I’ve been discussing how to tackle Barclays Bank’s tax abuse. I’ve suggested we need a change in the way we interpret tax law. This would create a purposive approach to the interpretation of tax law. If this were done then a key component in any system promoting tax compliance should be a General Anti-Avoidance Principle as a central component part of taxation law.
It is stressed that a principle and not a rule should be used: a rule pre-supposes a legal interpretation of statute; a principle an equitable construction.
The idea behind a General Anti-Avoidance Principle is simple: if a step is added to a transaction with the sole or principal aim of securing a tax advantage (which is defined as a saving in tax) then that step in the transaction is ignored for tax purposes. In other words, it tackles pre-meditated attempts to subvert the intention of the tax system and is consistent with the management approach towards the regulation of taxation proposed here. Barclays has, of course, undertaken very heavily pre-meditated tax avoidance activity with almost every step in the transactions undertaken being there solely for the purpose of saving tax.
I suggest that once enacted a General Anti-Avoidance Principle (now generally called a “GAntiP”) would be applied to all tax decisions taken thereafter. This is not a case where transitional arrangements would apply.
There is another advantage: a GAntiP allows a government to pass purposive legislation. This is legislation that states the intention of the law that is being created and devolves responsibility for the detailed rules that actually make it work to the status of regulations. This offers a number of advantages:
- Few politicians fully understand the details of the laws that they are asked to pass; it is much more likely that they will understand and be able to discuss purposive taxation law;
- The purpose of law will be clearer: taxpayers will have greater chance of understanding and complying with the law;
- The detail of regulation can be devolved to those with appropriate expertise;
- Appeal arrangements are needed to ensure that those who claim that regulation does not accord with the purposive legislation can be heard, and can have the claimed conflict ruled upon. This is a necessary judicial over-ride for the administrative function of the State which is almost always responsible for the detail of tax legislation;
- Where a government intends to use legislation or regulation in a way that was not anticipated it will be obvious, and appeals should succeed. There will, therefore be greater obligation on governments to disclosure their intent as to how they propose to use the legislation available to them and to not subsequently change it, which should increase certainty for taxpayers.
The result will be simpler, and better, law.
In combination a Gantip, purposive legislation, equitable interpretation of the law, and a clear framework of the responsibilities of all parties that a Code of Conduct implies, provides the following benefits:
1. Clarity as to the purpose of the law;
2. The opportunity to adopt a management based approach to taxation, overcoming the almost insurmountable difficulties in determining the difference between tax evasion, avoidance and compliance;
3. An enhanced prospect of practical compliance with legislation designed to achieve that purpose;
4. A fairer method for appraising culpability when errors occur;
5. The chance for a taxpayer to object to inappropriate regulation through use of the Court system;
6. Greater certainty within any tax system.
It is these benefits that our proposed Code of Conduct is intended to promote.
As usefully, such a programme would stop the likes of Barclays undertaking their repugnant activities, and that is essential. .
 See Freedman, J 2004. “Defining Taxpayer Responsibility: In Support of a General Anti-Avoidance Principle” available in British Tax Review 332 http://denning.law.ox.ac.uk/tax/BTR_version_inaugural_lecture.pdf accessed 21.12.06