Tax Avoidance: Causes and Solutions - Scholarly Commons Home

Review of these rules is undertaken by independent courts 74 . In the normal case, courts
interpret the tax law and apply it in specific disputes between the taxpayer and the tax
administration. This means that the final interpretation of tax laws belongs to the
judiciary. 75 In all Western legal systems, the courts apply a specific method of legal
reasoning, based on a systematization of facts and legal rules, in order to arrive at the
concrete application of the tax law in the individual case. The style of statutory
interpretation differs substantially from jurisdiction to jurisdiction, 76 the judicial rules
which developed by the court are also various.
In some country like United States, the courts have developed a variety of robust judicial
doctrines to counter abusive avoidance schemes. These doctrines are closely related and
work well in used by the American courts to fight with commercial realities in the tax
arena 77 . In United Kingdom, interpretation of tax statutes used to be controlled by the form
approach, which was established by the decision of the House of Lords in IRC v Duke of
Westminster 78 . However, in the recent 20 years, the courts developed some different
judicial anti-avoidance doctrine to put some limits on the scope for avoidance. There are
also some counties such as French and China, because they are a civil law system country,
they rely on largely administration rule for fight with tax avoidance.
An important doctrine found in many civil law countries is known as abuse of rights,
avoidance of the law, or fraus legis. “Abuse of rights, in general terms, is a concept which
gives a remedy to a person who is injured by another person who exercises a right but in
doing so acts with malice or other improper motive.” 79
This concept has been applied in
different ways in different countries. Application of the doctrine to tax law would prevent
someone from taking advantage of the literal language of the statute. This doctrine has
generally been rejected by the U.K. courts, while the attitude of American courts is much
closer to that of civil law courts in this regard. 80
74
International Monetary Fund, Tax Law Design and Drafting, 1996.
75
Ibid.
76
D. Neil MacCormick and Robert S. Summers, Interpreting Statutes: A Comparative Study, 1991.
77
International Monetary Fund, Tax Law Design and Drafting, 1996.
78
[1936] AC.
79
David Ward et al., The Business Purpose Test and Abuse of Rights, (1985), British Tax Review 68, 68 n.1.
80
Thuronyi, R , Rules in OECD Countries to Prevent Avoidance of Corporate Income Tax at s. 1.e.
25