The Income Tax Act already contains a general anti-abuse provision (article 51) that empowers the Commissioner for Tax & Customs to ignore artificial or fictitious transactions aimed at reducing the amount of tax payable by any person. The new regulations add to this anti-abuse provision. The measure applies to arrangements which are not genuine, meaning that they are not put into place for valid commercial reasons that reflect economic reality, and which have been put in place with the main purpose of obtaining a tax advantage that defeats the object or purpose of tax law. This rule thus empowers the Commissioner for Tax & Customs to disregard non-genuine arrangements that are primarily tax-motivated and lack commercial substance.
Burden of proof lies with the taxpayer to demonstrate genuine commercial rationale of the arrangement. Transactions which may be regarded as artificial or fictitious include circular transactions, artificial steps, or arrangements lacking economic rationale.