Tax Uncertainty

Article excerpt

[Lawyers are taught to appreciate the value of certainty in the law. In the field of taxation, however, the law is often far from certain. This article examines some of the causes of uncertainty within tax law, including the inherent uncertainty of language, the mismatch between the lawyer's tools of statutory interpretation and a tax statute drafted using an economic or accounting understanding of tax concepts, differing judicial constructions of tax statutes, and the intentional uncertainty in the drafting of tax statutes to allow for discretion or to prevent tax avoidance. It is argued that community consultation and bodies such as a specialist tax tribunal may reduce uncertainty and allow the community to make an informed choice as to the desired level of uncertainty within tax law.]

CONTENTS

I   Certainty
II  Uncertainty in Tax Law
    A Capital and Income: Economic and Accounting Standards versus
      Legal Analysis
    B Judicial Construction of Tax Statutes
    C Uncertainty by Design, Discretion and Notions of Anti-Avoidance
III Possible Institutional Change to Address Tax Uncertainty
IV  Conclusion

   Whoever hopes a faultless tax to see,
   Hopes what ne'er was, or is, or e'er shall be. (1)

1 CERTAINTY

At some point in a law course, every law student is taught about the importance of certainty in the law. At some point in a lawyer's career, every lawyer in every area of legal practice comes to appreciate the necessity of certainty in the law. Certainty is the foundation of the lawyer's craft and is, perhaps, the only contribution that makes us useful to clients and society. It is the lawyer's ability to predict the application of the law that helps us organise relations between people in their personal affairs, business relations and dealings with government. Without a reliable degree of certainty, contracts would be worthless and ongoing ordinary relations and dealings would be at risk of whim and fancy. Certainty in the law is fundamental to the rule of law, which holds that law 'should be clear, easily accessible, comprehensible, prospective rather than retrospective, and relatively stable.' (2) It is with that frame of mind that I turn to taxation.

11 UNCERTAINTY IN TAX LAW

There is a curious entry, some may say a curiously candid entry, under the heading 'Taxation' in The Oxford Companion to Law. (3) The first two and the last two sentences describe taxation as follows:

   Traditionally the principal way in which the ruling classes in
   organized communities have oppressed, fleeced, and expropriated
   some of their subjects. It has been known from very early times,
   and from the earliest times the tax-gatherer has been an object of
   public fear, hatred, and execration....

   Not the least evil features of the modern tax system are the army
   of unproductive civil servants concerned with the assessing and
   collecting of taxes, the enormous volume and constantly changing
   detail of the chaotic and largely incomprehensible body of verbiage
   called the law of taxation, the incomprehensible and frequently
   incorrect assessments, and the utterly irrational nature of the
   whole topic. In the law of taxation justice has no place at
   all. (4)

Some may think this an extreme view. Perhaps it is, but it gives us a context in which to evaluate the role of certainty in tax law. Tax falls upon us in the ordinary course of our activities as a compulsory taking (5) from us of something that we, by definition, have earned or owned. How and when that may happen should be clear, predictable and free from whim, caprice or chance. Below, I reflect upon some causes of uncertainty in tax law and whether this uncertainty is desirable or deliberate. In doing so I should make it clear that 1 hold no hope for certainty in tax law in the future. Ten years ago, the Review of Business Taxation, in A Tax System Redesigned: More Certain, Equitable and Durable--Report ('Ralph Report'), recommended that reform to the anti-avoidance provisions 'be based around a clear articulation of the underlying policy of a restructured tax law'. …