situation the issue is no longer a matter of enforcement style of the agency

Situation the issue is no longer a matter of

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situation the issue is no longer a matter of enforcement style, of the agency choosing whether to bring in the big sticks or not. The enforcement agency cannot bring in the big sticks until it contests the claim to compliance. The issue, in short, is no longer one of enforcement, but one of enforceability. Before big sticks can be brought into play, the claim to compliance must first be contested. To challenge the foundations of creative compliance, then, one first needs ‘big powers’ . Big powers mean more than just new specific rules, which can result merely in a cat and mouse game of new creative compliance adapted to the new words of the new rule. Big powers need to be of a qualitatively different kind. There have been attempts to produce big powers in a number of areas, including tax in the UK and Australia, and financial services and financial reporting regulation in the UK. In many ways the UK’s new regime in accounting regulation, driven in particular by the wish to control creative accounting, has been at the cutting edge of the big power approach. Key big power strategies have included: (a) a shift, in the form of regulations, from rules to principles; (b) a focus on the substance of practice, not just its legal form; (c) taking a conceptual approach to the construction of definitions; and (d) an emphasis on ‘super-principles’. Each will be discussed in turn. Rigid detailed rules have been recognised as providing too fertile a soil for creative compliance. Where regulations involve rigidly defined categories, they can be too readily avoided by repackaging activities into a form that falls outside the
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234 Taxing Democracy clear delineations. The orphan subsidiary or the national insurance examples given above are classic examples. Hence, the approach of the Australian Accounting Standards Board (1994) of trying to write its regulation for dealing with such matters as off-balance sheet financing (in the Accounting Standards Board’s financial reporting standard known as FRS5) in terms of a simple general principle: companies should report the substance of their transactions. The Australian Review of Business Taxation (Ralph Report, 1999) has also advocated ‘a system based on clearly enunciated principles’ as the best way to ‘ensure horizontal equity and to reduce tax avoidance and hence to improve the integrity of the system’ (p. 15). FRS5 not only set out its regulation in the style of a principle not a rule, but it clearly stipulated that it was substance, not form, that counted. This notion of substance over form is also at the heart of the UK’s ‘new approach’ to tax avoidance, introduced through judicial doctrine in the 1980s in the cases of Ramsay (WT) Ltd v IRC [1982] AC300 and Furniss v Dawson [1984] AC474 . The Australian Review of Business Taxation has also proposed a focus on ‘economic substance rather than legal form’ (Ralph Report, 1999, p. 15), and recommended that ‘transactions with similar economic substance should be taxed in a similar manner’ (p. 14). The orphan subsidiary was based on a very specific definition in the Companies
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  • Fall '16
  • tax authority, Australian Taxation Office, Tax Office, Compliance Model

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