party use) in accordance with local TP regulations and practices;
  • Ensure the consistency and quality of compliance reporting, e.g. B. Financial statements, tax returns and TP documentation;
  • regular evaluation of the implementation of contractual agreements in the country;
  • Review of participation structures in Africa and assessment of compliance with the treaties;
  • Maintaining a robust and easily accessible supporting documentation system;
  • Timely planning for renewal of tax breaks or incentives.

When resolving tax disputes, it is important to follow the necessary legal procedures as this can lead to a tax objection.

It should also be noted that the decision of tax matters by lawyers may require the cooperation with tax advisors of the complainant. This supports a stronger focus on relevant content-related tax issues and their coherence, for example with previous tax returns and correspondence with the tax authorities.

Final thoughts

In summary, it is crucial that agreements used for international transactions are structured in such a way that the legal effect and content of the agreement are clearly aligned. Consequently, multinational companies with African footprints can take advantage of a proactive approach by holistically assessing their business models and tax practices in Africa to ensure compliance with legislative changes.

The views expressed in this article are the views of the author and do not necessarily reflect the views of the EY global organization or its member firms.

This column does not necessarily reflect the opinion of the Bureau of National Affairs, Inc. or its owners.

Kwasi Nyantakyi Owiredu is Senior Manager of the Africa Desk Network EMEIA Lead at Ernst & Young LLP, London, UK

The author can be contacted at [email protected]