The interpretation of tax legislation in Great Britain and Australia - a study of the indeterminacy of law
Creators: name: Burton, Mark Andrew
Publisher: name: The Australian National University
Year: 1999

description: The prevailing view of the history of tax interpretation is one of legal formalism. According to this account of judicial discovery and application of legislative rules, there is no room for judicial law making. Chapter One introduces this mainstream account of tax interpretation over the last three centuries, noting the various permutations of this legal formalist account. The chapter also notes the significance of this account to liberal legal theory. Chapters two, three, four and five examine the merits of the mainstream account in particular contexts. Chapter two examines the interpretation of tax legislation during the eighteenth and early nineteenth centuries, and argues that the evidence does not support the liberal legalist account of that history. It will be argued that the courts were only granted jurisdiction to hear a limited range of tax appeals in order to secure a tactical advantage for the central government in the administration of certain taxes. This tactical advantage was assured as, contrary to the prevailing account of tax history, the courts adopted a pro revenue construction of tax legislation until well into the nineteenth century. Chapter three examines the interpretation of the income tax in the latter years of Victorian England - a statutory right of appeal against tax assessments only having been created in 1874. Although judges of this era occasionally referred to the rhetoric of strict or literal construction of tax legislation, it will be argued that the plethora of competing judicial views as to the proper understanding of fundamental elements of the income tax suggests that there was considerable confusion as to the scope of the income tax base. Whilst accepting that the existence of this confusion does not preclude the prospect of legal determinacy,it will be argued that a theory of law as rhetoric offers an appealing account of this judicial confusion. It will be argued that the competing interpretations of the income tax are attributable to the competing understandings of the meaning of 'income' developed by different segments of the community in Victorian England. Thus the rhetoric of strict or literal construction of tax legislation (which was by no means the only interpretative rhetoric of the period) was of little importance in the actual interpretative process during this period because it ignored the competing interpretations of just what the 'literal' meaning of 'income' was. It is generally accepted that during the twentieth century in both England and Australia the courts continued to adopt a literal interpretation of tax legislation until the 1980's. Taking up the interpretation of the Australian federal income tax which was introduced in 1915, it will be argued in chapter four that once again the application of a 'literal' meaning proved problematic to the courts. Focusing upon the statutory requirement that companies distribute to shareholders a minimum percentage of their profits (which effectively enforced the double taxation of corporate profits - firstly in the hands of the company and secondly in the hands of the shareholders), it will be argued that the courts sought to achieve some sense of equity by restricting the operation of the sufficient distribution requirement wherever possible. The means of achieving this understanding of tax equity was to adopt the 'literal' meaning of the provisions. The argument of chapter four is that, once again, the courts were confronted with competing interpretations of the proper application of the income tax, and that the liberal rhetoric of literal determinacy served an important function in legitimating the role of the courts in a manner consistent with the prevalent understanding of the rule of law. Chapter five continues this appraisal of the mainstream account of tax interpretation by examining the interpretation of the Australian income tax in the years after the 'tax avoidance crisis' of the 1970's. In more recent times it is generally accepted that the courts have spumed the literalist cant of earlier generations of judges and moved towards a purposive construction of tax legislation. This shift is judicial methodology is commonly perceived as a response to the perceived need for the judiciary to play a more pro-active role in combating the scourge of tax avoidance. In chapter five the merits of this account will be examined by considering recent High Court judgments upon the interpretation of the anti-avoidance provisions found in the Income Tax Assessment Act 1936 (Cth). In chapter six the theoretical shortcomings of the determinacy thesis will be examined, and an alternative theory of law as rhetoric will be proposed. While accepting that a theory of law as rhetoric cannot be proven as necessarily right, it will be argued that this alternative theory of law offers a plausible account for the development of legal doctrine, such that the predominance of liberal legal theory is called into question. Liberal legal theory, in other words, becomes just one of any number of competing interpretations of legal institutions, and a theoretically implausible one at that. Chapter seven concludes the thesis by suggesting that the theory of law as rhetoric, developed in chapter six, is consistent with the case studies found in chapters two to five. It is therefore suggested that a theory of law as rhetoric offers a more substantial historiographical foundation to the account of tax interpretation since 1688 than the widespread acceptance of judicial descriptions of judicial practice. Chapter seven also includes a discussion of some of the more significant implications the implications for our understanding of the history of judicial tax interpretation and also for the Australian taxation system which arise out of the theory of indeterminate law advanced in chapter six.