Tax law is an extremely complex and variable, and perhaps even unreliable affair. One may dream of a very simple tax system but that would not match modern society’s complexity. Simple legislation would go at the expense of distributive justice. Moreover, legislation has to cope with societal and economic developments such as individualization, globalization, digitalization and climate change. Another main cause of tax complexity is the use of tax legislation as an instrument for micromanaging the society and economy. The sheer regulatory hyperactivity often amounts to shortsighted hubris. Of course, legislation is often creatively circumvented by taxpayers or used in (other) ways the tax administration (HMRC) dislikes. Tax administration’s feedback may lead to changes in tax legislation – adding another layer to the existing complexity.
Hardly any tax professional has a thorough understanding or overview of the entire tax system. The tax profession is highly specialized. Consequently, a VAT specialist will have little to say about personal income tax or vice versa. This compartimentalisation of tax knowledge and expertise applies to tax administrators, tax adviser and tax scholars alike.
What about taxpayers? It would be nice if taxpayers know their rights and obligations. But it does not come as a surprise that taxpayers often find it hard to cope with the bewildering tax complexity. Understanding tax legislation and case law (even if) accessible requires legal exegesis which is an art not many lay persons have mastered. Filing a tax return, especially in case of life time events, such as buying and mortgaging a home can be a taxing and even vexing task.
Fortunately, the tax(wo)man hastens to help. Modern tax administrations are acutely aware of the difficulties people face because they have to cope with complexities of the tax system themselves. Therefore, tax administrations provide taxpayers with information: this information may be of a general nature, on a website, through publications, or through helplines but can also be more tailored to the facts and circumstances of an individual taxpayer. The tax administration may even orally or in writing promise how it will apply the law to the particular facts and circumstances of a taxpayer – providing the taxpayer with more certainty. But does it?
This provision of information is the subject Stephen Daly’s fine monograph Tax Authority Advice and the Public. Given the extremely complex nature of tax law and the massive amount of taxpayers, tax authority’s assistance to those who lack tax knowledge should be an important academic research topic. The book is about advice to taxpayers – occasionally he also deals with internal advice directed at tax officials. It expertly sets out the relevant law using doctrinal literature and develops a normative framework to assess the existing system. This framework informs reform proposals.
In passing, I note that the term ‘advice’ has a double meaning which it may not have in other languages and jurisdictions. In Dutch, to advise means to tell someone what you think he should do, as tax advisers do, but not to explain what the law says or give information on how it will be applied. It not the tax authority’s task to advice in the latter sense.
Daly argues that the provision of advice by HMRC is desirable by virtue of the rule of law. Although the rule of law is an ‘elusive concept’, referring to Dicey, Raz, Lord Bingham, Fuller, and Hayek, he contends that the general consensus clearly is ‘that laws ought to act as guidance for individuals.’ A citizen, before committing herself to any course of action, must be able to know in advance the legal consequences that will follow. The rationale of this ‘thin account of the rule of law’ (Tasioulas) is the protection of human dignity or autonomy. Thus, the provision of advice by a tax authority enhances human dignity rather than simply legal certainty. To my mind, it is still a bit skinny, why not include legal equality as a value to be served by the rule of law?
The rule of law’s objective is to restrain political power and to offer protection against arbitrary interferences with individual rights and liberties by the public authorities. This also goes for the exercise of power to enhance citizen’s positive liberty. Government must function through laws, i.e., through general and abstract norms rather than specific and concrete decrees. This general law is a general and abstract norm, promoting certainty, equality, and personal liberty (autonomy). The capacity of law to provide certainty depends on a purely formal characteristic of law, namely its abstractness. By contrast, the capacity of law to promote equality stems from another formal characteristic of law, viz. the nature of the general norm as one which applies not just to an individual but to a class of individuals and which can even be formed by all the members of a social group. Thus, the values certainty, equality, and autonomy or human dignity are underpinning all lawmaking, application and enforcement.
But what about taxpayers? They can access legislation on internet. But it will be hard to understand tax law (and case law) because the lack of transparency due to the excessive tax complexity. Taxpayers thus depend on translation by the tax administration for their understanding of the tax consequences of their actions. This advice provides certainty and, being open to all taxpayers, serves equality. For Daly this equal accessibility is a matter of equity, a component of the thin conception of the rule of law, he says. Laws should be accessible to those that are affected by them, and thus should make no distinction between differently placed taxpayers. Thus, equality enters the scene by the backdoor.
Laws do not apply themselves and they are often unable to speak with precision owing to the difficulty of any general rule embracing all particulars. The (tax) administration has to apply the general rule and consequently has to decide upon the best interpretation to give effect to legislature’s intention. In doing so the tax administration has to advance the rule of law by respecting the values of certainty and equality underpinned by human dignity. It has to guarantee a uniform administration of the law by tax officials – this goes all the more because of HMRC’s (legal and factual) discretion. In order to do so is has to establish a policy with regard to the interpretation and application of the rules it administers and lay them in internal rules to instruct the officials (once these administrative rules without direct statutory authority were called ‘quasi-legislation’). Daly correctly points at the ‘two-way nature’ of this internal advice, even where it is primarily directed at officials, it can nevertheless impact taxpayers.’ Since these internal rules directly affect taxpayers they should be published so as to enable taxpayers to access them.
But the tax authority has some latitude as to how it carries out the task of collecting taxes which is rooted in managerial discretion, a third type of discretion. Daly analyses shows that according to case law HMRC’s responsibility of tax collection is accompanied by another responsibility, that of care and management. Since it is plainly impractical to collect every part of tax due, the latter responsibility ‘dilutes’ the former. The recognition of practical limitations to tax collection gives rise to (wide) managerial discretion ‘to formulate policy in the interstices of the tax legislation’ [Lord Hoffmann]. Regulating these interstices, that is, minor anomalies or cases of hardship at the margins, would clearly be disproportionately time-consuming for Parliament. Publication of these kinds of concessions from the strict application of the law enhances certainty, equality, and autonomy or human dignity. More generally, communication of the rule-making adopted by HMRC falls properly within HMRC’s managerial discretion: it is accepted as an efficient and cost-effective way to give effect to laws and to collect and manage taxes.
Advice comes in two forms: general and individual advice. Assistance to taxpayers in ‘informal’ ways such as through helplines is an example of advice provided directly to individuals. A ruling (‘advance clearance’) is a more formalized avenue: this is a written piece of advice issued to an individual taxpayer by HMRC in response to a request setting out HMRC’s views on the tax implications of specific transaction or arrangement. A ruling can be prescribed by legislation as a clearance procedure. Their statutory force makes these formal rulings automatically binding without the need to rely upon public or private law remedies. In other circumstances taxpayers may want to get an informal ruling, that is non-statutory clearance. Unfortunately, there is not a general right of appeal in case of disagreement.
General advice, often referred to as ‘guidance, is commonly less specific than individual advice since it is directed to taxpayers in a class of or as a whole, for example codes of practice, extra statutory concessions and manuals. Some items of general advice have the force of law. If this is not the case, the taxpayer has a problem if HMRC resiles from its position. Then a UK taxpayer of course wants to take back control. … Again, the Dutch may come to aid. Unlike King Billy though in a rather peaceful way. According to Article 4:84 of the Dutch 1994 General Administrative Law Act the administrative authority shall act in accordance with the administrative policy rule. So general advice in the form of administrative rules that sets out the tax administration’s policy with regard to the interpretation of the law and extra statutory concessions are legally binding.
This is the issue of remedies which Daly elaborates upon as part of his normative framework for HMRC advice. He derives this framework from the thin conception of the rule of law. The starting point of the framework is the requirement of ‘prescribed by law’ in case of interventions with certain rights and freedoms. According to the case law of the European Court of Human Rights this requirement implies two qualities: accessibility and foreseeability. The framework translates accessibility and foreseeability into five benchmarks: correctness, clarity, accessibility, scrutiny, and reliability (remedies; though such mechanisms embody primarily enforceability rather than reliability, to my mind). Correctness means that advice should illuminate the correct tax outcome, and clarity entails foreseeability. Thirdly, there is accessibility within which four aspects are to be considered: availability, open to all, no retrospectivity, no mingling of different categories of advice.
Four comments: the starting point for the framework for advice are two benchmarks for (the substance of) law, but not all advice is legally binding (which does not imply that is unlawful), as we saw above. Neither does Daly advocate this. So, is ‘prescribed by law’ really a logical benchmark to start with? However, even from a purely legal starting point additional benchmarks are conceivable, timeliness, an element of legal certainty, springs to mind. Communication theory will probably provide other benchmarks for advice, especially with regard to correctness, clarity and accessibility which moreover may also work well for legally binding advice. Next, Daly unfortunately does not explain how these five benchmarks exactly are derived from ECHR’s requirement of ‘prescribed by law’ or ‘accessibility and foreseeability.’ The procedural benchmarks of scrutiny and reliability, in the sense of remedies, seem to quite indirectly related to accessibility, and foreseeability – since most taxpayers will HMRC deem reliable if it delivers on its advice – without the need to resort to a remedy with an uncertain outcome. Furthermore, if you go for legality requirements, why not use Lon Fuller’s famous desiderata of legality (‘internal morality of law’), which would for example add the desiderata of non-contradiction and compliability (laws should not require the impossible)?
The author proceeds by giving a nuanced analysis of the benchmarks of correctness, clarity and accessibility. Sometimes a simple solution seems to be available as in the case of miscategorisation (mingling), caused by the lack of a coherent system for the production of HMRC advice. A practical consequence is that it can be a trap for the unwary taxpayer who has assumed that the publications contained merely a description of the law rather than some concessionary element. To my mind, this problem could be easily resolved by explicitly mentioning the legal status (binding or not) in a piece of advice.
Scrutiny ensures the first three benchmarks. Formal oversight is exercised by select committees along with the Comptroller and Auditor General and National Audit Office (unlike the Netherlands not independent from Parliament). The constitutional reason, the author says, is that HMRC is a non-ministerial public body – unlike the Dutch tax administration – and therefore ministerial responsibility and political/democratic accountability are lacking. The scrutiny by Adjudicator and Ombudsman (again, unlike the Dutch Ombudsman not independent from Parliament; the involvement of a local MP seems to entail a risk of politicization) has some merit. The tribunals and courts however are hampered. Lastly consultation with taxpayers and representative groups, including professional bodies is discussed. Here, HMRC’s Tax Consultation Framework is relevant. Daly criticizes the ad hoc nature of the promulgation and amendment of advice. He concludes that robust scrutiny is lacking.
Earlier on it was said that formal rulings are binding on HMRC, but can taxpayers rely on advice outside of this context? According to HMRC its advice can be binding, but it qualifies this general position in several respects. Are there effective remedies available if taxpayers think that HMRC reneges on its advice? Daly convincingly demonstrates that protection, through public and private law and non-court mechanisms, seriously falls short.
The foregoing shows that HMRC’s provision of advice is in urgent need of reform. Therefore, the normative framework is used to assess the Australian ruling model and subsequently make a range of proposals which can be adopted in the UK in order to advance the rule of law in respect of HMRC advice. Daly recommends the establishment of a broad binding rulings regime incorporating both private and public rulings. With regard to the latter, he proposes a ten-stage process which also allows the taxpayer to challenge a public ruling in the tribunals (and then the courts). It is quite incomprehensible that this is not possible yet. The same goes to my mind for the general rule that the unsuccessful party will be ordered to pay the costs of the successful; though perhaps understandable as a principle of private law, it is does not fit in tax law which is characterized by legal asymmetry. A tax authority practically has the capacity to unilaterally determine the tax liability of the citizen and enforce its decision against the taxpayer’s will – as most taxpayers are very reluctant to go to court. This justifies a high level of legal protection and easy access to justice. Lastly some useful proposals are made in respect of individual and general advice emanating from findings in earlier chapters where applying the benchmarks showed shortcomings.
It’s time to wrap up this review. This is a nicely structured book on the provision of advice by HMRC which explains the deficiencies in the current system. A useful normative framework is developed for assessing reform proposals. Moreover, it offers a solid basis for comparison and assessment of the legal framework and actual practice of tax authority’s advice in other jurisdictions.
Professor Hans Gribnau is a Professor at the Universities of Leiden and Tilburg