From Judicial Exposition To Legislative Intervention: The GAAR's Odyssey Of Uncertainty

Abstract

Section 91 of the Income Tax Act Cap.340 makes provision for Uganda’s statutory General Anti-Avoidance Rules (GAAR). They encompass the commissioner’s discretion to re-characterise transactions that are part of a tax avoidance scheme or whose form does not reflect the substance, or to disregard transactions that do not have a substantial economic effect. These rules trace their origin from the early common law judicial principles of statutory construction whose effect was to reconstruct transactions constituting artificial elements lacking commercial purpose other than the avoidance of tax. These operated co-currently with the taxpayers’ freedom to arrange their business affairs in a tax efficient manner. This co-existence of opposite principles ultimately resulted into uncertainty as to when an otherwise legal transaction ceases to be permissible and becomes impermissible for tax purposes. Statutory GAARs in most of the common law world came in to instill some level of certainty to the GAAR. Having codified these anti-avoidance principles, Uganda’s statutory GAAR potentially inherited some of these uncertainties. This paper explores the development of GAAR in the USA, UK and New Zealand in relation to such GAAR’s certainty, assesses how some of the identified uncertainties potentially flow through Uganda’s GAAR, and provides recommendations on how such may be addressed.