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Does the Use of General Anti-Avoidance Rules to Combat Tax Avoidance Breach Principles of the Rule of Law?


Rebecca Prebble


Government of New Zealand - Treasury

John Prebble


Victoria University of Wellington - Faculty of Law; Monash University; Institut für Österreichisches und Internationales Steuerrecht, Wirtschaftsuniversität Wien

2010

Saint Louis University Law Journal, Vol. 55
Sanford E. Sarasohn Memorial Conference on Critical Issues in International and Comparative Taxation, 2010
Victoria University of Wellington Legal Research Paper No. 8/2012

Abstract:     
As part of systems of tax law, general anti-avoidance rules frustrate transactions that contrive to avoid tax. Avoidance transactions adhere to the strict letter of the law while flouting or exploiting its policy. Statutory general anti-avoidance rules are found in many countries in Europe and in the British Commonwealth, apart from the United Kingdom itself, but judge-made substance-over-form rules in the United States and the United Kingdom sometimes have a similar effect. Much of the force of these rules comes from their imprecision, imprecision that, arguably, breaches the principles of the rule of law.

The authors take a comparative approach that examines statutory general-anti-avoidance rules from a number of jurisdictions. They compare these rules with the principles of the rule of law as those principles are currently understood and they compare the typical form of a general anti avoidance rule with the forms of several rules of criminal law that notoriously breach the rule of law. They thus compare the operation of general anti-avoidance rules with (a) the requirements of the doctrine of the rule of law as adumbrated by Dicey, Rawls, Hayek, Raz, and, notably, Fuller and (b) with the general offence rules of the Nazi criminal code of the Free City of Danzig, with Article 386 of the Criminal Code of the Qing Dynasty of China, and with the crime of corruption of public morals, an offence in effect created by the United Kingdom House of Lords in 1962 in Shaw v Director of Public Prosecutions.

Concluding that a general anti-avoidance rule breaches at least the principle of certainty of law the authors turn to a consideration of whether there is anything in the nature the activity of tax avoidance that might justify such a breach even though, for instance, the law treats serious criminals as entitled to the benefits of the rule of law. The authors advance the hypotheses that the activity of tax avoidance is of a nature that relies for its success on the formality of the law and relies in a sense on the rule of law itself. In effect, it corrupts the rule of law by exploiting it. If tax avoidance is in this manner an attack on the rule of law a legislature may be justified in responding by enacting a general anti-avoidance rule.

Number of Pages in PDF File: 26

Keywords: GAAR, general anti-avoidance rule, substance over form, rule of law, jurisprudence, tax law, comparative law, certainty, jurisprudential perspectives of taxation law

JEL Classification: K34, K14, K42, K40

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Date posted: December 14, 2009 ; Last revised: February 13, 2012

Suggested Citation

Prebble, Rebecca and Prebble, John, Does the Use of General Anti-Avoidance Rules to Combat Tax Avoidance Breach Principles of the Rule of Law? (2010). Saint Louis University Law Journal, Vol. 55; Victoria University of Wellington Legal Research Paper No. 8/2012. Available at SSRN: http://ssrn.com/abstract=1523043

Contact Information

Rebecca Prebble
Government of New Zealand - Treasury ( email )
1 The Terrace
P.O. Box 3724
Wellington, 6011
New Zealand
John Prebble (Contact Author)
Victoria University of Wellington - Faculty of Law ( email )
PO Box 600
Wellington, 6140
New Zealand
+64 4 463 6311 (Phone)
Papers Indexed at HOME PAGE (Fax)
HOME PAGE: http://www.victoria.ac.nz/law/staff/prebble-scholarly.aspx

Monash University
Victoria 3084
Australia

Monash University Business and Economics Logo

Institut für Österreichisches und Internationales Steuerrecht, Wirtschaftsuniversität Wien ( email )
Welthandelsplatz 1
Vienna, Wien 1020
Austria

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