Constructing Compliance: Game Playing, Tax Law, and the Regulatory State

This article proposes a rethinking of approaches to compliance, extending perspectives that view regulation as an interactive or reflexive process mediated by sociolinguistic practices. These suggest that the meaning of rules is not fixed ex ante, but may emerge and change through such interactions, which therefore actually help to construct what it means to comply. The analysis supports proposals to base tax law on purposive general principles combined with detailed rules. However, it suggests that this should be the approach adopted for the tax code as a whole, instead of focusing mainly on the merits of a general anti-avoidance principle, as some of the recent debates have done. The article explores the question of interpretation of rules and the problem of avoidance and game playing. It reexamines the issue of the indeterminacy of rules and relocates it within the context of professional and regulatory practices, suggesting that it is these interactions that construct the meaning of rules and hence of compliance. The analysis is applied to income taxation, to sketch out how the international tax system has been constructed through the interaction of contending views of fairness in the allocation of tax jurisdiction, while in the process becoming refined into a formalist and technicist process of game playing. It argues that the central factor in this process has been the inherent contestability of the core concepts of international taxation, the rules on corporate residence and source of income. The article concludes by considering some of the current proposals for improving tax compliance, in particular by reducing complexity, improving clarity, and the use of broad principles.     

The WTO's Appellate Body: Legal Formalism as a Legitimation of Global Governance

The creation of the Appellate Body (AB) of the World Trade Organization (WTO) entails an unprecedented delegation of power to an international adjudicator, because the WTO requires states to ensure compliance of their domestic regulations with the sweeping obligations in WTO agreements. This is legitimized in some academic analyses and much political rhetoric in terms of the rule of law, suggesting that the role of the adjudicator is merely to apply the precise words of the texts agreed by states, according to their natural meaning. The AB has supported this by adopting a formalist approach that combines an objectivist view of meaning with a legalistic style of judgment. However, both the general structure and many of the specific provisions of the WTO agreements are indeterminate and raise issues of interpretation that were known to be highly contestable. Although the delegation of adjudication in its early phase was considered to be of a narrow technical function, in the current phase interpretation is more clearly seen to involve a flexible application of principles to cases in light of the policies involved. The AB's role would be better legitimized by adopting a more open epistemology and reasoning that could be accessible to a wider constituency. However, it is constrained by fear of usurping the political legitimacy of the governments to which it is primarily accountable, and governments, in turn, are motivated by a reluctance to admit to their domestic constituencies how much power has been transferred to supranational instances such as the AB.