involved the better with legal forms adopted to fit inside or outside their

Involved the better with legal forms adopted to fit

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involved, the better, with legal forms adopted to fit inside or outside their literal ambit (a practice of working to rule). Regulators often express concern about uncertainties in the law being exploited, 6 but creative compliance operates particularly effectively in the context of a rule-bound regime, where the words of the law can be treated as recipes for avoidance.
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When Compliance is not the Solution but the Problem 231 How this works in practice can be readily demonstrated from research. When it was proposed in the UK that value added tax (VAT) should be levied on domestic fuel, hitherto exempt, there was extensive protest on the basis that the old and the poor would suffer. In the event, not everyone suffered. Some institutions, including university student residences, found a nice way to avoid the new costs involved in heating and hot water. They would sell their boilers, which of course remained exactly where they were in the institution’s basement, to a separate company. The company would buy the fuel to heat the water. The company would have to pay VAT on the fuel but, as a commercial enterprise, could reclaim it. The company then sold the water to the institution. There is as yet no VAT on water so, hey presto, nobody pays any VAT. And the ‘where does it say I can’t do that?’ argument, along with a quick referral to the rules, can be brought into play to justify it. UK national insurance is currently being avoided in the North Sea oil industry by transferring UK staff to overseas agencies. Transnational tax avoidance by using tax havens or differential rules in different jurisdictions (for example, the ‘Delaware Link’ device (McBarnet, 1992)) is common practice. But avoidance can also be readily accomplished within a jurisdiction simply by working to, or playing with, the rules. For example, to avoid UK national insurance contributions (national insurance contributions being paid by employer as well as employee), a practice was developed in the financial sector of paying part of the salary in the form of large bonuses in shares. No national insurance contributions were payable on shares, though they had a clear monetary value and could be converted immediately into cash. To deal with this, the law was changed to impose national insurance on any payment in a ‘traded commodity on a recognised exchange’. The result was a shift to payments in fine wine, also of clear monetary value, also amenable to immediate conversion to cash, but not traded on a recognised exchange. Creative compliance is pervasive in corporate practice in many areas of law and has, over time, involved a vast array of techniques (see Griffiths, 1986, 1995). Take an example from my research with Christopher Whelan on creative accounting, one we have frequently cited because it demonstrates so clearly the problems posed by creative compliance. This specific example, the ‘orphan subsidiary’, was widely used in the 1980s to cosmetically enhance a corporate group’s paper profits and assets, with knock-on effects for share prices, performance-related pay and borrowing capacity. A parent company must, under
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  • Fall '16
  • tax authority, Australian Taxation Office, Tax Office, Compliance Model

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