Tax Avoidance and the Law

Understanding the UK General Anti-Abuse Rule

Selina Keesoony

• Publisher: Routledge
• Year: 2022
• ISBN:
  9781000598445
• Edition: 1
• Topic: Law
• Subtopic: Law Theory & Practice
• Index: Law

Tax Avoidance and the Law is a helpful guide for undergraduate and postgraduate students who want a thorough understanding of this dynamic area of law. The book is written in a way which is easy to follow and conveniently summarises complex case law on tax avoidance.

Tax Avoidance and the Law explores the evolution of the UK's General Anti- Abuse Rule. It provides a useful comparison with other Western jurisdictions' anti-avoidance legislation, including the United States of America, Australia, New Zealand, South Africa, Canada and the EU. The underlying theme of the book rests on the notion that the taxpayer's subjective motives, intentions or purposes are irrelevant when assessing tax liability.

The book enables students to gain a good grasp of the fundamental issues in tax avoidance in a clear manner.

1 Defining motive, purpose and intention

DOI: 10.4324/9781003080473-2

The jurisprudence on tax avoidance widely uses the terms “motive”, “intention” and “purpose”, often interchangeably. However, there has been no real attempt at providing definitions for these terms. The lack of clear definitions is problematic given that the terms have important connotations in tax avoidance, particularly when ascertaining whether a transaction was not executed merely for tax avoidance reasons. Consequently, it is imperative to provide clear definitions for these terms to provide greater precision in the use of language and to ensure that they are applied in the correct manner.

The terms “motive”, “intention” and “purpose” have also been used widely in an array of other disciplines and are often used in different contexts to denote different meanings. Therefore, an exploration into how these terms are used in criminal law, psychology and philosophy will be made. These areas have been chosen as they regularly examine motives, intentions and purposes. Consequently, analysing how these selected areas have used the terms “motive”, “intention” and “purpose” will provide a deeper understanding of how these terms should be defined. Moreover, the way in which motive, intention and purpose are used in trading, expenditure, accountancy and dividend stripping will be examined in order to identify possible convergences in the usages of the terms. Definitions of these terms will then be created in order to provide clarity as to what is precisely meant by “motive”, “intention” and “purpose” in tax avoidance and what is not. These definitions will be provided at the conclusion of this chapter. Emphasis on these terms accordingly rejects actions explained by the general “doctrine of instincts”¹ as this unscientific approach “ends our search and drives us into the unknown”.²

1.1 Criminal law perspective

Criminal law places significant weight on the mind of the defendant to determine criminal liability; therefore, it is surprising that the terms “motive”, “intention” and “purpose” have not been defined or differentiated in this field. The subjective perception of a defendant is central as defendants are usually “held criminally liable only for events or consequences which they intended or knowingly risked”.³ The defendant’s intention and motive are significant when the defendant’s mens rea is sought in order to establish fault.

There are some areas of criminal law which place much weight on the subjective intentions of defendants and others which do not: for example, driving offences, which are strict liability offences. Consequently, motives are irrelevant in these cases, and the person charged with the offence can thenceforth be “convicted without proof of intention, knowledge, recklessness or negligence”.⁴ Although strict liability offences eliminate the risk of a motive being attributed to the defendant, they diminish the defendant’s “ability to explain, excuse or justify the conduct”.⁵ This can be distinguished from a more objective form of mens rea, as discussed later in this chapter.

Constructive liability specifically examines the defendant’s intention. “Constructive crimes”⁶ are a category of crimes in which the defendant sought to commit a less serious crime but is convicted of a crime with a heavier penalty. By analogy, in the tax avoidance field, in which the avoidance of tax is not the aim but, nevertheless, the result, a tax avoidance intention may be attributed to the taxpayer, as demonstrated in Five Oaks Properties Ltd. v HMRC.⁷ In criminal law, the argument which defends imposing constructive liability rests upon an assumption that people should be liable “for what they intended or foresaw and for what lay within their control”.⁸ Intention, therefore, includes what the defendant fore-saw in terms of the consequences of the defendant’s actions to indicate a realistic possibility of the prohibited act materialising and excludes remote possibilities. Foreseeability is highly subjective, although the control requirement contributes an objective dimension to the concept of intention to curtail liability according to what lay within the defendant’s control, irrespective of what the defendant desired.⁹ Moreover, foresight is an important element of intention as “consequences intended are necessarily foreseen, but not all consequences foreseen are necessarily intended”.¹⁰ Therefore, if the defendant foresaw a result, he or she is taken to have intended that result. Foreseeability is thus a less certain measure of future events occurring than intentions. This is because what is foreseen may not materialise or may materialise differently to a person’s original intention.

The subjectivity of the mens rea requirement is reinforced in “the belief principle”,¹¹ which relates to “what defendants believed they were doing or risking, not on actual facts which were not known to them at the time”.¹² The belief principle strongly values the subjective beliefs of the defendant and disregards what he or she ought to have known, thereby discounting the need for an ascribed secondary intention. Implicit in the mens rea requirement is the need for an element of choice on the part of the defendant.¹³ Therefore, choice can help form the definition of “intention”. Requiring that the defendant made a conscious choice also implies that the defendant is aware of the consequences of his or her actions but has nevertheless knowingly chosen to embark on a particular course of action. Proving that the defendant has made a conscious choice is essential in valuing the defendant’s autonomy.¹⁴

Whilst an intention can relate to what the defendant believed and the likelihood of it occurring according to what lay within the defendant’s control, a motive can be relevant when examining “rationale-based defences, such as self-defence and duress”.¹⁵ Where a defendant seeks to rely on “rationale-based defences”,¹⁶the defendant both does the prohibited act and intends to commit the act. However, the motive behind committing such offences is what diminishes liability as there are ulterior reasons for carrying out the prohibited act. Therefore, examining motive scrutinises the defendant’s mind further than an intention by examining the reasons for embarking on the chosen act.

Although discussing tax law, Millet sought to discuss the meanings of the terms “motive”, “intention” and “purpose”. The discussion is relevant under criminal law due to the nature of the example he gives to illustrate how the various definitions work in practice. Millet has asserted that “‘motive’ is the reason why; ‘purpose’ is the aim, or object, or end in view”.¹⁷ The aforementioned terms are all considerations which are...

Table of contents

• Cover
• Half Title
• Series
• Title
• Copyright
• Dedication
• Contents
• Acknowledgements
• Introduction
• 1 Defining motive, purpose and intention
• 2 A move towards motive, intention and purpose
• 3 The GAAR provisions analysed
• 4 General anti-avoidance legislation in other jurisdictions
• 5 Discretion under the UK GAAR
• 6 Criticisms of the GAAR
• 7 Was the GAAR needed?
• 8 Conclusion and recommendations for reform
• Index