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Again, the criticism is easily made. The important question is why does the situation arise which occasions the criticism? Is it no more than a matter of political considerations, the shortage of parliamentary time, the lack of any vote-catching appeal? There is another, perhaps, more significant factor. If habit is the principal justification for paying tax, and if taxpayers for the most part pay tax because they are accustomed to paying what is due, then inevitably the old code, or what looks like the old code, will be more acceptable and secure a higher level of compliance than anything new and strange. The system has its own built in justification for avoiding changes unless the advantages are explicit. There is nothing new about this. Commissions and Committees investigated and reported on the Income Tax in the nineteenth no less frequently Royal Commission on The Taxation of Profits and Income Final Report 1955 Cmd. 9474, para. 129.

Parliament's Part 31 than in the twentieth century. The Governor of the Bank of England, Hubbard, was chairman of the select committee which reported in

1861. The report was to the effect10 "that the objections urged against the tax are objections to its nature and essence rather than to the particular shape which has been given to it," and the Committee declared that they felt so strongly "the dangers and ills to be apprehended from an attempt to unsettle the present basis of the tax without a clear perception of the mode in which it is to be reconstructed" that they were not prepared to offer any suggestions for its amendment.

Simplicity may be an unattainable ideal. It may be imprudent to unsettle a tax code which is operating well enough merely to eliminate antiquated and anomalous provisions. There may be justifiable parliamentary inhibitions on setting out taxing statutes in ampler form rather than relying on references to earlier and other Acts. But even the most carefully balanced review of all that there is to be said in defence of the present morass leaves this question to be answered: would we survive in commerce or industry today if we deployed attitudes attuned to an earlier style of social and economic development and if we persevered in the use of patched up plant and machinery more than 100 years after the plant and machinery was designed, to discharge a different process in a different climate?

Having asked the question, I have an uneasy feeling that the answer may be: survival or not, that is just what we enjoy doing; our capacity to muddle through is unsurpassed.

Is antiquity the only factor contributing to complexity? The Codification Committee put its collective finger on another problem11: "It is not, however, only a matter of archaisms and anomalies. As already indicated, the Statutes of 1842 and 1853 were comparatively simple. The growth of legislation since 1907 and its increasing complexity have been in large measure due to the high rates of tax in operation. Those high rates have necessitated the introduction of alleviations in the interests of various classes of taxpayers, whether to mitigate opposition, or with the intention of making the system more scientific, or in response to outcries against burdens which, in many instances, had been oppressive. The space occupied by the provisions relating to such reliefs and exemptions is now prodigious, and contrasts with the comparative brevity of the See the 1870 Report of the Commissioners of Inland Revenue previously referred to: chap. 1 n. 27.

See above n. 5.

32 Parliament's Part earlier code. Further, as the rate of tax has risen, ingenuity has been increasingly shown in devising methods of avoidance, and the Legislature has responded with provisions designed to make avoidance difficult. Expedients had to be devised for stopping each loophole as it was discovered, and removing each genuine grievance as it was brought to light, until the fabric has become overlaid with incongruous patches. Whilst in some cases the patches were wider than necessary, in others they proved insufficient for their purpose, and involved either the extension of the patches or the superimposition of other patches with the result that, in some instances, the additions have become almost codes in themselves, and sometimes not easily intelligible codes. Commenting on this process, Lord Tomlin in a recent case referred to the difficulty arising 'from the fact that the amendments from time to time made to the Income Tax Acts, directed as they frequently are to stopping an exit through the net of taxation freshly disclosed, are too often framed without sufficient regard to the basic scheme upon which the Acts originally rested.' "n It seems to me that Lord Tomlin might have cast his net a bit wider. Not only have amendments been made without regard to the basic scheme, but there has been little in the way of acknowledgement that there is any basic scheme, or can be any basic scheme, in the Income Tax Acts. But it may be appropriate first to consider examples of the patch upon patch process identified by the Codification Committee as, one might almost say, a suppurating source of complexity.

If ingenuity was the mother of avoidance, super-tax was the father. Super-tax had enjoyed but a short run when it became necessary to counter the closely controlled company used as a receptacle for current income to be stored and released at a later stage when it could be received free of tax or subject to tax at a lower rate than would be applicable were the income to be distributed and enjoyed contemporaneously with its accrual to the controlled company. The 1955 Royal Commission described the

code devised to counter the close company gambit in these terms13 :

"Between the years 1922 and 1939"-(But why stop at 1939? Forty years on and the patches on patches grow thicker)—"a code of sections was built up in relation to devices for using the structure of the limited company to give a person the control or enjoyment of income without its formal ownership. In the case of the investment !2 Neumann v. C.I.R. [1934] A.C. 215 at p. 222, 18 Tax Cas. 332 at p. 358.

See above n. 9 para. 1021;

Parliament's Part 33 company that is in a few hands the income from its investments is now treated as the income of its members and the Special Commissioners"—(A reference to the Special Commissioners in their assessing as contrasted with their appellate capacity)—"have full discretion to look beyond the legal ownership of shares in deciding who is to be treated as a member and to apportion the company's income for assessment purposes in accordance with this discretion...

Apart from the special system for these private investment companies, there is a much wider set of provisions that cover all companies that are in a few hands, these companies being defined as those which are under the control of five persons or less and in which the public are not substantially interested... if such a company... withholds an unreasonably large proportion of its income from distribution among its members, the Special Commissioners"—(Again, in their assessing capacity)—"have power to direct that the whole of the company's income is to be treated as the income of its members and apportioned among them for the purpose of their surtax assessments."—(By this time super-tax had become surtax)—"The test to be applied is whether a reasonable amount of the income has been distributed having regard to the company's business requirements including requirements necessary or advisable for the maintenance and development of the business."

The basic scheme of the close company code can thus be quite shortly summarised. But when I turn to find the code in the statutes, complication quickly takes over. The original 1922 code had been patched frequently by the time the law was consolidated in 1952. The next consolidation was in 1970. The close company code by this stage was reasonably well confined and was contained in sections 282 to 303 inclusive. But the patching process went on and, in particular, the Finance Act 1972 repealed 13 of the 21 sections, amended others and introduced a new schedule containing 20 paragraphs to be read as if included in the 1970 Act. The process of patching has thrown up amendments in 1973, 1974, 1975 and 1978. The 1980 Finance Act has introduced two new sections containing referential amendments and a new schedule which is described as abolishing the power to apportion the trading income of a trading company. There is a case to be made to the effect that the wider provisions dealing with closely controlled companies other than investment companies referred to above in the extract from the Royal Commission Report are no longer required because in the meantime corporation tax and Schedule F have been introduced and the whole basic scheme upon which the taxation of 34 Parliament's Part companies and their shareholders rests has been redesigned. A case, too, can be made that many of the economic hypotheses upon which the system of making 'surtax directions' previously rested have been obliterated by inflation. Political philosophy has also played its part. The desire to please now those holding one point of view, now those holding another, has frequently dictated change.

But at the end the close company code has not been redesigned, still less dismantled; it has been patched. What goes up may have to come down under the law of gravity, but what gets put on seldom enough gets taken off under the law of tax.

The Royal Commission was moved to comment14: "We are disturbed by the criticism that much of the anti-avoidance legislation is obscurely worded and drawn more widely than its purpose requires. No one who tries to read through and understand the gist of Chapter III of Part IX of the Income Tax Act 1952 (dealing with 'surtax on undistributed income of certain bodies corporate')" —What I have called the close company code—"would say that the 20 sections concerned are readily intelligible."

Unintelligibility is to be attributed at least in part to the patching process identified by the Codification Committee. The 1955 Royal Commission considered codification as a possible remedy and also noted what the earlier Committee had said on the topic. They did not disagree about the difficulties. They commented that it would be misleading to think of even a reformed tax code as being anything but detailed, elaborate and voluminous. "The reasons are not far to seek... Very briefly, the matter stands as follows. The social and industrial structure of the United Kingdom is intricate.

It comprehends a great variety of forms. A master tax, such as income tax has come to be, which has to be applied with fairness to all that variety of forms, must reflect to a large extent the intricacy and complication of the underlying structure... Secondly, the high rate of tax brings certain consequences. On the one hand there is pressure for allowances, alleviations and qualifications whether a special case can be asserted or a distinction claimed.

Indeed, with a high rate of tax, a distinction acquires a potential value which it would not possess in other circumstances. Moreover, the methods and process of Parliamentary legislation, particularly, perhaps, as applied to the annual Finance Act, themselves assist in the multiplication of special provisions. On the other hand, a tax which has so heavy a bearing on the lives and prospects of its hoc. cit. para. 1029.

Parliament's Part 35 citizens is sure to be met with avoidance on a large scale: and the statute book becomes encumbered with elaborate provisions against avoidance, some of which rank among the least intelligible portions of English prose."

All then are agreed that tax statutes are too long, too obscure and too complex. All are agreed that they are getting longer, more obscure and more complex. The complexities of our society, inevitable high rates of tax, the importunities of worthy pressure groups, the ingenuity of less worthy groups of tax avoiders, the imperfections, here and there, of our Parliamentary machinery for presenting, reviewing and passing legislation, all these—it is argued— are to be identified as the causes of our discontents. I make no apology for citing earlier authorities extensively. They demonstrate, with authority, that the problem is deep-seated, of long standing and inherent in the subject matter. Failure to identify the problem, to grapple with the difficulties and to persist at least to a point of partial solution is not to be attributed to the wickedness of any one group or to be explained by the alleged incompetence or inadequacy of any agency or any body of advisers involved in the process of making, applying or revising our tax law. But there does seem to me to be a general failure of nerve: panache is missing. By that I mean this: we are insufficiently interested in the basic principles. Who teaches tax as a coherent branch of the law? What interests the profession? They will tell you all there is to know—and more—about the law and the practice, about the latest anti-avoidance device, about the meaning of the latest set of judgements from the Court of Appeal or the latest set of apparently inconsistent speeches from the House of Lords. But when will they base advocacy on the potential coherence of the tax code? When will judges be invited to construe provisions in taxing statutes as part of a scheme designed, however imperfectly, to produce a reasonable result? When, in short, will confidence return that, within the familiar limits of our legal system, it is no less possible to predict how a tax question will be answered than to suggest how a problem in the common law will be resolved?

When will it be possible for the practitioner to look with confidence at his client, straight in the face, and say: "You know, the law on occasions may be an ass, but the tax law is not currently as assinine as that!" The outlook is not entirely gloomy. Largely thanks to the heroic pioneering efforts of Professor Wheatcroft tax is more widely taught than ever before and not just as a practical craft. Systematic and comparative study must lead to increasing comprehension, comprehension to coherence. In any individual case the taxpayer's 36 Parliament's Part advocate may well strive to win the taxpayer's case by whatever argument is to hand. But it would do less than justice to those responsible for putting the Revenue's case to doubt their concern to present the tax code as a coherent whole. If those outside the inner circle sometimes hear the theme but faintly, their listening or hearing may be at fault. The Courts' cooperation with Parliament may also be on the way towards achieving more sensible results.

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