«THE HAMLYN LECTURES Thirty-Third Series INTOLERABLE INQUISITION? REFLECTIONS ON THE LAW OF TAX H. H. Monroe STEVENS THE HAMLYN LECTURES THIRTY-THIRD ...»
THE HAMLYN LECTURES
THE LAW OF TAX
H. H. Monroe
THE HAMLYN LECTURES
REFLECTIONS ON THE LAW OF TAXAUSTRALIA The Law Book Company Ltd.
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THE LAW OF TAXBY HUBERT MONROE, M.A.
One of Her Majesty's Counsel, A Bencher of Middle Temple Published under the auspices of THE HAMLYN TRUST" LONDON STEVENS & SONS Published in 1981 by Stevens & Sons Limited of 11, New Fetter Lane, London Printed in Great Britain by Thomson Litho Ltd., East Kilbride, Scotland British Library Cataloguing in Publication Data Monroe, H. H.
I. Intolerable inquisition?—(The Hamlyn lectures series; 33)
1. Taxation—Law and legislation—England I. Title II. Series 344.20304 KD 5359 ISBN 0-420-46190-6 ISBN 0-420-46200-7 Pbk.
H. H. Monroe CONTENTS The Hamlyn Lectures vii The Hamlyn Trust ix
1. The Backdrop of History 1
2. Parliament's Part 22
3. The Judges' Role 42
4. The Law of Tax and the Common People 65
THE HAMLYN LECTURES1949 Freedom under the Law by The Rt. Hon. Lord Denning 1950 The Inheritance of the Common Law by Richard O'Sullivan, Esq.
1951 The Rational Strength of English Law by Professor F.H. Lawson 1952 English Law and the Moral Law by Dr. A.L. Goodhart 1953 The Queen's Peace by Sir Carleton Kemp Allen 1954 Executive Discretion and Judicial Control by Professor C.J. Harnson 1955 The Proof of Guilt by Dr. Glanville Williams 1956 Trial by Jury by The Rt. Hon. Lord Devlin 1957 Protection from Power under English Law by The Rt. Hon. Lord MacDermott 1958 The Sanctity of Contracts in English Law
THE Hamlyn Trust came into existence under the will of the late Miss Emma Warburton Hamlyn, of Torquay, who died in 1941 at the aee of eighty. She came of an old and well-known Devon family.
Her father, William Bussell Hamlyn, practised in Torquay as a solicitor for many years. She was a woman of strong character, intelligent and cultured, well versed in literature, music and art, and a lover of her country. She inherited a taste for law, and studied the subject. She also travelled frequently on the Continent and about the Mediterranean, and gathered impressions of comparative jurisprudence and ethnology.
Miss Hamlyn bequeathed the residue of her estate in terms which were thought vague. The matter was taken to the Chancery Division of the High Court, which on November 29, 1948, approved a scheme for the administration of the Trust. Paragraph 3 of the
Scheme is as follows:
"The object of the charity is the furtherance by lectures or otherwise among the Common People of the United Kingdom of Great Britain and Northern Ireland of the knowledge of the Comparative Jurisprudence and the Ethnology of the chief European countries including the United Kingdom, and the circumstances of the growth of such jurisprudence to the intent that the Common People of the United Kingdom may realise the privileges which in law and custom they enjoy in comparison with other European Peoples and realising and appreciating such privileges may recognise the responsibilities and obligations attaching to them."
The Trustees under the Scheme number eight:
Professor J. A. Andrews, M.A., B.C.L., J.P.
Professor A. L. Diamond, LL.M. (Chairman) The Rt. Hon. Lord Edmund-Davies Professor D. S. Greer, B.C.L., LL.B.
Professor B. Hogan, LL.B.
Doctor Harry Kay, PH.D.
Professor A. I. Ogus, M.A., B.C.L.
Professor D. M. Walker, Q.C., M.A., PH.D., LL.D., F.B.A.
From the first the Trustees decided to organise courses of lectures of outstanding interest and quality by persons of eminence, under the auspices of co-operating Universities or other bodies, with a view to the lectures being made available in book form to a wide public.
The Thirty-Third Series of Hamlyn Lectures was delivered in London in May 1981 by H. H. Monroe at the Institute of Chartered Accountants in England and Wales.
AUBREY L. DIAMOND.
May 1981 Chairman of the Trustees.
ACKNOWLEDGMENTSI would wish to acknowledge with gratitude the encouragement and assistance which I have derived from those writers from whose writings I have readily culled quotations or to whose comments I have referred. In particular I would thank Professor Harry Street for permission to quote from his 1968 Hamlyn Lectures, Justice in the Welfare State, the Treasurer of the Honourable Society of the Middle Temple for permission to quote from the Society's accounts and the Incorporated Council of Law Reporting for permission to cite cases from the Law Reports, that faithful source which for so many years I have happily taken for granted.
I am indebted to my friends for the assistance afforded by their comments, in particular to Robin Boyd and Peter Hall, John Adams
and William Massey. My debt to Ash Wheatcroft is a continuing one:
he introduced me to the notion that the law of tax has principles and is susceptible of rational discussion.
For the rest the shortcomings are homespun, the defects are my own.
XI These Lectures are respectfully dedicated to those who truly endure the heat and bear the burden, Her Majesty's Inspectors of Taxes.
THE BACKDROP OF HISTORYTax is scarcely a favourite topic. If invited to draw up a list of the privileges which in law and custom the common people of the United Kingdom enjoy in comparison with other European peoples— the area designated as germane for the purposes of the Hamlyn Trust—few lawyers would be likely to include in their lists a reference to the Taxes Acts 1970 and the taxation system under which taxes on income are levied. It might not be wholly unfair to suggest that there would be some who would omit the topic from their lists because they know little enough about it and would prefer that matters should remain that way. Objections to the topic, some articulated and some no more' than impressions, would range from the complexity and obscurity alleged to surround it to an uneasy feeling that the topic is somehow distasteful and in an indeterminate way alien to those principles of reason and fairness which distinguish the common law. Why does the law of tax have to struggle to make good any claim to respectability or, indeed, relevance among lawyers? Why are its practitioners and exponents set apart? Why are those whose task is to apply and enforce it regarded so frequently with hostility or, at best, wariness? Why when issues of tax law come before the courts do judges so often adopt an approach quite different to that which they normally adopt in relation to other branches of the law? Is the law of tax fairly castigated as unnecessarily complex and obscure? Are there reasons to account for this inherent in the subject matter?
Disagreeable topic though it may be, tax has a widespread relevance. Economists will happily devote time to discussing the form which tax should take since tax and the system adopted for its collection have profound economic effects. Those whose interests lie in the area of public finance and public administration will share with economists their interest in the consequences of this or that form of tax. For accountants tax is of particular relevance since it is pervasive in relation to their clients' affairs: all property and all sources of income have at some stage to come to terms with the demands of tax. Is not the Inland Revenue a partner in every trade, business or enterprise?
I am not concerned with these wider issues. From time to time, some might say too seldom, Parliament takes note of economists' 2 The Backdrop of History views and restructures portions of the tax system accordingly. I am not, however, here concerned to examine which features of the tax code reflect what views. For example, between 1850 and 1907 much discussion took place on the distinction between industrious and lazy incomes. The outcome was earned income relief.1 Much discussion took place before and within the 1955 Royal Commission about the nature of income. The outcome was Capital Gains Tax.2 Those instances merely illustrate the obvious point that our tax system is sensitive to economists' thinking; thick-skinned, perhaps, but there is continuing consideration of possible change. With that feature of the tax system I am not here concerned. Nor with the day to day application of the tax code to individual cases, the accountant's province.
My purpose is to examine why lawyers approach tax law in the way they do. Parliament, for the most part, makes the law of tax. I will leave it to abler minds than mine to grapple with the question of how far judges make law.3 As to the law of tax it seems to me that over large areas it owes more to Parliament and less to the judges, but in certain areas—I have in mind the area of anti-avoidance provisions—much to the tensions between Parliament and judges. My examination of tax law and how it is received will start, then, with Parliament, move on to the judges and finish with the common people, those who are at the bitter end of tax, the taxpayers themselves.
It is an accepted and salutary principle when interpreting a written law to start by identifying the mischief which the law was designed to remedy. It seems to me to make sense, therefore, to approach the law of tax by looking first at the circumstances in which income tax entered the law. What were the considerations which governed its shape and its structure? The system introduced at the start of the nineteenth century shows every sign of being with us at the end of the twentieth. What moved the minds of men in 1799? Will the same motivation preponderate in 1999? I do not at this point mean to refer to the circumstance that income tax was a war tax, introduced "for the duration"—relevant though that consideration is to understanding the tax structure then erected. Rather I seek an answer to the question what was the philosophy which s. 19 FA 1907 (7 Edw. 7, c. 13).
s. 19 FA 1965 (1965, c. 25).
See, e.g. "The Judge as Lawmaker," the Fourth Chorley Lecture at the London School of Economics delivered on June 25, 1975 and printed in Patrick Devlin, "The Judge" (OUP 1979).
The Backdrop of History 3 prevailed in Parliament, what would the common people, by their representatives, stand for. The short answer is "anything short of an infringement of property or privacy." And why were these individual
rights so highly valued? One explanation is given by R. H. Tawney :
"The natural consequence of the abdication of authorities [Church and State] which had stood, however imperfectly for a common purpose in social organisation, was the gradual disappearance from social thought of the idea of purpose itself. Its place in the eighteenth century was taken by the idea of mechanism. The conception of men as united to each other, and of all mankind to God, by mutual obligations arising from their relation to a common end, ceased to be impressed upon men's minds, when Church and State withdrew from the centre of social life to its circumference. Vaguely conceived and imperfectly realised, it had been the keystone holding together the social fabric. What remained when the keystone of the arch was removed was private rights and private interests, the materials of a society rather than a society itself. These rights and interests were the natural order which had been distorted by the ambitions of kings and priests, and which emerged when the artificial superstructure disappeared, because they were the creation, not of men, but of Nature herself. They had been regarded in the past as relative to some public purpose, whether religious or national welfare. Henceforward they were thought to be absolute and indefeasible, and to stand by their own virtue. They were the ultimate political and social reality, they were not subordinate to other aspects of society, but other aspects of society were subordinate to them."
Tawney describes the climate of opinion. Blackstone had delivered the texts s : "The third absolute right, inherent in every Englishman, is that of property: which consists in the free use, enjoyment, and disposal of all his acquisitions, without any control or diminution, save only by the laws of the land... So great moreover is the regard of the law for private property, that it will not authorise the least violation of it; no, not even for the general good of the whole community."
This then was the way men thought when History broke in.
The year 1798 was a difficult one for William Pitt. It was reliably reported that the French were on the sea. Happily, the wind changed and blew the French out of Bantry Bay but there was no change in R. H. Tawney, Religion and the Rise of Capitalism.
Blackstone's Commentaries, Book 1, Chap. 1.
4 The Backdrop of History what the War was costing. All the familiar ingredients of financial crisis were present, mounting expenditure, escalating costs, unprecedented demands on the nation's resources. Increased taxation was inevitable. Pitt's problem? How best to tighten the screw?