General Anti-Avoidance Rules (GAAR) are statutory provisions that empower tax authorities to disregard, recharacterise, or counteract arrangements that, while technically lawful, are structured primarily or exclusively to obtain a tax advantage contrary to the purpose of the applicable tax legislation. Unlike specific anti-avoidance rules targeting defined transactions, GAAR operates as a broad residual safeguard, grounded in domestic corporate income tax legislation and reinforced by the OECD’s Base Erosion and Profit Shifting framework. In transfer pricing and international tax contexts, GAAR provisions interact directly with the arm’s length standard under Article 9 of the OECD Model Tax Convention, as tax authorities invoke them to challenge arrangements where pricing, structure, or legal form diverges from economic substance.

Disputes arise most frequently when related-party transactions are structured to generate deductible payments — interest on acquisition financing, royalties on transferred intangibles, or lease rentals — that reduce taxable profits without a discernible non-tax commercial rationale. In the representative cases, tax authorities challenged interest deductions on loans used to finance intragroup share acquisitions, royalty payments following sale-and-leaseback arrangements over trademarks, and rental charges under lease agreements with South African affiliates. Taxpayers typically defend the commercial logic of the arrangement and demonstrate that pricing meets arm’s length standards, while authorities assert that the overall structure lacks genuine business purpose and that the tax benefit is the dominant or sole motivation.

OECD guidance does not establish a uniform GAAR standard, but Chapter I of the OECD Transfer Pricing Guidelines (paras 1.119–1.129 in the 2022 edition) addresses the accurate delineation of transactions and permits disregarding or restructuring arrangements that lack commercial rationality. At the EU level, Article 6 of the Anti-Tax Avoidance Directive (ATAD, 2016/1164) harmonises a minimum GAAR standard for Member States, requiring that arrangements be disregarded where they are not genuine and are put in place to obtain a tax advantage. The freedom of establishment under Article 49 TFEU imposes further constraints, as illustrated by Dutch cases where the European Court of Justice was asked whether domestic interest limitation rules applied disproportionately to cross-border groups.

Courts examine whether the predominant purpose of an arrangement was tax avoidance, whether the transaction reflects the commercial and financial reality between independent parties, and whether the legal form chosen corresponds to its economic substance. Evidence of circular flows of funds, pre-determined transaction sequencing, and the absence of independent third-party involvement weighs heavily against taxpayers. The most contested questions involve the threshold between legitimate tax planning and abusive avoidance, and the proportionality of GAAR measures relative to EU fundamental freedoms.

Studying these cases equips practitioners to assess the resilience of intragroup structures under domestic and EU anti-avoidance standards, and to identify the factual and legal boundaries that distinguish permissible planning from transactions susceptible to statutory recharacterisation.