A regime based on big powers is always vulnerable to lobbying on the basis of a

A regime based on big powers is always vulnerable to

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A regime based on big powers is always vulnerable to lobbying on the basis of a rule of law critique. Big power regulation (based on principles, on a capacity to override literal compliance with specific rules by invoking broader purposes, or on a general anti-avoidance rule) can readily be presented as too uncertain, as involving retrospectivity, as giving regulators too much power, or as opening the way to arbitrary decision-making. All of these points were made in the wake of the UK’s new approach to tax avoidance, notably in a booklet published by a joint
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When Compliance is not the Solution but the Problem 239 committee of solicitors and accounting professional bodies, the Special Committee of Tax Law Consultancy Bodies (1998). The Ralph Committee’s concern about uncertainty in the reach of the Australian General Anti-Avoidance Rule, has already been noted. The committee’s general terms of reference included assessment of how far current arrangements ‘meet the aims of’, among other things, ‘certainty of taxation treatment’ and ‘clarity of law’ (Ralph Report, 1999, p. vi). The ATO has also experienced direct criticism of its recent attack on artificial investment schemes (see Griffiths, 1995; McBarnet and Whelan, 1999) on the basis of retrospectivity (Senate Economics References Committee, 2001). The Accounting Standards Board’s FRS5 took nine years and four drafts to reach the standard book precisely because of vociferous criticisms that the principled approach was too vague, too uncertain, and too impractical. 13 The big power response to creative compliance can only too readily be presented as ‘creative control’ (McBarnet and Whelan, 1999, p. 272). Small wonder that enforcement bodies are inclined to be circumspect with big powers. It is precisely because they are regulating or ‘taxing democracy’, as this book’s title underlines, with all its inherent tensions between due process and effective control. Attitude Finally, big powers, far from destroying creative compliance, may still fall prey to it. Even big powers can be treated as ‘material to work on’. We have already seen how the judicial reasoning in the UK’s new approach tax cases was mined for ‘rules’ which could be used to argue that new tax avoidance schemes lay beyond the reach of the new approach. Regulations, even regulations geared to principles or anti-avoidance doctrines, have to be expressed in words, and even the words expressing the big powers to curb creative compliance can be subjected to the creative and advantageous interpretation on which creative compliance is based. Consider the orphan subsidiary. We saw earlier how it was based on careful scrutiny of and adaptation to very specific definitions in company law. We also saw how the law was changed. Definitions of a subsidiary under new legislation included the ‘catchall’ requirement to include an ‘entity’ in group accounts if the parent company had ‘a participating interest’ in it (a far cry from ‘more than half the equity capital’) and
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  • Fall '16
  • tax authority, Australian Taxation Office, Tax Office, Compliance Model

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