The Trouble with Tax Avoidance: Two General Anti-Avoidance Rules, a Judicial Doctrine, and their Respective Implications for the value of Certainty in Tax Law A thesis submitted in fulfilment of the requirements for the Degree of Master of Laws in the University of Canterbury By Joshua Fowler University of Canterbury 2013 i ii Table of Contents ACKNOWLEDGEMENTS..................................................................................................... IX STYLE ..................................................................................................................................... X ABSTRACT ............................................................................................................................. XI I INTRODUCTION ...................................................................................................... 1 A Background ................................................................................................................. 1 1 The Value of Certainty ................................................................................ 1 B Smith’s Doctrine of Certainty ................................................................................... 2s C Thesis ...................................................................................................................... 2 D Method ...................................................................................................................... 3 1 Black-Letter Analysis .................................................................................. 3 2 A Comparative Approach ........................................................................... 4 E Chapter Content ......................................................................................................... 4 1 Reasoning ..................................................................................................... 4 2 Subject of Discussion ................................................................................... 5 F Chapter Outline .......................................................................................................... 7 II CERTAINTY .............................................................................................................. 9 A Introduction ................................................................................................................ 9 1 Contending with Certainty ......................................................................... 9 2 Order of Procession ..................................................................................... 9 B What is Certainty?.................................................................................................... 10 1 Definitions .................................................................................................. 10 2 Subjective and Objective Certainty ......................................................... 10 C Certainty and the Rule of Law ................................................................................ 11 1 Smith, Dicey and Hayek ............................................................................ 11 D Two Perspectives upon the Role of Certainty and the Rule of Law ...................... 12 1 As an Enduring Influence ......................................................................... 12 2 A Justified Breach of the Rule of Law? ................................................... 13 3 A Clash of Values? .................................................................................... 13 E Modern Attitudes to Certainty ................................................................................ 13 1 Changing Minds ........................................................................................ 13 2 Changing Social Policy Goals ................................................................... 14 F Statutory Interpretation ........................................................................................... 15 G Uncertainty and Risk ................................................................................................ 16 1 Statutory Interpretation ........................................................................... 17 2 Economic Activity and Capital Flight ...................................................... 17 3 Costs for Governments.............................................................................. 19 4 The Findings of the Compliance Literature ............................................ 20 5 Impeding the Dispensation of Public Policy ............................................ 22 H Fairness and Uncertainty: Associated Values? ....................................................... 23 I Specific Rules, GAAR, and Judicial Doctrines ....................................................... 24 iii 1 A Balancing Act? ....................................................................................... 24 2 Jurisdictional Trends ................................................................................ 25 J Findings and Conclusion .......................................................................................... 26 III TAX AVOIDANCE – THEMES AND ISSUES ..................................................... 27 A Introduction .............................................................................................................. 27 B What is Tax Avoidance? .......................................................................................... 27 C Conceptual Difficulties ............................................................................................. 29 D The Assumptions Underlying Tax Avoidance: The Views of Michael Trebilcock30 1 What Constitutes the Avoidance of Liability to Tax? ............................. 30 1 The Thorny Notion of Legislative Intent ................................................. 31 2 The Motivations of the Taxpayer ............................................................. 31 E In Summation: Is Tax Avoidance an Inherently Speculative Proposition?.......... 32 1 Tax Avoidance ........................................................................................... 32 2 The Will of the Legislature ....................................................................... 33 3 “Ordinary” Forms of Dealing................................................................... 35 F The Choice Principle: An Illustration? ................................................................... 36 G Conclusion ................................................................................................................. 37 IV THE UNITED KINGDOM ...................................................................................... 38 A Introduction .............................................................................................................. 38 1 The Age of Formalism ............................................................................... 38 2 Order of Procession ................................................................................... 38 B The Advent of The Duke of Westminster................................................................ 39 1 The Duke of Westminster: The Facts....................................................... 39 2 The Decision of the Majority .................................................................... 40 3 Lord Atkin’s Dissent ................................................................................. 41 C The Triune Principles of The Duke of Westminster? ............................................ 41 D Along Came Ramsay ................................................................................................ 41 1 Ramsay: The Facts .................................................................................... 42 2 The Decision of the House of Lords ......................................................... 43 E Further Inroads into The Duke of Westminster Principle: IRC v Burmah Oil ... 43 1 Burmah Oil: The Facts ............................................................................. 43 2 The Decision of the House of Lords ......................................................... 44 F The Case of Furniss v Dawson ................................................................................. 44 1 Furniss: The Facts ..................................................................................... 45 2 The Decision of the House of Lords ......................................................... 45 G What Flows from the Triumvirate? ........................................................................ 46 H The Arrival of Craven v White ................................................................................ 47 1 Craven: The Facts ..................................................................................... 48 2 The Decision of the House of Lords ......................................................... 49 I The Advent of Ensign Tankers ................................................................................ 49 1 Ensign Tankers: The Facts ....................................................................... 49 2 The Decision of the House of Lords ......................................................... 50 J The Position following Ensign and Craven ............................................................. 51 K The Arrival of McGuckian....................................................................................... 52 1 McGuckian: The Facts .............................................................................