A Changing Role for the Administrative Law of Taxation

Date01 June 2015
Published date01 June 2015
Subject MatterArticles
SLS572672 251..270
Social & Legal Studies
2015, Vol. 24(2) 251–270
A Changing Role for
ª The Author(s) 2015
Reprints and permission:
the Administrative
DOI: 10.1177/0964663915572672
Law of Taxation
Dominic de Cogan
University of Cambridge, UK
This article examines reassurances by the Organization for Economic Cooperation and
Development that administrative cooperation between tax officials, professionals and
taxpayers is consistent with equal treatment under democratic rules. They are found to
be unconvincing on the grounds that they overlook the flexibility of language and the
construction of interpretative consensus within groups of highly trained experts. They
also seem to overstate the likelihood that a court will intervene to clarify the ‘correct’
reading of a given provision. Nevertheless, the UK courts courts are starting to develop
the existing tools of administrative law into an effective system of oversight of tax
interpretation. They have not yet managed to forge this into a fully logical approach that
balances efficient administration and constructive relationships against the competing
values of consistency and democratic accountability. The article reviews the difficulties
underlying this position and suggests some ways forward.
Administrative law, democracy, epistemic communities, indeterminacy, interpretation,
judicial review, taxation
A recent Organization for Economic Cooperation and Development (OECD) report
advocating administrative cooperation between tax authorities and taxpayers acknowl-
edges the importance of maintaining equal treatment of taxpayers under a democratic tax
Corresponding author:
Dominic de Cogan, Faculty of Law, University of Cambridge, 10 West Road, Cambridge CB3 9DZ, UK.
Email: dad34@cam.ac.uk

Social & Legal Studies 24(2)
system. Reassuringly, though, the report allays concerns that the participants in formal
cooperation initiatives might be able to negotiate lower tax charges for themselves.1
[C]o-operative compliance . . . should not result in a different or more favourable tax out-
come for the taxpayer. . . . As the outcome of co-operative compliance in terms of the tax
that is payable by a large business should be the same as that of a more traditional audit or
enquiry based approach, this does not raise any issues in terms of equality before the law.
(OECD, 2013: 45–46)
The subsequent section of the report repeats the point but from the opposing perspec-
tive of a revenue authority achieving an advantage.
Ultimately it is for the courts to decide how the legislation should be applied to the partic-
ular facts of a case if the parties cannot agree. If co-operative compliance did not allow . . .
access to the courts to settle those differences if necessary . . . that would entail paying tax
in excess of the amount legally due on those occasions when the view of the revenue body is
not supported by the courts, or would not have been had they been asked to consider the
matter. (OECD, 2013: 49)
The assumption here is that the law establishes an objectively correct amount of tax to
be paid in any given situation. Administrative cooperation is accordingly a convenient
way to secure the correct payment but not a process of negotiation in which a taxpayer
might hope to influence the amount owed in the first place. It is argued below that this
view must be nuanced in the light of recent controversies relating to tax interpretation;
indeed the development of workable and mutually advantageous readings of legislation
seems to be one of the main reasons why tax officials and non-governmental experts
cooperate at all. Yet the OECD reaches at something important in mentioning the role
of the courts in providing boundaries for administration. In an earlier age, English judges
reacted to concerns about secondary legislation and administrative discretion by issuing
remedies against public bodies that exceeded their statutory powers. This expressed their
willingness to undergird the equal treatment of regulatees under rules that were traceable
to the democratic process,2 without neutralizing executive discretions that had them-
selves originated from the Parliament.
The world has moved on since the inception of modern English administrative
law, and in particular, there has been a well-documented equalization of bargaining
power between public officials and certain regulatees with the consequence that
compliance must be ensured by ‘horizontal’ methods of encouragement and persua-
sion rather than ‘vertical’ authority alone (Bekkers et al., 2007, Chapter 1 ). Never-
theless, it is contended in this article that the UK courts are again adapting their
conceptual tools to the defence of equal treatment and democratic accountability,
this time in the light of private sector interpretative power. All the same, the devel-
opment of a convincing oversight of cooperative compliance by courts and other
institutions remains a work in progress. There are still illogicalities to be addressed
and threats to be countered if the OECD’s reassuring yet potentially misleading
words are to be given real substance.

de Cogan
Rule Interpretation and Cooperation
It was once believed that to understand a tax provision one had only to ‘adhere to the
words of the statute’ (Partington v. AG). To the extent that this indicated a uniformly
literalist approach to statutory interpretation, it no longer represents the UK law
(Barclays Mercantile). Nevertheless, there are many who hold the old-fashioned but still
enticing view that each provision has a ‘correct’ meaning and correct application in any
given circumstances, which can be stated by a court, if necessary. This ‘declaratory the-
ory of adjudication’ entails that the authoritative decision of a judge on the meaning of a
provision reveals what it has always meant and thus takes retrospective effect.
At one stage, this belief in a correct answer was associated with a traditional concep-
tion of compliance whereby an agency of executive government was expected to enforce
the law and punish recalcitrant regulatees.3 More recently, however, intellectual fashion
has shifted towards the seminal ideas of Ayres and Braithwaite (1992) in Responsive
Regulation. The insight of this book is that regulators can switch between different
means of securing compliance, depending on industry structure, behaviour and various
other factors. Tough enforcement strategies should be applied where needed but in other
circumstances a more cooperative approach might be preferred or even an outright dele-
gation of responsibility to the private sector.
Such ideas have been welcomed broadly as tax authorities seek to protect revenues in
the context of constrained public sector resources and an emerging class of taxpayer that
shows little patience for traditional borders and expects to be treated as the equal of tax
officials. The OECD has itself engaged with the debate over the last decade with a series
of working papers and reports that track the growing popularity of responsive regula-
tion,4 refine its application to tax compliance and address frequent concerns. These ini-
tially referred to an ‘enhanced relationship . . . between revenue bodies and large
corporate taxpayers’ (OECD, 2008: 39) but the OECD now prefers the label ‘co-
operative compliance’ (OECD, 2013: 16; van der Enden and Bronzewska, 2014). In part,
this change in terminology was designed to downplay concerns that taxpayers with close
relationships to officials might achieve not only a more efficient compliance process but
also ‘enhanced’ substantive tax outcomes. Indeed the latest study replies explicitly
(OECD, 2013: 47–49) to suggestions that the benefits of cooperative compliance might
elude small businesses (Freedman, 2012: 650) or that it might be used to force revenue
opinions onto taxpayers (Freedman et al., 2009).
A more fundamental difficulty emerges from the contention that powerful taxpayers
can ‘game’ responsive regulation by presenting themselves inaccurately as fully compli-
ant, calculating that the putative ‘tough’ enforcement is unlikely to materialize (Osofsky,
2012). The problem is that there are often disputes as to what compliance means in any
given statutory context. This returns us to the controversy of whether there is a correct
and ascertainable reading of every provision that can be used as a point of reference. If
there is, a taxpayer who refuses to conform to that reading is by definition non-compliant
and can fairly be subjected to coercive regulatory techniques. If not, the enforcement
emphasis cannot in a straightforward sense be on those who are ‘wrong’ and might
instead shift to those who refuse to engage with officials, which is a very different matter
(see also Burton, 2007: 78). The literature can be quite equivocal on this point. In one

Social & Legal Studies 24(2)
important article, it is argued that responsive regulation provides an opportunity for tax
professionals to ‘come to some agreement about why the law is there and what it means’
but also that ‘coercive power exists and can be used [to elicit] the desired response’
(Braithwaite, 2007: 4–7). This raises, tantalizingly, the question whether the ‘agreement’
can have any bearing on the ‘desired response’ but does not offer a concluded answer.5
Indeterminacy and Social Construction
The problem of understanding whether administrative cooperation facilitates compli-
ance with objective legal criteria, or in addition helps to...

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