actually exercised control over it much wider than controlled the composition

Actually exercised control over it much wider than

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‘actually exercised control’ over it (much wider than ‘controlled the composition of the board of directors’). Legislators set out definitions of a broader, more abstract nature, and refused to define them further, precisely (and they were quite explicit about this) in order to stop feeding creative compliance. Yet creative compliance continued. Even big powers have exemptions and exceptions (‘ex-file’ clauses) which were sought out and used. But more significantly still, the words in the catchall definition were themselves scrutinised and responded to with the ‘deadlocked joint venture’. This involved two companies forming a 50-50 joint venture in which, it was claimed, neither ‘actually exercised control’, so that it remained off the accounts of both.
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240 Taxing Democracy The power to override compliance with specific rules in order to require compliance with the overarching principle of producing true and fair accounts, has itself been scrutinised and resisted on the basis that it is complied with if companies give the ‘true and fair’ version of their accounts in the notes but leave the numbers , in the same accounts, based on literal compliance with specific rules – even though it is accepted that compliance at this level does not give a true and fair view. 14 The numbers of course, are more important than the notes, not only because the significance of the notes may be lost on the less expert reader, but because the numbers are what are used in calculating market ratios such as leverage or gearing. These ratios, in turn, are what are used by analysts in assessing share value, by banks in lending covenants to stop excessive additional borrowing by management, or which, when they reach a certain level, oblige management to consult shareholders. The numbers are, in other words, the basis of legal controls on a number of fronts. In short, even big powers designed to counter creative compliance may themselves be vulnerable to it if they meet with the same attitude to the law – an attitude that treats the law as merely a material to work on. It is not only how big powers are applied that determines their impact, but how they are received. A Change of Attitude Creative compliance, I suggested earlier, is the product of two factors: the nature of law and the attitude taken to it. The application of law is problematic, given to grey areas and alternative interpretations. But the problem posed by creative compliance depends on those on the receiving end of law actively working on and taking advantage of those intrinsic problems. The enhanced uncertainty associated with principles and general anti-avoidance rules is a genuine concern. Yet the resort to such measures is itself a response to active abuse of more specific rules. The drift of principles to rules I have designated a ‘problem’, but it would not be a problem if those rules were not likely to be actively seized on and used to escape legal control, and if there were not a culture which treated the law as fair game for such activity.
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  • Fall '16
  • tax authority, Australian Taxation Office, Tax Office, Compliance Model

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