An international perspective
The dominant approaches in the European Court of Justice (ECJ) have been the contextual and the teleological.[ Natalie Lee, ‘A Purposive Approach to the Interpretation of Tax Statutes?’ (1999) 20(2) Statute Law Review 131, this was the conclusion reached by L Neville Brown and T Kennedy in The Court of Justice of the European Communities (4th Ed 1994) 321.]The contextual approach requires the judiciary to take the provision in question in its context and interpret it in relation to its parallel provision in the Community Law. The teleological approach requires the judiciary to base a decision ‘on the purpose or object of the legislation appropriate for Community legislation where the reasons for the adoption of a particular provision, along with its objectives, are to be found in the legislation itself.’ Both approaches clearly sway towards a more purposive approach than the literal approach.
New Zealand and Australia
In New Zealand the trend in statutory interpretation has been similar to that of Australia. There have been shifts in the old presumptions that prescribed that certain Acts, in particular criminal and tax Acts, must be strictly construed in favour of the individual. Thus in one New Zealand case where compensation paid by the Crown was treated as income, Cook J said [Duff v Commissioner of Inland Revenue [1982] 2 NZLR 710, 716.] :
if this be alleged to be too bold an approach to statutory interpretation, I can only say that it seems to me manifestly in accord with the intention of Parliament evinced by the subsection as a whole.
Canada
In the civil jurisdictions of Canada the use of the purposive approach is not novel. It has been applied for quite some time, with Nathan Boidman CA and Bruno Ducharme30 noting that the Supreme Court of Canada has not expressly resorted to the literal approach since 1955. Moreover, a method of construction is expressed by EA Driedger in ‘The Construction of Statutes’ which would serve to oust entirely the literal rule. The use of the purposive approach in Canada has been seen in numerous cases. See Allied Farm Equipment v MNR 73 DTC 5036; Harel v The Deputy Minister of the Province of Quebec 77 DTC 5438; No 473 v MNR 57 DTC 559; McMahon v MNR 59 DTC 1109; Sunbeam Corporation (Canada) Ltd v MNR 63 DTC 1390; Home Oil Company Ltd v MNR 55 DTC 1148.]
In the United States however, such an approach is not as evident.[ See City Council of Augusta v Mangelly, 254 SE2d 315, 322 (1979) (‘[w]e have here…overly strict contructionalism resulting in constitutional amendments upon constitutional amendments for which this court is famous.’)].With specific reference to Europe, New Zealand and especially Canada, it can be generally concluded that most tax jurisdictions are either heading towards a pure purposive interpretation system or have been there for quite some time (as is the case of Canada). But is this a wise move? Is the purposive approach effective and appropriate in the tax sphere?
The appropriateness of the purposive approach
Various technical difficulties arise when attempting to apply the purposive approach to statutory interpretation. Here, the question arises, how does one know what the intention of parliament is? This question, as suggested by Natalie Lee, raises difficulties at two levels – theoretical and practical. First, on a more theoretical level is whether such a thing as ‘parliamentary intention’ can exist. Natalie Lee points out that parliament is made up of more than one person, and it is questionable whether two or more people, with differing opinions, can share the same mental state of mind. Moreover, she recognises that not all of these people will have voted in favour of the Bill to be enacted; it may not have been their intention that the Act in its present form should have even been passed appearing on the statute book. It is therefore apparent that we cannot possibly know precisely whose intention is being sought.
Further, even if parliamentary intention did exist, who is to say that one could determine such an intention, or that different people would agree upon such an apparent intention or purpose? If one studies the nature of human communication it is clear that different people, however honestly and reasonably they attempt to find the meaning of the same document, can reach different interpretations. [Such a difficulty was declared in BP Oil Development Ltd v CIR (1991) 64 TC 498, 532 and was also evident in Frankland v IRC.
The second difficulty Natalie Lee raises, which is more practical, is that it may well be that the words used in the statute do not enable an interpreter to detect any purpose.[Such a difficulty was declared in BP Oil Development Ltd v CIR (1991) 64 TC 498, 532 and was also evident in Frankland v IRC [1997] STC 1450 and Pepper v Hart (above n 15) ]
A further impracticality lies in the fact that common-law judges will, under the guise or even the delusion of pursuing unexpressed legislative intents, pursue their own objectives and desires, extending their lawmaking activities from the common law to the statutory field. If judges are told to decide on the basis of what the legislature meant, rather than what is said, and there is no necessary connection between the
two, then surely there is the potential of the judge favouring his own intention, as it suits. The criteria for evaluating a taxation system include those of equity and fairness[ See the Ralph Committee, Discussion Paper, Review of Business Taxation, A Strong Foundation – Establishing objectives, principles and processes, November 1998, Overview, para 3.9]and the observance of taxpayer rights. Surely, then, we must consider the equity and fairness of the purposive approach to interpreting the tax statutes. In the past, equity, used in assessing a tax system, has referred to ‘horizontal’ and ‘vertical’ equity. used in assessing a tax system, has referred to ‘horizontal’and ‘vertical’ equity.
Equity or fairness also depends on or encompasses clarity and certainty. For the reasons given above, in relation to the difficulty in determining parliamentary intention, it is most probable that the adoption of a pure purposive interpretation system would result in inconsistency. Furthermore, accountants, lawyers and individual taxpayers would be expected to guess what meaning a judge will read into a provision when completing a tax return. A purposive regime militates against clarity or consistency. Equity or fairness also depends on or encompasses clarity and certainty. For the reasons given above, in relation to the difficulty in determining parliamentary intention, it is most probable that the adoption of a pure purposive interpretation
system would result in inconsistency. Furthermore, accountants, lawyers and individual taxpayers would be expected to guess what meaning a judge will read into a provision when completing a tax return. A purposive regime militates against clarity or consistency.
Furthermore, while taxes are arguably a necessity in any modern society, the status of income tax has long been accepted as a punitive measure. Taxes have the effect of confiscating one’s right to property and hence liberty. The revenue statutes constitute penalties imposed by the state which encroach on a citizen’s liberty, that is, their right to prosper from free enterprise. Given that there exists no doctrine in the courts to
support the notion that there is a duty to contribute to the upkeep of the state through tax, and given there exists a right to avoid but no duty to pay taxes, it seems most appropriate that before the state confiscates a taxpayer’s liberty it should make its grounds for doing so crystal clear. For this very reason tax laws should be construed in highly technical terms, without regard for the purpose they were designed to serve, just as criminal penalties, which similarly impose a restriction on one’s liberty, are construed.
This change from literal to purposive approaches has had significant effect on our legal system. So much so that the powers of the legislative and judicial arms are beginning to converge. Parliament has enacted laws telling the judicial branch how they must interpret legislation, and the judicial arm can read words into legislation (as suggested by Kirby J) to promote what they believe is the apparent purpose of the legislature, when, in fact, unrestrained by obedience to the specific words of the statute, they could be promoting their own policy agenda. As stated by Bryson J, in relation to statutory interpretation and the purposive approach, ‘what is at stake is the separation of powers and respect by the judicial branch of government for the powers of the legislative branch.’ More so it must be realised that ‘[w]e are to be governed not by Parliament’s intentions but by Parliament enactments’. It is clear that although the purposive approach may result in some benefits, its application brings with it significant difficulties and problems. The greatest threat is to the taxpayer’s rights. Contrary to recent cases, the practice that should be adopted by a judge when a tax provision is absurd or does not make sense is to read the provision strictly and in favour of the taxpayer, and the responsibility should rest with the legislature to amend the provision.45 It can work injustice to adopt a pure purposive approach to the interpretation of the revenue statutes in the manner suggested by Kirby J and some others. Such a practice brings with it a greater threat – to basic human rights. The approach that should be adopted is the literal approach – the approach that will enable the taxpayers to protect what is rightfully theirs.
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