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.