TalkTax

In recent times, we have seen several tax cases being lost by Taxpayers. Analysing the judgments, I believe we have seen a fundamental move when dealing with tax avoidance – a move back towards statutory interpretation. The Newton and Elmiger cases are the policy basis for our anti-avoidance rule as they focus on statutory interpretation and I believe the courts are showing a move back to this ordinary approach (as can be seen in the Banks cases).

By and large, I believe the definition of Tax Avoidance has been expanded over the years, placing emphasis on factors such as artificiality and circularity. In many cases, we have ignored the explicit statutory language and have developed new tests – for instance a test that was banded around scheme and purpose.
While I support statutory interpretation (this is after all the black letter of the law), taxpayers still need further clarity or guidelines when dealing with Tax Avoidance arrangements. That is, taxpayers need certainty as to what constitutes Tax Avoidance.

When considering Tax Avoidance, I agree that you must apply section BG1, but the question is how far. You cannot just interpret and apply the wording of s BG 1 – you must consider the whole picture and all relevant facts. Once you have done this, it becomes a matter of coming back to statutory interpretation – asking yourself what does it actually mean.
In light of the recent decisions, I believe something needs to be done to ensure taxpayers and tax practitioners have more clarity and certainty as to what constitutes tax avoidance. That is, the Inland Revenue Department (“the Revenue”) needs to provide clear guidelines and clarity in this regard.

Going forward, it is my view that if you have any ambiguity or issues in terms of Tax Avoidance, taxpayers and tax practitioners should consider this with reference to Elmiger and Newton. This is the approach taken in these cases and can clearly be seen in the Banks cases also. At the end of the day, I believe tax avoidance comes down to ordinary statutory interpretation – the key question is how far can the Revenue expand the statute in this regard?

Statutory Interpretation is fine but at the end of the day, taxpayers and tax practitioners deserve more clarity and something needs to be done to level the playing field so the line is clear as to what constitutes Tax avoidance and what does not.