A short coda
Taking things forward
49. As an interpretative principle, the notion of abuse does not need to be spelled out either in Community law or in national legislation. However, the Advocate General’s view is that the principle cannot be applied in cases “where the economic activity carried out may have some explanation other than the mere attainment of tax advantages against tax authorities”. And bearing in mind the subjective/objective distinction drawn above, this must mean any activity that has a real economic effect beyond the gaining of the tax advantage because in those circumstances the intention of the parties can no longer be inferred to be abusive. This limits the usefulness of the principle in the hands of the tax authority to those cases where a taxpayer fails to ensure an economic justification for his activity despite knowing that this is necessary for his arrangements to have the result that he wants.
50. Recognising this, the AG says “further restrictions could be introduced for claims arising from activities which, to varying extents, predominantly seek to achieve tax advantages. This, however, will require the adoption of appropriate national legislative measures. Mere interpretation will not suffice. Such measures might include more general anti-abuse provisions of the kind adopted in some Member States.”
51. But this seems to take us back almost to square one. This suggests that the Community law provisions are not only purposive – in terms of effects to be achieved on a strictly objective basis – they may be made normative by national legislation that can legitimately allow a judgement of the subjective intentions of the parties.
52. Professor Freedman has commented on the AG’s opinion that “effectiveness [of lawful activity] or otherwise is still determined by the scope of the Community law interpretative principle, not some broader notion of acceptability”. But this seems to be based on a false distinction. The interpretative principle is arguably merely the means used by the ECJ to ensure that the result of applying the legal provisions is within broad notions of acceptability. The AG’s analysis does not simply reflect what is available outside the actual statutory provision in question - for example recitals to the directives providing for the neutrality of the VAT system - but that the ECJ sees its role precisely as determining what should happen.
53. This is a key point that goes to the heart of the issues here. In discussing Lord Hoffman’s approach, Professor Freedman notes that the UK courts and the ECJ have reached similar decisions on statutory interpretation in tax avoidance cases from the basis of very different legal backgrounds and suggests that the difference will be in the freedom of movement the respective courts have in construing legislation. She says that this comes from the fact that the ECJ is dealing with EC Directives and the UK courts with UK legislation. But it might be more accurate to say that the ECJ not just can but will consider and indeed determine the bounds of acceptability within which the law operates, whereas the UK courts will not and have said that they cannot. Lord Hoffman has made very clear his opinion “There is only one way to know the intention of Parliament and that is to read the statute”. Lord Hoffman will thus not do what he is not certain that a 'higher authority' intends. The ECJ on the other hand will adopt a role as final arbiter.
54. And it is this point too that seems to determine the effectiveness of statutory general anti-avoidance provisions (GAAPs). Professor Freedman identifies the ‘critical issue’ for what one might call the Commonwealth General Anti-avoidance Rules as the extent to which specific legislation may be overridden by the analysis of the intention inherent in the GAAP itself, saying that a GAAP is only any use if it goes a step further than interpretation at a higher level than the usual statutory interpretation rules and allows the original legislation to be construed within a context of “broader parliamentary intention”. This is to break the circle of a GAAP ending up by simply directing the court back to the wording of the specific legislation. She suggests that the AG has achieved this result by his ability to determine, in her paraphrase, that “objective circumstances show an intention to improperly obtain an advantage”, and believes that this ability could be codified in national legislation. But her argument hinges on ‘improperly’ being a concept capable of being attached to the use of a statutory provision, and yet the House of Lords seem to have rejected this possibility altogether.
55. As noted above, this was not the outcome expected at this point by many in the professions or by HMRC, and it calls for thinking about exactly what ground HMRC stands upon and how firm it is. This paper hopes to provide a persuasive argument for doing so. In the circumstances, a careful assessment is needed of the possible real-world impact of the developing jurisprudence and engagement in the debate on the terms in which it is presently being conducted.
Coming in due course - how things turned out and thoughts on where we are now ...
Previously on this theme
Musings on tax avoidance and most recently on the 'Boys' behind it ... here.
Interesting new paper about perception of risk and influence on avoidance behaviour, here
The Professor. A number of her papers available here
A founder of Tax Justice Network here.