TAX, GAAR and THE RULE OF LAW

Abstract

Tax avoidance is widely viewed as a problem and the Government recently introduced a General Anti Abuse Rule (GAAR) to address it. This thesis evaluates the GAAR, particularly in light of the rule of law. The thesis is structured in four sections. The first examines difficulties in defining tax avoidance and explores pre-GAAR approaches before setting out the detail and intended operation of the GAAR. The second section investigates through a case study how the GAAR is likely to work in practice. The case study investigates the synthetic and fluid nature of income and capital in order to highlight the difficulties of applying the GAAR. The third section assesses the GAAR against the rule of law. The section identifies what is meant by the rule of law before examining its historical evolution from an English perspective. There is a particular focus on the Magna Carta 1215, the Bill of Rights 1689 and the Parliament Act 1911. The GAAR is then assessed against a model of the rule of law suggested by Lon Fuller in the Morality of Law. HMRC’s perspective on the GAAR and the rule of law is then analysed. Arguably, the GAAR presents HMRC with increased discretion and the discussion considers how discretion has a bearing on rule of law compliance. The discussion also considers the extent to which the rule of law acts as a counterweight to Parliamentary supremacy. The final section argues that tax avoidance activity results from incentive and opportunity. Incentives result from wide differentials in tax rates applying to different income streams; opportunities arise from a lengthy and complex tax code. The thesis concludes by considering ways to tackle the causes rather than the symptoms of tax avoidance and recommends appointing a Royal Commission to investigate the matter.