Normal Anti-Avoidance Rule: Tax Controversy and Worldwide Traits in Africa

To avoid uncertainty in transactions, and tax controversy, countries have included general anti-avoidance rule (GAAR) provisions in their legislation. GAAR provisions allow the tax authority and the courts to examine the characteristics of the transaction to determine their purpose. The GAAR provisions are also designed to support the tax authorities in addressing potential tax avoidance arrangements that had not been contemplated by the legislature at the time of drafting the statute. That said, specific anti-avoidance legislation may be required in certain instances to provide legal backing needed to address tax avoidance schemes.

In some African jurisdictions, tax authorities have made use of the GAAR. This article will highlight instances in which judicial backing has been given to the use of the statutory provision.


In May 2020, the Zambian tax authority raised an issue with the arm’s-length nature of a copper transaction undertaken by a mining company that the appellant sold to its shareholder company. The crux of the Zambian tax authority’s argument was that the prices of copper sold to shareholders were significantly lower than those of similar sales to unrelated parties. The tax authority invoked the GAAR pursuant to Section 95 of the Zambia Income Tax Act, as it argued that one of the main purposes of the appellant’s engaging in the transaction with its shareholder was the reduction of tax.

The Supreme Court ruled in favor of the tax authority, as its concern regarding the reasonableness of prices charged to shareholders relative to prices to unrelated parties appeared legitimate. It seems that the tax authority placed sole reliance on the GAAR because there was no detailed guidance on transfer pricing (TP) regulations in Zambia at the time of the arrangement.


In February 2020, the Tax Appeal Tribunal made a decision that supported the enforcement of the GAAR. After a tax audit, the tax authority objected to the use of the comparable uncontrolled price (CUP) and transactional net margin method. The CUP method was considered inappropriate as there were not sufficient comparatives for benchmarking. According to the tax authority, the gross margin method was more appropriate under the circumstances. This method would remove potential distortion and use of the wrong comparable as a result of including other income and operating costs unrelated to the controlled transaction.

While there was no specific mention of the GAAR in the judgment of the Tribunal, it seems that the substance over form principle was applied, as the gross margin method was more reflective of the substance and circumstances of the transaction. One relevant fact to note is that the appellant performed only a role akin to a limited risk distributor with no substantial value-add to the product resold in Nigeria.


In February 2018, the High Court in Ghana applied the GAAR in relation to an arrangement between the appellant and a lessor that operated in the telecommunications sector. The lessor carved out its towers business to the appellant under an arrangement where the appellant rented masts to other customers at a lower price relative to the lessor’s competitors.

The Court held that the Commissioner-General (CG) had the authority to re-characterize the arrangement, which led to a 25% reduction in fee, payable under the arrangement between the appellant and the lessor. The tax authority argued that the arrangement was part of a tax avoidance scheme, noting that if the standard price had been charged, it would have resulted in higher assessed value-added tax and income tax. The Court’s decision was in favor of the tax authority.


From 2011 to date, there has been an impasse between the Uganda Revenue Authority and a telecommunications company, arising from “indirect transfers” of shares where a sale was structured to take place via offshore holding companies. The Revenue Authority has appealed the decision of the High Court on the matter and the case has not yet received a final verdict.

The tax authority had sought to impose tax on the share disposal based on two alternative arguments:

  • the transaction constituted the disposal of Ugandan shares;
  • the transaction constituted the disposal of an interest in Ugandan immovable property.

The Court ruled in favor of the appellant and concluded that no legal provision granted the tax authority the power to impose tax on the share disposal.

It will be interesting to assess how the Revenue Authority had leveraged the GAAR and underlying ownership rules in the Uganda Income Tax Act to support its appeal. It is also unclear whether the court will follow similar precedent set by the Supreme Court of India in January 2012, which established the principle that indirect transfer was not subject to tax in India on the basis that, among other points, there was no specific provision that gave the tax authority the taxing right.

South Africa

In June 2017, the courts in South Africa applied the principle of substance over form in a matter which the tax authority considered as an arrangement constituting a transaction or scheme which had been structured with the effect of avoiding tax liability. The case followed a tax assessment by the tax authority pursuant to Section 103(1) of the South Africa Income Tax Act, where it considered a related party arrangement as being a scheme for the purposes of avoiding liability for income tax in South Africa. The court indicated that the contracts, implementation, surrounding circumstances and uncharacteristic features of the transaction made it clear that it was a disguised contract designed as a vehicle for tax avoidance.

Grounds for Triggering GAAR

The Zambian Supreme Court decision mentioned above provided the following guidance for the triggering of the GAAR:

  • that the CG must have grounds to believe the purpose of the transaction is for “tax avoidance”;
  • that the grounds must be reasonable;
  • that reasonable belief should be based upon set facts established by the CG.

In the Ghanaian example, the trigger for the GAAR is for the CG to form an opinion that the transaction is part of a “tax avoidance” arrangement. However, before forming an opinion, an audit and assessment of the facts must be completed by the CG in order to form a reasonable assessment.

When determining what constitutes “tax avoidance,” there seems to be two common themes in the case of most African jurisdictions. These are:

  • an arrangement with the primary purpose of providing a tax benefit, such as avoiding, reducing or postponing a tax liability or increasing a claim for tax refund; and
  • abuse of a provision of a tax law for the above purpose.

Planning Points to Consider for Multinational Corporations

With tax controversy on the rise in Africa, multinational corporations (MNCs) with a presence in the region should take a proactive approach. Key actions to consider include:

  • reviewing current tax affairs and tax approaches in line with applicable regulations and practices and performing periodic tax health checks;
  • reviewing TP policies and documentation (i.e. comparability analysis, TP method, and use of tested party) in line with local TP regulations and practices;
  • ensuring consistency and quality in compliance reporting, e.g. financial statements, tax returns and TP documentation;
  • regularly assessing in-country implementation of contracting arrangements;
  • reviewing investment holding structures into Africa and assessing treaty adherence;
  • maintaining a robust and easily accessible supporting documentation system;
  • planning renewal of fiscal concessions or incentives on a timely basis.

In the case of tax dispute resolution, it is essential to adhere to necessary legal procedures, as failing to do so may render any tax objection moot.

Further, it is worth noting that the adjudication of tax matters by attorneys may require collaboration with tax advisors of the appellant company. This supports greater focus on relevant substantive tax issues and consistency, for example, in the case of previous return submissions and correspondence with the tax authority.

Concluding Thoughts

In summary, it is critical that agreements used for international transactions are structured with clear alignment between the legal effect and the substance of the arrangement. Consequently, MNCs with African footprints may benefit from taking a proactive approach by holistically assessing their business models and tax practices in Africa to remain compliant with changing legislation.

The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY 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, Africa Desk Network EMEIA Lead with Ernst & Young LLP, London, U.K.

The author may be contacted at [email protected]