In recent days, I’ve been reading back over my Jurisprudence notes in order to understand the place of law in achieving administrative justice-does the answer lie in structuring rules, or in providing discretion, or finding a balance between law, rules and discretion, or deciphering principles and so on. All of these propositions, when stripped, retreat to the same central question: what is law?
At which point, one is reminded of Hart’s famous metaphor that law has both a core and a penumbra. At the core, the fact scenarios which come within the scope of the law are clear. As one moves towards the penumbra however, the answer as to whether a fact pattern will fall within its scope becomes unclear. Famously, Hart used the example of a law which prescribed that there be ‘no vehicles in the park’ to explain this phenomenon. Undoubtedly, this would mean that a fully functional car would not be permitted in the park. However, would it cover the case of a skateboard? A defunct, stationary military exhibition tank? The idea is that fact scenarios, which the legislature will not have foreseen, will inevitably arise at the penumbra.
Tax law accordingly should be no different. Whilst the taxing provision should be clear at its core, it inevitably becomes unclear at its penumbra. The problem with tax law and tax avoidance however is that this inevitability of ambiguity has a cost, and more importantly, provides an active monetary incentive for those who wish to reduce their tax bill. Fact scenarios, rather than benevolently or inevitably arising in the penumbra, are manufactured so as to achieve an advantage which the legislature will not have foreseen.
This is one of the central legal difficulties of tax avoidance-not that ambiguity will exist in the law, but that individuals or companies are incentivized to place themselves in the penumbra.