Abstract

The domestic laws of many countries contain statutory general anti-avoidance rules, or ‘GAAR’. As tax avoidance schemes have proliferated, especially in a cross-border context, the relative importance of a country’s GAAR has increased. A question that arises is whether a country’s GAAR can be invoked to deny the benefits granted by a tax treaty. The question is complicated by the fact that, as international agreements, tax treaties are subject to public international law, while at the same time forming part of the domestic laws of the states party to the treaty. While the Organisation for Economic Co-operation and Development has attempted to provide clarity in this regard, the answer remains dependent on the manner in which tax treaties interact with the domestic laws of the specific jurisdictions in question. In terms of South African law, the provisions of a tax treaty rank equally with those of domestic law. As a result, any conflict must be resolved by the application of the principles of statutory interpretation and superseding of legislation. Despite this fact, the South African courts tend to favour an approach whereby the provisions of domestic law and those of a treaty are reconciled, rather than having one prevail over the other. The author argues that the GAAR may be applied in a treaty context, provided that the purpose of a treaty and the GAAR can be reconciled. Ultimately, the author is of the view that certainty in this regard can only be achieved through some form of legislative intervention.