Introduction

There is an inverse relationship between quantity and quality with respect to many things, including writing about tax avoidance. Everyone working in the tax area has views about tax avoidance and almost everyone, it seems, feels an irresistible urge to inflict these views on others. Most of the writing on tax avoidance is in the nature of fast food: quickly prepared, consumed, digested and forgotten – and, if consumed in excessive quantities, dangerous to your (mental) health. In a fast-food world, master chefs are revered and celebrated. Professor John Tiley is a master chef with respect to offerings about tax avoidance. His writings about controlling tax avoidance constitute the fine-dining experience, the Michelin three-star restaurant in a world of greasy spoons, chains and all-you-can-eat buffets. It is fitting that we celebrate his contributions.

The subject of my paper is a comparison of a statutory general anti-avoidance rule and judicial general anti-avoidance doctrines as methods of controlling tax avoidance. The paper assumes, fairly I think, that specific statutory anti-avoidance rules and limited judicial anti-avoidance doctrines such as sham are necessary but not even nearly sufficient to deal effectively with tax avoidance. The issue can be framed in a number of ways.

Introduction

It is risky, foolhardy even, to contribute an essay on anti-avoidance issues to a collection honouring John Tiley. No one deserves to be honoured more than John, of course, and anti-avoidance doctrine is one of his specialties. But what can I write that he does not already know or that he could not say more elegantly?

In fact, Tiley knows more than I do about everything (except maybe – maybe – baseball), and that includes American tax law. In a project Tiley undertook while visiting Case Western Reserve University in 1985–86, he studied anti-avoidance doctrines developed by US courts. In the resulting trilogy of articles in the British Tax Review, Tiley not only educated British lawyers about US law (and argued against unthinking importation of that law into the UK); he also forced those of us in the colonies to reconsider our instinct that substance should generally trump form. The US and the UK have different views about the relative importance of substance and form, and John was unconvinced that his home country had the worse of the arguments.

In Chapter 3 of this volume, Marty McMahon discusses the evolution of judicial anti-avoidance theory. I will make reference along the way to the judiciary, which has played such an important role in American anti-avoidance jurisprudence, but the focus of this essay is different. I examine statutory and regulatory developments that are changing American anti-avoidance law – with the hope that something here is new to Tiley.

Introduction

Both the UK and the US have extraordinarily detailed revenue laws, although they differ in structure. The UK income tax is schedular, while (with some exceptions) the US federal income tax tends to a global computation. In both countries, the complexity of the statutes, which is itself intended to reduce ambiguity and tax planning opportunities, in fact often gives rise to unintended tax planning schemes.

As John Tiley so cogently notes in his magnificent treatise, Revenue Law, ‘[n]o legislature can allow taxpayers to continue to arrange their affairs in such a way that the tax system becomes voluntary (pay the Revenue or pay an advisor) …’ Yet in both the US and the UK, the statutory pattern is such that taxpayers frequently arrange transactions to fit literally the statutory language with the goal of reducing the tax burden on the particular transaction or even to create an apparent loss that might be offset against income from other transactions in calculating their income tax liability. This behaviour creates a dilemma for the legislature, the tax administrators, and the courts, because, as Tiley also notes –

The judiciary in both the UK and the US must constantly grapple with this tension in interpreting and applying the revenue laws.

I was pleased and honoured to be asked to write a foreword to this collection of essays in honour of John Tiley, an old friend and respected colleague. Both the substance of the contributions in the collection and the status of the authors show the esteem in which the international tax community holds John.

It is appropriate that the title of the collection involves comparative perspectives on revenue law, as John's scholarship and academic activities were centred on comparative interests. He has been a visiting scholar at many foreign institutions, particularly in the US and France, and that experience gave a depth and substance to his comparative writing. In the other direction, he was the point of reference for all comparative work which deals with UK law. He was a welcoming host to many visiting scholars who made Cambridge a necessary stopping point in their scholarly travels. (And further he endeared himself to his international colleagues by writing a very useful essay on the double tax problems faced by travelling academics.)

John brought a unique style and approach to writing about tax law. As Brian Arnold puts it in the culinary metaphor with which he introduces his contribution to this collection, John Tiley is a ‘master chef’ when it comes to tax law scholarship. His offerings are many and varied and always have a special flavour.

Introduction

In pre-industrial societies, the structure of land ownership and tenure is central to the fiscal capacity of the state, the structure of society and politics and the pattern of economic growth. Land is obviously visible and measurable, and can therefore be taxed more easily than the profits of trade or industry. But a number of questions immediately arise, not least because the claim of the state for taxes collided with the demands of the landlord for rent and of the occupier for subsistence and profit. The state might side with the landlords to collect taxes in return for support of their claims to greater power and authority; or the state might opt to back the proprietors, improving their security of tenure in return for taxation. Of course, in societies of small independent proprietors, these trade-offs did not apply and the state might prefer to have a direct relationship with owner-occupying yeomen or peasants.

The choice was not only a matter of fiscal extraction, for it also had implications for economic growth. Which is more likely to lead to growth: small proprietors willing to invest their energy and capital in land; or economies of scale from large estates? Critics of small proprietors complained that they were inefficient, lacking sufficient capital and skill; and opponents of great estates argued that they led to exploitation and a society based on bitter conflict.

INTRODUCTION

Autocrats have a hard time enforcing political order. They are unable to rely solely on coercion to enforce rules against their subordinates in the state apparatus, the citizenry, and powerful members of the ruling clique0. This chapter explores the various strategies the Mexican autocratic regime employed to enforce political order and how courts were transformed from weak to more powerful institutions.

In democratic political systems, courts are employed to arbitrate all sorts of conflicts, ranging from commercial disputes, labor disagreements, and criminal cases to major constitutional conflicts arising between citizens and the state and between different branches and levels of government. Autocrats employ courts to enforce their commands directed to bureaucratic subordinates and the citizenry, but they normally do not resort to these institutions to arbitrate conflicts among members of the ruling elite. These types of conflicts are more likely to erupt into violence. What alternative instruments do autocracies use to enforce political order and arbitrate conflicts among members of the ruling elite? When are autocracies likely to empower courts to settle political conflicts? What other roles do courts play in autocratic regimes? This chapter answers these questions in the context of Mexico.

The literature stresses that autocracies often turn to courts as mechanisms for inducing bureaucratic discipline within the administrative apparatus (Moustafa 2006; Shapiro 1981). Akin to “fire-alarm” oversight mechanisms (McCubbins and Schwartz 1984), this form of oversight is driven by the citizenry, who can generate an independent stream of information about bureaucratic abuses that other forms of vertical oversight cannot.

INTRODUCTION: AUTOCRACY, LAW, AND DEVELOPMENT

A staple of the development policy literature is the idea that a better quality legal system will help generate economic growth, which in turn builds constituencies for democratic reforms. Yet the causal linkages between the judiciary and political liberalization have been difficult to demonstrate empirically. Legal reforms that are narrowly focused on better enforcement of property rights and contract law may be conducive to enhanced trade and investment, but we still have very little firm knowledge about those links and about their ultimate relationship with democracy (Carothers 2003). Our investigation of the political role of the courts during economic transition describes the different incentives for democracies and autocracies to strengthen the role of courts as a framework for investment and trade, fiscal discipline, and administrative centralization. We argue that this choice has different effects on political rents, corruption, and aggregate economic activity in democracies and autocracies. We ultimately conclude that there is little reason to believe that judicial reform will lead to political transition.

THE ECONOMIC ROLE OF THE COURTS ACCORDING TO REGIME EMPHASIS

A judicial system can be used as a tool to enhance the political survival of leaders within authoritarian regimes just as in democratic ones. Courts may help reduce costs of commercial transactions for private citizens in both contexts. However, the consequences of judicial independence for resource distribution will vary according to regime type.

THE EXPANSION OF JUDICIAL STUDIES

This project represents something of a high watermark in the study of law and courts in general and judicial review in particular. Not so very long ago nearly every student of the politics of law and courts concentrated on the constitutional decisions of the U.S. Supreme Court. The very preoccupation with constitutional judicial review has led, in recent years, to more study of lands beyond the United States as constitutional courts and constitutional judicial review, or something very like it, spread to other democratic regimes, particularly after World War II. What once appeared to be a piece of American exceptionalism came into play in most European, continental, democratic states; and in the European Union and the European Convention on Human Rights; in more and more English-speaking countries; and in some Asian democratic states. Overseas realities eventually forced scholars to go beyond their American preoccupations.

At the same time, the very concerns with the politics of law and courts, or the judicial role in politics, that had so dramatically called our attention to the constitutional law of the U.S. Supreme Court and then to other constitutional law and courts eventually lead us to nonconstitutional courts of law, because it could hardly be denied that all sorts of American and foreign courts made significant public policy decisions in all sorts of cases involving all sorts of law.

It should not be surprising that authoritarian regimes seek to establish courts. The victims of the Moscow trials of the 1930s; political opponents in fascist Italy, Argentina, and Brazil in the 1970s, and in China the famous “gang of four” were all tried in formal courts, with the explicit support of their respective regimes. Authoritarian systems rely on courts because formal legal institutions are expected to bring legitimacy to decisions that may not be fair or equitable. These courts' jurisdiction is not limited to criminal or political cases. Courts handling civil, economic, and administrative cases exist in many authoritarian regimes as well.

What is surprising is the development of genuinely active and popular courts within an otherwise authoritarian system. Tate and Haynie (1993) are rather pessimistic about courts in authoritarian regimes, but others show that view is not always warranted. Argentinean judges tended to sympathize with the dictatorship, but their Brazilian counterparts did not, and used their position to undermine military rule (Osiel 1995). Spanish courts played an active role in the transformation of Francoist dictatorship and the eventual democratization of the regime (Giles and Lancaster 1989; Pinkele 1992; Toharia 1975). Without claiming that an authoritarian regime can establish a genuine “rule of law” as the term is widely understood in democratic societies, legal scholars and social scientists are compelled by the diffusion of formal legal institutions within authoritarian regimes to explain how (and preferably why) these courts do – in some instances – develop into credible institutions.

Scholars generally regard courts in authoritarian states as the pawns of their regimes, upholding the interests of governing elites and frustrating the efforts of their opponents. Yet in Egypt, a country with one of the most durable authoritarian regimes in the world, courts enjoy a surprising degree of independence and they provide a vital arena of political contention. From the standpoint of mainstream comparative law and politics literature, the Egyptian case presents a surprising anomaly. This chapter sets out to explain why Egyptian leaders chose to empower judicial institutions in the late 1970s when only twenty-five years earlier the same regime had stripped the courts of their power.

I find that state leaders deployed judicial institutions in an attempt to ameliorate a series of economic and administrative pathologies that are endemic to many authoritarian states. First, the consolidation of unbridled power resulted in a severe case of capital flight, depriving the economy of a tremendous amount of Egyptian and foreign private investment. Additionally, the concentration of political power paradoxically exacerbated principal-agent problems and impaired the ability of the regime to police its own bureaucracy, resulting in administrative abuse and corruption. These substantive failures damaged the ability of the regime to fulfill its populist agenda, and they undermined the revolutionary legitimacy that the regime had enjoyed for its first fifteen years. Faced with these compounding crises, Sadat eventually turned to judicial institutions to ameliorate the dysfunctions that lay at the heart of his authoritarian state.

This chapter draws upon African cases to consider the circumstances under which a court can build and maintain a high degree of independence in an authoritarian setting. Trials that uncover corruption in high places, affect electoral fortunes, or cause a political supporter to pay large sums of money often test the willingness to delegate power to a court. In any context, including democracies, executive branches and legislatures may occasionally attempt to infringe judicial independence when there are strong incentives to do so. The issue is, first, whether they succeed in influencing the outcomes of these particular cases, and, second, whether their efforts undermine the ideal of neutral third-party dispute resolution for future controversies. We may be able to learn something about the development of institutional autonomy by comparing country experiences. In highly charged disputes, why do executive branch efforts to influence outcomes end with the judiciary substantially intact in some instances, whereas in others the autonomy of the court from the other branches of government diminishes?

In the context of this discussion, judicial independence means freedom from partisan influence in particular cases. There are many ways in which a determined executive faction may secure the outcomes it wishes short of threatening or firing judges, packing the court, or ousting jurisdiction – the three most spectacular ways to abrogate the independence of the judiciary.

Like their democratic counterparts, authoritarian rulers need effective courts to perform the basic functions of courts – to resolve disputes, to impose social control, and to regulate at least aspects of public life (Shapiro 1981). At the same time, these rulers are often reluctant to endow courts with significant power in the form of politically sensitive jurisdiction and the discretion to make far-reaching choices. Yet, the record shows that some authoritarian regimes – for example, well-established or liberalizing ones – do entrust their courts with such responsibilities for holding public administration accountable, managing major commercial conflicts, and even maintaining quasi-constitutional order (Moustafa 2005; Ginsburg 2006). Under what circumstances authoritarian rulers opt for judicial power and with what risks, consequences, and compromises are questions ripe for comparative study.

This chapter examines the experience of three Russian states – Tsarist Russia (from the Judicial Reform of 1864); the USSR (including the late period of liberalization); and post-Soviet Russia (a hybrid regime that moved from electoral democracy to electoral or competitive authoritarianism). The chapter begins with two theoretical issues – (1) judicial independence and its relationship to judicial power and (2) distinctions among types of authoritarian regimes.

THEORETICAL PERSPECTIVES

At least in authoritarian states, judicial independence is not a given. Traditionally, European autocrats retained for themselves the right to dismiss judges whose decisions they disliked (until the seventeenth century, judges in England served “at the pleasure of the King”; Shapiro 1981: 91).

INTRODUCTION

The purpose of this chapter is to investigate how military dictatorships that concentrate formerly separated and shared powers affect the activity of regular courts that survive from a prior, formally constitutional regime0. Specifically, I explore two dictatorships, the Argentine (1976–1983) and the Chilean (1973–1990), to examine whether courts can conceivably uphold rights and liberties, as warranted by the constitutional definition of their powers, out of context; that is, once dictatorship has displaced the regular constitutional-institutional framework. This study thus points to the limits on courts in authoritarian regimes and to the limits of what might be called “partial constitutionalism” – the idea that a judiciary, as structured by a given constitution, ought to uphold and defend another part of the constitution, its guarantees of rights, even after the core institutions of that constitution – elected legislative and executive institutions – have been suppressed and displaced by an autocratic centralization of power.

This formulation may appear peculiar, but it is noteworthy that such expectations regarding the potentialities of courts in authoritarian regimes are implicit in many critical accounts of the judiciary under dictatorship. Such expectations are even to be found in the final official reports issued by the truth commissions formed in the aftermath of military rule to clarify the worst violations of rights in Argentina and Chile, the Comisión Nacional sobre la Desaparición de Personas (hereafter CONADEP) and the Comisión Nacional de Verdad y Reconciliación's (hereafter Comisión Rettig), respectively.

Unlike many authoritarian systems, the Republic of Singapore holds regular elections; Western media circulates widely; the Internet has deep penetration; and even Lee Kuan Yew – Singapore's paramount leader, who served as prime minister for more than 30 years – insists that adherence to the rule of law and a scrupulous, efficient, consistent judicial system are and have been essential to Singapore's spectacular growth and development. An island without adequate fresh water to serve its population, Singapore has risen to be a robust international commercial center that consistently outranks rivals ranging from Hong Kong and Japan to its own former colonial master, Great Britain, and, even in some years, the United States itself on measures of international competitiveness, economic vitality, and its efficient, effective, and reliable judicial system. And yet, unlike so many other authoritarian systems, Singapore has avoided the pitfalls of judicialization that arise in so many other states considered in this volume. Singapore seems to offer glimmering, shimmering proof that a government can construct a rule-of-law system sufficient to satisfy the demands of a global economy and maintain domestic support in regular elections for more than forty years without being forced to tolerate the tradeoff of uncontrolled, independent judicial power, or significant political opposition.

INTRODUCTION

As Ginsburg and Moustafa point out in the Introduction to this volume, few academic studies have taken the law and legal institutions under authoritarian regimes seriously. Most studies of authoritarianism assume that regimes that come to power by force cannot rely on the law to maintain control of society or to legitimate themselves; their unconstitutional origins are seen as making such an effort contradictory and impossible. When analysts do consider the law, they often assume that authoritarian rulers wield it in a direct, unmediated way, relying on their agents to impose their will through consistently compliant courts. Yet even a cursory glance at actual authoritarian regimes, past and present, should lead us to question these assumptions. In fact, authoritarian regimes use the law and courts to bolster their rule all the time, in ways that a simplistic distinction between0 de facto and constitutional (or de jure) regimes obscures. Furthermore, this use of the law can be complicated and ambiguous, furnishing regime opponents and activist judges with venues in which to challenge the prerogatives of the regime and to liberalize authoritarian rule.

It might be thought that a security court would be the last place where such contestation might take place. However, such an assumption would also be incorrect. This chapter examines the use of security courts to prosecute political dissidents in three South American military dictatorships – those of Brazil (1964–1985), Chile (1973–1990), and Argentina (1976–1983).

Authoritarian regimes, like all governments, face the need to control lower level officials who work for the regime. But authoritarian and democratic governments differ in the sets of tools and constraints they bring to the problem, and even within the category of authoritarian governments there are substantial differences in regime capabilities in this regard. This chapter examines the causes and consequences of a decision by an authoritarian government to turn to administrative law as a tool for monitoring government officials.

Administrative law is a notoriously fluid area of law, in which national regimes vary, and there is substantial divergence even over the conceptual scope of the field, much more so than, say, in corporate law or tort law. Part of the confusion comes from the fact that administrative law regimes address three different but fundamental political problems. The first is the problem of coordination among the large number of governmental actors that compose and serve the regime. This problem is addressed by the formal conception of administrative law as encompassing the organization of government; that is, the organic acts establishing and empowering government agencies. This was the definition of administrative law in the former Soviet Union, for example. Administrative law in this conception was not at all about constraint of government but about empowerment of government within a framework of legality, and ensuring that the agency has been properly granted powers from the lawmaker. By defining the scope of authority, the law resolves potential coordination problems among governmental actors.