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Abstract: This article compares the general anti-avoidance rule of income tax law with the civil law doctrine of abuse of law (Rechtsmissbrauch, abus de droit) in eight jurisdictions: Germany, Croatia, New Zealand, Australia, France, the United States, the United Kingdom and the European Union. The article deals with the core concept of avoidance and addresses the statutory and judge-made general anti-avoidance rules in these jurisdictions. The article focuses on transactions that most people would recognize as avoidance and on how these eight jurisdictions either frustrate avoidance or allow it.
Writers who contributed to the article and the jurisdictions that they covered include: Séverine Baranger (France, general anti-avoidance rule), Dennis Becher (Germany, abuse of law), Svenja Brandt (Germany, general anti-avoidance rule) David Dunbar (Australia), Matthew Fountain (New Zealand), Franca Frenzel (European Union), David Pickup (United Kingdom), Philip Postlewaite (United States), Rebecca Prebble (Croatia), Viktoria Preusker (Germany, abuse of law), Yves-Louis Sage (France, abuse of law).
tax, general anti-avoidance rule, GAAR, avoidance, abus de droit, abuse of law, abuse of rights, substance, form
Abstract: The theory that law may best be understood as an autopoietic system has gained considerable ground since Luhmann advanced it in 1981. Nevertheless, there have been few endeavours to apply the theory in any practical way or to employ it to analyze particular areas of law. In a recent paper, Geraldine Hikaka and the present author proposed the thesis that Luhmann's theories usefully illuminate the field of income tax law. The present paper illustrates this thesis by analyzing a leading case from each of the Privy Council and the High Court of Australia, namely Europa Oil (NZ) Ltd v Commissioner of Inland Revenue and Federal Commissioner of Taxation v South Australian Battery Makers Pty Ltd. The paper will argue that the autopoietic nature of income tax law presents challenges to the judicial process that, as these cases illustrate, lead to income tax law becoming detached from the business profits that are an important part of its subject matter. The paper will then turn to Macquarie Finance Ltd v Federal Commissioner of Taxation, one of the last tax judgments of the late Justice Graham Hill. It will be argued that in Macquarie Finance Ltd Justice Hill demonstrated a rare, almost unique, ability among judges: to reconcile the formalistic, autopoietic nature of tax law with the business substance that was the subject matter of the case. The paper turns first, however, to the question of what is meant by the autopoietic theory of law.
Abstract: This article is in Japanese, for an English translation see http://ssrn.com/abstract=1473612.
The article compares the general anti-avoidance rule of income tax law with the civil law doctrine of abuse of law (Rechtsmissbrauch, abus de droit) in eight jurisdictions: Germany, Croatia, New Zealand, Australia, France, the United States, the United Kingdom and the European Union. The article deals with the core concept of avoidance and addresses the statutory and judge-made general anti-avoidance rules in these jurisdictions. The article focuses on transactions that most people would recognize as avoidance and on how these eight jurisdictions either frustrate avoidance or allow it.
tax, general anti-avoidance rule, GAAR, avoidance, abus de droit, abuse of law, abuse of rights, substance, form, Japanese
Abstract: The article continues the author’s examination of American and English approaches to choice of law rules used to resolve issues of validity and effect of commercial contracts. Part II should ideally be read in conjunction with Part I of the article by the same name.
Part II discusses the rules that the American and English courts apply where there is no choice of law clause in the contract at issue. It discusses the significant contacts rule applied by courts in both countries, noting that the English approach divides cases into three categories that differ from the American approach. Part II then goes on to consider the significance of renvoi, which generally has no place in contract disputes in American or English courts. The article also touches on more unorthodox theories of foreign choice of law rules.
The article concludes by tracing the differences of the two systems and arguing that the interest analysis which has developed in the United States is generally a superior system to the English one, because it allows the results of the decision to be taken into account. Interest analysis recognises that the significance of conflict of law issues goes beyond the mere theoretical. Commercial parties will argue over conflict issues only when they believe that they will be favoured by a different jurisdiction. The rules used to select the correct jurisdiction may also determine the outcome of the case. It is important that the conflict of law rules acknowledge this reality.
Conflict of Laws, Contract, Comparative Law, Choice of Law
Abstract: The article examines and compares the American and English approaches to choice of law rules used to resolve issues involving the validity and effect of commercial contracts.
The author notes the different theoretical basis of each system. The English approach is a classificatory and jurisdiction-selecting method, whereas most American courts adopt the principles of interest analysis, which evaluates the specific conflicting rules and the interests of the different legal systems with a connection to the case are evaluated. This difference has led to apparently very different choice of law rules.
Part I of the article compares the rules of the two countries thematically, outlining the principles and approaches of the interest analysis, rule selection, jurisdiction selection, choice of law, true and false conflicts doctrine, and the claims of the lex fori. It then discusses approaches to party autonomy. Both countries will attempt to give effect to the intentions of the parties where this is express; however the English exceptions to this rule are narrower than the American ones. While American courts may look to considerations of policy and public policy, English courts are much more likely to strictly apply the rules attached to the legal category in question: in this case, contract.
Conflict of Laws, Choice of Law, Contract, Interest Analysis, Comparative Law
Abstract: Autopoiesis is a post-modern, essentially positivist theory that tries to describe the true nature of law. Its principal tenets are the ideas of self-reproductive growth from reasoning that is self-referential and recursive, relative autonomy from, and “operative closure” against, other social systems, together with “cognitive openness” to “irritation” and to “noise” from outside the closed circle of the law.
The authors are skeptical about the ability of autopoiesis theory to illuminate the nature of law in general, but see it as shedding useful light on income tax law, particularly the quality that income tax law shows in inventing legal structures that have no reality beyond the world of fiscal affairs.
The authors argue that the general anti-avoidance rule punctures the autonomy and closure of income tax law, to allow the substantive norms of the economic and business system free play, or relatively free play, within tax cases. That is, while income tax law is in general a good example of legal autopoiesis, this observation is incorrect when a general anti-avoidance rule is in play.
Two implications for accounting are (a) that the operative closure of law results in a disconnection between income tax law and accountancy, and (b) that a general anti-avoidance rule may repair this disconnection in cases where accountancy records are governed by substance rather than form.
Tax; Taxation; Law; Accounting; Economics; Jurisprudence; Autopoiesis; Luhmann; Teubner; Ectopia; Simulacrum; Tax avoidance
Abstract: Trusts fit uneasily into any tax system. The beneficiary should be taxed on any trust income received; yet the trustee also receives income that is amenable to taxation. It would not be fair for the income to be taxed to both the beneficiary and the trustee, yet neither should the trustee escape tax on income that is not paid immediately to the beneficiary.
This article is the third of three that examine the taxation of trusts in New Zealand under the Income Tax Act 1976. See also “The Taxation of Trusts: Part I” [1980] 25 New Zealand Current Taxation 109 and “The Taxation of Trusts: Part II” [1981] 25 New Zealand Current Taxation 134.
Part III concludes the series by examining more miscellaneous aspects of the taxation of trusts. The article examines: whether the provisions of the Income Tax Act 1976 that relate to trusts constitute a code; taxation of foreign-source beneficiaries income and trustees’ income; the character of trust income derived by beneficiaries; what happens where income for trust purposes differs from income for tax purposes; deductions; losses; and the taxation of business and unit trusts and other trusts that do not fall within sections the trust-specific provisions of the Act.
trusts, tax law, income tax
Abstract: This article looks at the effectiveness, in the New Zealand context, of the application of a general anti-avoidance rule (GAAR) when the impugned transaction or arrangement is cross-border. The important issue is how the provisions of a double tax agreement have application to the transaction or arrangement when the GAAR is invoked by the revenue authorities.
In many countries, tax treaties prevail over domestic tax laws in the event of a conflict. Some countries provide expressly that their GAAR will apply to their treaties.The question is whether this is true for New Zealand, and whether there is anything peculiar in the New Zealand statutory scheme that gives guidance on whether tax treaties preclude or limit the application of the GAAR.
general anti-avoidance, double tax agreements, cross border transactions
Abstract: The general charging provisions of the Income Tax Act 1976 purport to tax all assessable income. Sections 226 to 233 of the Act lay down a code for the taxation of the income of trustees and beneficiaries. Is this code an exhaustive statement of the assessability of trust income over-riding pro tanto the general charging provisions, or can trust income not caught by sections 226 to 233 nevertheless be taxed by the general charging provisions of the Act? This article discusses these questions and concludes that sections 226 to 233 do provide an exhaustive code.
As at 2009, the key features of sections 226 to 233 of the 1976 Act have been adopted by the Income Tax Act 2007. Sections HC 17-HC 23 deal with the tax treatment of amounts that beneficiaries receive from a trust, sections HC 24-26 with the tax treatment of trustee income and sections 27-29 with the tax treatment of settlors. Section CV 13 makes it clear when these amounts will be “income”. The structure of the 2007 Act strengthens the argument that the trust provisions operate as a code.
Income Tax, Trust Law, Code, Income Tax Act 1976
Abstract: Is an “intention to make a profit” necessary for there to be business income within the meaning of section 65(2)(a) of the Income Tax Act 1976? English cases on an analogous provision suggest intention to make a profit is not required. Literal interpretation of the New Zealand provision tends to support this conclusion. However, starting from the case of Commissioner of Inland Revenue v Watson [1960] NZLR 259 (Henry J), the courts have found such an intention is necessary.
Section 65(2)(a) of the 1976 Act is reproduced in a similar form in section CB1(1) of the Income Tax Act 2007. In 2009, the problem of defining when an economic gain should be taxable as business income remains controversial under the 2007 Act. An intention to make a profit remains a touch-stone for New Zealand courts.
business income, "intention to make a profit", income tax act 1976, tax law
This article is the second of three that examine the taxation of trusts in New Zealand under the Income Tax Act 1976. See also “The Taxation of Trusts: Part I” [1980] 25 New Zealand Current Taxation 109 and “The Taxation of Trusts: Part III” [1981] 25 New Zealand Current Taxation 168.
A sub trust is a device commonly used to ensure that the trust income is taxed to the beneficiary but that the trustee retains control. Part II details the taxation of sub trusts and the characteristics that such trusts must have in order to meet the broad test that the application of the trust income is “for the benefit of the beneficiary”.
Trust Law, tax law, income tax, beneficiaries, sub trust, benefit
Abstract: The paper deals with the taxation of transactions involving the sale of land where the price received includes a non-cash element, most commonly, a mortgage to the vendor. Generally, such transactions are taxable in New Zealand only when the vendor is in the business of selling properties. The issue is at what point the mortgage is “received” for tax purposes. The paper argues that the true value of the non-cash element should be established at the point when the property is sold. In cases where the vendor has discounted the mortgage, he or she should be able to claim the discount as a deduction from overall taxable income. In cases where the mortgage was sold for more than face value, the vendor should be taxed on its actual value.
Tax Law, Property, Sale of Land, Mortgage, Income Tax
Abstract: There is a misconception among New Zealand estate planners that there are tax advantages from constituting a trust with a pro forma settlor. The scheme involves having a third party to settle a trust for a nominal sum, so that the ‘true’ settlor can avoid certain tax provisions when property is later settled on the same trust. Other than in life assurance trusts (see John Prebble 'Estate Planning: Pro Forma Settlements in Life Assurance Trusts' [1977] Recent Law 340), such schemes offer no tax advantages. Instead, each new settlement creates a new trust, leaving the pro forma settlor redundant.
Trust law, tax law, family trusts, pro forma settlor
Abstract: The Estate and Gift Duties Amendment Act 1976 reduced the amount of estate duty and introduced a matrimonial home allowance that reduced the estate duty on matrimonial homes left to a surviving spouse. This change created a number of loop-holes and inequalities.
As at 2009, the Estate and Gift Duties Act 1968 is still on the statute book, but rates of the estate tax that is the subject of the article are now zero, in effect abolishing the tax. Nevertheless, the article reflects some of the problems inherent in New Zealand’s policy of providing more advantageous tax treatment for real property owners than for economically similar investments.
estate duty, tax law, matrimonial home allowance, gift duties
Abstract: Is an “intention to make a profit” necessary for there to be business income within the meaning of section 65(2)(a) of the Income Tax Act 1976? English cases on an analogous provision suggest intention to make a profit is not required. Literal interpretation of the New Zealand provision tends to support this conclusion. However, starting from the case of Commissioner of Inland Revenue v Watson [1960] NZLR 259 (Henry J), the courts have found such an intention is necessary. Section 65(2)(a) of the 1976 Act is reproduced in a similar form in section CB1(1) of the Income Tax Act 2007. In 2009, the problem of defining when an economic gain should be taxable as business income remains controversial under the 2007 Act. An intention to make a profit remains a touch-stone for New Zealand courts.
business income, intention to make a profit, income tax act 1976, tax law
Abstract: This paper considers the correct interpretation of double tax agreements in the context of locally resident accumulation trusts established in New Zealand or Australia, that have foreign settlors and foreign-source income. The author explores the relevance and application of double tax agreements intended to minimise double taxation between New Zealand or Australia on the one hand and the source country on the other hand. In the process he identifies a difference in approach in Australia compared to New Zealand as they accord different treatment to accumulation trusts that have foreign settlors and foreign source income. The paper explores the reasons for, and the implications of, the different outcomes highlighting some key issues in tax administration where international tax is concerned.
Trusts, Double Tax Agreements, DTAs
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