Legal Interpretation of Tax Law. Edited by Robert F. van Brederode Richard Krever. Qgl Wolters Kluwer Law & Business

Transcription

1 Legal Interpretation of Tax Law Edited by Robert F. van Brederode Richard Krever Qgl Wolters Kluwer Law & Business

2 Summary of Contents List of Editors and Contributors Preface List of Abbreviations v xxi xxiii CHAPTER 1 Legal Interpretation of Tax Law: A Reflection on Methods and Issties Richard Krever & Robert F. van Brederode 1 CHAPTER 2 Legal Interpretation of Tax Law: Australia Richard Krever & Peter Mellor 15 CHAPTER 3 Legal Interpretation of Tax Law: Brazil Luis Eduardo Schoueri 47 CHAPTER 4 Legal Interpretation of Tax Law: China Dongmei Qiu 73 CHAPTER 5 Legal Interpretation of Tax Law: The European Union Robert F. van Brederode & Tom O'Shea 107 CHAPTER 6 Legal Interpretation of Tax Law: Germany Caroline Heber & Christian Sternberg 163 ix

3 Summary of Contents CHAPTER 7 Legal Interpretation of Tax Law: Hong Kong Andrew Halkyard 191 CHAPTER 8 Legal Interpretation of Tax Law: Italy Carlo Garbarino 213 CHAPTER 9 Legal Interpretation of Tax Law: Japan Yoshihiro Masui 251 CHAPTER 10 Legal Interpretation of Tax Law: Russian Federation Danil V. Vinnitskiy 265 CHAPTER 11 Legal Interpretation of Tax Law: Republic of South Africa Robert C. Williams 295 CHAPTER 12 Legal Interpretation of Tax Law: United States Steve R. Johnson 319 Bibliography 355 Table of Cases 379 x

4 List of Editors and Contributors Preface List of Abbreviations v xxi xxiii CHAPTER 1 Legal Interpretation of Tax Law: A Reflection on Methods and Issues Richard Krever & Robert F. van Brederode What Is Interpretation of Law? Some Considerations on the Interpretation of Tax Law The Additional Challenges of Tax Law Interpretation Comparative Study of Tax Interpretation 12 CHAPTER 2 Legal Interpretation of Tax Law: Australia Richard Krever & Peter Mellor Australia's Tax System: Constitutional Background 15 [A] Introduction 15 [B] Constitutional Restrictions on State Taxation 16 [1] Indirect Tax 16 [2] Income Tax 18 [C] Limitations on Commonwealth Taxation Powers Income Tax Interpretation 22 [A] The Key Concept of 'Ordinary Income' 23 [B] The Concept of 'Capital' Expenses 26 [C] Literal and Purposive Interpretation of Substantive Provisions and the General Anti-avoidance Provision 28 [D] 'Piain English' and Principle-based Drafting of the Income Tax Legislation 32 xi

5 2.03 Interpretation of GST/VAT 34 [A] Introduction 34 [B] Approaches to Interpretation 35 [C] Interpretation: Some Specific Instances 38 [1] The Transitional Provisions and Long-term Contracts 38 [2] Exemptions and Classification Treaties 41 [A] Background 41 [B] Interpretation of Australiens Taxation Treaties Summary 44 CHAPTER 3 Legal Interpretation of Tax Law: Brazil Luis Eduardo Schoueri Tax Jurisdiction Allocation within Brazilian Federalism The Complementary Law in Tax Matters Concepts of Private Law and Interpretation of the Constitution 51 [A] The Role of Article 110 of the National Tax Code 51 [B] The Expression "Payroll" 52 [C] The Leasing of Movable Goods and the Rendering of Services 54 [D] Revenues from Billings 55 [E] Financial Leasing and Rendering of Services 58 [F] Software and the Concept of Merchandise Interpretation of Tax Flanning 62 [A] Administrative Procedures in Brazil 62 [B] Tax Flanning in CARF Gase Law Interpretation of Tax Treaties 67 [A] Introduction 67 [B] The Vienna Convention on the Law of Treaties 68 [C] The OECD Commentaries 69 [D] Income from the Supply of Technical Services Conclusions 72 CHAPTER 4 Legal Interpretation of Tax Law: China Dongmei Qiu Introduction Rules on Legal Interpretation in General Tax System in China Judiciary Interpretation: A Weak Role in the Interpretation of Tax Law yg [A] Cultural Barriers gl [B] Legislative Obstacles 82 [C] Political or Institutional Hindrance 84 [D] Understatement of the Verdicts 84 xii

6 4.05 Administrative Interpretation: The Leading Force in Tax Law Interpretation and Policy Development Interpretation of Tax Law in Practice: A Prelude 89 [A] Interrelation between Judicial Interpretation and Administrative [B] Interpretation 89 Interrelation between the SAT and Local Tax Agencies on the Interpretation of Tax Law 91 [C] Interpretation of Double Tax Treaties 92 [D] Interpretation of Anti-avoidance Rules Interpretation of Tax Law in Practice 96 [A] Weihai (November 2010) 97 [B] Recharacterisation of Service Income as Dividend: 98 [C] Who Is the 'Beneficial Owner' under Tax Treaties? 100 [D] Permanent Establishment Arising from Cross-border Secondment A Brief Summary 105 CHAPTER 5 Legal Interpretation of Tax Law: The European Union Robert F. van Brederode & Tom O'Shea Introduction The Essential Role of Taxation in Realising the Internal Market Cooperation between National Courts and ECJ 112 [A] Function of Preliminary Rulings 112 [B] Conditions for Preliminary Ruling Request 114 [1] Relevance 115 [2] Acte Eclaire 116 [3] Acte Clair Interpretation of EU Tax Law 118 [A] General Approach of ECJ and Sources 118 [B] Application of European Legal Principles 119 [C] Transplanted Categories 124 [D] Conforming Interpretation 125 [E] Gase Law on Value Added Tax 127 [1] General Remarks 127 [2] Strict or Restricted Scope Interpretation 129 [3] Teleological Interpretation: General 132 [4] Teleological Interpretation: Neutrality Principle 137 [F] Gase Law on Corporate Income Tax 141 [1] General Remarks 141 [2] Freedom of Establishment and Host Member States 145 [a] Comparability 145 [b] Objective Justification and General Interest Justifications 146 xiii

7 [3] Freedom of Establishment and Origin Member States 148 [4] Strict or Restricted Scope Interpretation 149 [5] OECD Model Treaty Standards as Source of Interpretation 151 [a] Introduction 151 [b] The Interaction between Double Tax Conventions and EU Law 152 [i] General Remarks 152 [ii] The National Treatment Principle 153 [iii] Reverse Discrimination 154 [c] Neutralisation Abuse of Law in the EU Conclusions and Final Remarks 160 CHAPTER 6 Legal Interpretation of Tax Law: Germany Caroline Heber & Christian Sternberg Introduction The Canon of Interpretation Rules 164 [A] The Wording of a Provision 166 [B] Statutory System 167 [C] Purpose of a Provision 168 [1] Historical Interpretation: Legislative Intent 168 [2] Purpose of a Statute 169 [a] Purpose of Tax Laws 169 [b] Tax Law in the Overall Legal Framework and Transplanted Categories 170 [c] Economic Approach 171 [d] Argument for a Contrary Treatment Further Development of the Law by Judicial Interpretation 173 [A] Analogy 174 [B] Teleological Reduction and Extension 174 [C] The Rule of Law and the Principle of Separation of Powers Tax Flanning, Economic Approach and General Anti-abuse Rules Interpretation in the Light of Constitutional Law and European Union Law 180 [A] Constitutional Law 180 [B] Interpretation of German Tax Law in Conformity with European Union Directives Special Rules for International Tax Law 184 [A] Dualism 184 [B] Principles for the Interpretation of International Agreements 184 [1] General Observations 184 [2] Vienna Convention of the Law of Treaties 185 [3] OECD Materials 186 xiv

8 [C] Treaty Override Final Remarks 189 CHAPTER 7 Legal Interpretation of Tax Law: Hong Kong Andrew Halkyard Introduction and Background 191 [A] The Taxation System in Hong Kong 192 [B] Relations between the Central and Sub-central Government [C] in Terms of Taxing Power, Tax Collection and Revenue Sharing 192 The Role of the Doctrine of Precedent for the Courts when Interpreting Tax Law 193 [D] No Value Added Tax / Goods and Services Tax in Hong Kong 194 [E] Double Tax Agreements Domestic Rules for Interpreting Tax Law 194 [A] Historical Perspective 194 [B] The Modern Approach 196 [C] The Tax Avoidance Context 197 [D] What External Sources Can a Court Consider when Interpreting Legislation? 200 [E] Principles of Commercial Accounting 201 [F] Legislative Mistakes 202 [G] The Effect of the Bill of Rights Ordinance on Statutory Interpretation 202 [H] Transplanted Categories 203 [I] Administrative Concessions 203 fj] IRD Interpretation and Practice Notes 204 [K] Judicial Precedents and Judgments of Foreign (Commonwealth) Courts What Do the Courts Actually Do? 205 [A] The Tax Avoidance Context in a Nutshell: The Instructive Gase of Arrowtown 206 [B] Unfairness and the Difficulties in Applying the Purposive Approach: Braitrim 207 [C] The Problems of Balancing and Choosing between Competing Considerations: Turner Entertainment Networks Conclusions 211 CHAPTER 8 Legal Interpretation of Tax Law: Italy Carlo Garbarino Introduction 213 [A] Definitional Concepts about Interpretation in the Italian Tax System 213 xv

9 [B] Actor-based Interpretative Approaches and Italian Tax Law in Action 216 [C] Complexity of Tax Laws and Its Impact on Interpretation Strict Interpretation of Tax Laws 220 [A] The Piain Meaning of the Text 221 [B] Legislative Definitions and Conceptual Transplants Different Typ es of Purposive Interpretation of Tax Laws 224 [A] Intention-based and Systemic Interpretation 225 [B] Analogical Interpretation 226 [C] Extensive Interpretation 227 [D] Conforming Interpretation 229 [E] Tax Implied Norms and Tax Principles The Use of Purposive Interpretation to Address Tax Avoidance 232 [A] Basic Anti-avoidance Interpretation 233 [B] The Interpretive Argument Based on Substance over Form Established by the Italian GAAR 234 [C] Judicial Approaches to the Abuse of Tax Laws Interpretive Tax Norms and Guidelines 238 [A] The Conundrum of Statutory Interpretive Norms 238 [B] Non-statutory Interpretive Guidelines Interpretation of Tax Treaties 241 [A] Strict versus Purposive Interpretation and Three Methods to Interpret Tax Treaties 241 [B] Renvoi and Strict Interpretation of Tax Treaties 243 [C] Contextual and Autonomous Interpretation of Tax Treaties 244 [D] The Role of the OECD Commentary in the Interpretation of Italian Tax Treaties VAT Interpretation 247 CHAPTER 9 Legal Interpretation of Tax Law: Japan Yoshihiro Masui Introduction Background 252 [A] Constitutional Background 252 [B] More Institutional Backgrounds 253 [1] Accumulated Number of Court Cases 253 [2] Tax Mix 253 [3] Federalism Aspects 253 [4] NTA's Interpretation 254 [5] National Tax Tribunal 254 [6] Judiciary 254 [7] Contrast with Other Areas of Law Interpretation of VAT Law 255 xvi

10 [A] International 255 [B] Domestic 255 [1] In General 255 [2] VAT and Income Tax Compared 255 [3] Objective and Purpose of the Provision 256 [4] Predecessor Indirect Tax Laws Interpretation of Income Tax Law 257 [A] International 257 [1] Glaxo Case 257 [2] Other Treaty Cases 258 [B] Domestic 258 [1] Literal/T eleological Interpretation 258 [2] Transplanted Category 259 [3] Tax Avoidance: SAARs 260 [4] Tax Avoidance: Judicial Activism 261 [5] Common Sense 262 [6] Estoppel Conclusions 263 CHAPTER 10 Legal Interpretation of Tax Law: Russian Federation Danil V. Vinnitskiy Introduction Tax Authorities, Taxation and Judicial System 267 [A] The Interpretative Power of the Tax Authorities 267 [B] System of Courts and Their Interpretative Jurisdictions 268 [C] Tax System and Principles 271 [1] General Overview of the Russian Tax System and Recent Trends in Tax Policy 271 [a] Tax on Income of Natural Persons 271 [b] Tax on Profits of Organization 271 [c] Other Business Taxes 271 [d] Value Added Tax 272 [e] Excises 272 [f] Recurrent Taxes on Capital 272 fg] Non-recurrent Taxes on Capital 272 [h] Compulsory Social Security Contributions Faid to Government 273 [i] Environmental Taxes 273 [j] Other Taxes 273 [2] Principles of Russian Tax Law and Interpretation Rules 274 [a] General Constitutional Framework for Legal Interpretation by the Tax Authorities 274 [b] Principle of Legality in Russian Tax Law 274 xvii

11 [c] Principle of Determinacy in Russian Tax Law 275 [d] Principle of Equality and Proportionality in Russian Tax Law 275 [e] Presumption of Bona Fide and the Bürden of Proof in Russian Tax Law 276 [f] Right of Appeal and Comprehensive Court Control 276 [g] Compensation for Damages Incurred as the Result of Unlawful Actions Administrative Interpretation in Russian Tax Law 277 [A] Individual Acts of Interpretation Issued by Tax Authorities 277 [1] General Overview 277 [2] Legal Framework and Nature 278 [3] Subjective Scope and Objective Scope of a Tax Ruling 280 [a] Applicants Entitled to Obtain a Ruling 280 [b] Issues for Which a Ruling May Be Requested 281 [4] Issuing Authorities: Tax and Financial Bodies 281 [5] Protection Enjoyed by the Recipient of a Ruling (Act of Official Interpretation) Juridical Interpretation in Russian Tax Law 284 [A] Introduction 284 [B] Judgments of the Courts as Acts of Interpretation and Sources of Law 284 [1] Approaches of Academics and Practitioners 284 [2] The Legislative Basis for the Judicial Role 285 [3] Special Cases of Procedural Retroactivity in Judicial Interpretation 287 [C] Judicial Interpretation and Anti-avoidance Doctrines in Russian Tax Law 287 [1] General Overview 287 [2] Fluctuations in Precedent Interpretation of Tax Treaties in the Russian Legal System 291 [A] General Overview 291 [B] Gase Law on Thin Capitalization Rules and Non-discrimination Clause as Examples of Tax Treaty Interpretation 292 [1] General Overview 292 [2] The Application of Domestic Anti-avoidance Measures to Deny Treaty Benefits Conclusion 294 CHAPTER 11 Legal Interpretation of Tax Law: Republic of South Africa Roberte. Williams Introduction 295 xviii

12 11.02 The Interpretation of Fiscal Legislation 299 [A] The Intention of the Legislative 299 [B] There Is No Equity about a Tax 302 [C] Contra Fiscum Principle 303 [D] The Natal Joint Municipal Pension Fund Gase 304 [E] Interpretation Notes and Advance Tax Ridings Disguised Transactions Double Taxation No Doctrine of Economic Equivalence Latin Maxims in Statutory Interpretation 309 [A] Expressio Unius Est Exclusio Alterius 309 [B] Eiusdem Generis 310 [C] Mutatis Mutandis The Interpretation Act Statutory Definitions Commencement of Statutes, Retrospectivity and Repeal The Tax Court The Tax Board The Doctrine of Judicial Precedent Internal Practices of the South African Revenue Service Constitutional Aspects of Tax Double Tax Agreements 316 CHAPTER 12 Legal Interpretation of Tax Law: United States Steve R. Johnson Governmental, Fiscal, and Judicial Structures 319 [A] Governmental Structures 319 [B] Fiscal Structures 320 [C] Judicial Structures Interpretation of International Tax Agreements Interpretation of Domestic Law (VAT) 322 [A] Absence of Federal VAT 323 [B] State VATs 324 [C] Judicial Interpretation of State VATs Interpretation of Domestic Tax Law (Non-VAT) 326 [A] Sources of Tax Law 326 [B] Interpretational Elements 328 [1] Text and Context 328 [2] Purpose 329 [3] Canons of Construction 330 [4] Administrative Interpretations 331 [5] Judicial Precedents Interpretational Approaches 333 [A] Competing Approaches 333 xix

13 [1] Literalism 333 [2] Textualism 334 [3] Intentionalism 335 [4] Purposivism 338 [5] Dynamism 339 [6] Pragmatism 340 [B] Prevalent Approaches 341 fl] Interpretive Body 342 [2] Era 342 [3] Institutional Reactions 343 [4] Is Tax Different? Particular Interpretational Issues 345 [A] Transplanted Character 345 [1] Accounting Principles 345 [2] Predecessor Regimes 346 [3] Law from Other Jurisdictions 346 [B] Legislative Direction of Interpretation 347 [C] Correcting Legislative Errors 348 [D] Incidence of Tax 349 [E] Interpreting Concessions 349 [F] Tax Flanning versus Anti-abuse 351 Bibliography 355 Table of Cases 379 xx