Chinua Asuzu

Remember Lots Wife!

Remember Lots Wife!

Interpretation of Tax Statutes

Chinua Asuzu

Chinua Asuzu

Remember Lots Wife!

Contents Table of Cases 1. Abstract 2. Canons of Statutory Interpretation 2.1 Textual Canons 2.1.1 The Strict Constructionist Approach 2.1.2 The Literal Rule or the Plain Meaning Rule 2.1.3 The Golden Rule 2.1.4 The Ejusdem Generis Rule 2.1.5 Expressio unius est exclusio alterius 2.1.6 Noscitur a sociis 2.2 Substantive Canons 2.2.1 The Mischief Rule 2.2.2 The Purposive Approach 2.2.3 Charming Betsy 2.3 Deference Canons 2.3.1 Chevron Deference 2.4 Avoidance Canons 2.4.1 Avoidance of Constitutional Problems 2.4.2 Avoidance of Absurdity 2.4.3 Avoidance of Conflict with International Law 2.5 TCP- A New Canon? 3. Basic Rules of Statutory Interpretation 3.1 Presumption Against Human Rights Derogation

3.2 Presumption against Ouster Clauses

3.3 Holistic Construction 3.4 Presumption of Linguistic Consistency 4. Is Tax Statute Interpretation Sui Generis? 4.1 Cape Brandy 4.2 Duke of Westminster
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4.3 Anti-Avoidance Interpretive Gadgetry 5. Conclusion 6. Exercises Bibliography Authors Professional Profile Table of Cases
Aderawos Timber Trading Company Ltd v Federal Board of Inland Revenue NTC 160; (1966) NCLR 416. Astor v Perry [1935] AC 398 (HL) Authority v Regional Tax Board NTC 182 Cabell v Markham 148 F.2d 737 Caminetti v United States 242 U.S. 470 (1917) Canada Trustco Mortgage Co 2005 SCC 54 Candler v Crane, Christmas & Co (1951) 2 KB 164 Cape Brandy Syndicate v Inland Revenue Commissioners (1921) 2 KB 403 Chevron v Natural Resources Defense Council 467 U.S. 837 (1984) Commissioners of Inland Revenue v Luke (1963) 40 TC 630 Compaa General de Tabaco de Filipinas v Collector of Internal Revenue, 275 U.S. 87 (1927) Crawford v Spooner (1846) 6 Moore PC 1 Croxford v Universal Insurance Co. [1936] 2 KB 253 Eidman v Martinez 184 U.S. 578 Fothergill v Monarch Airlines [1981] AC 251 Gitlitz v Commissioner 531 U.S. 206 (2001) Glen Anil Development Corporation Ltd v SIR (1975) 37 SATC 319 Graven v White (1988) STC 476 Greenberg v Inland Revenue Commissioners (1971) 47 TC 240 Harrison v PPG Industries Inc 446 U.S. 578, 588 (1980) Hedley Byrne & Co Ltd v Heller & Partners Ltd (1964) AC 465 Heydons Case (1584) 76 ER 637 Inland Revenue Commissioners v Ayrshire Employers Mutual Insurance Ltd (1946) 1 All ER 637

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Inland Revenue Commissioners v Duke of Westminster 1936 19 TC 510; [1935] All ER 259 (H.L.); [1936] AC 1 (HL) Latilla v Inland Revenue Commissioners (1943) AC 377 Lehigh Valley Coal Co. v Yensavage 218 F. 547 (2d Cir. 1914) Lord Howard de Walden v Inland Revenue Commissioners (1942) 1 KB 389 Mangin v Inland Revenue Commissioners (1971) AC 739 Mobil Oil (Nig) Ltd v Federal Board of Inland Revenue (1977) 1 NCLR 1 Montreal (City) v. 2952-1366 Qubec Inc 2005 SCC 62 Murray v The Charming Betsy 6 U.S. (2 Cranch) 64 (1804) Mutual Benefit Life Insurance Co. v Herold, 198 F. 199, affirmed 201 F. 918 Mutual Trust Co. v Miller 177 N.Y. 51 Nothman v Barnet Council [1978] 1 WLR 220 Oakes (1959) 2 QB 350 Parkview Building Association v Herold, 203 F. 876 Partington v Attorney General (1869) LR, 4 HL 100 Phoenix Motors Ltd v National Provident Fund Management Board (1993) 1 NWLR (Part 272) 718 Placer Dome Canada 2006 SCC 20 Ramsay v Inland Revenue Commissioners (1982) AC 300 Ransom v Higg (1974) 50 TC 1 Seaford Court Estates v Asher [1949] 2 All ER 155 Securities and Exchange Commission v Joiner 320 U.S. 344 Shell Petroleum Development Company of Nigeria Ltd v Federal Board of Inland Revenue (1996) 8 NWLR (Part 466) 256 Smith (FL) & Co v Greenwood (Surveyor of Taxes) (1921) 8 TC 193, 206 United Savings Association v Timbers of Inwood Forest Associates 484 U.S. 365 (1988) United States v Boisdors Heirs 49 U.S. (8 How.) 113 United States v Wigglesworth 2 Story 369

Abstract

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The common law has over several centuries developed rules of or guides to statutory interpretation. These rules are usually referred to as canons of statutory construction or canons of statutory interpretation. Although tax statutes are (allegedly?) a special breed of legislation, they are nevertheless statutes, and it is submitted here that the canons of statutory interpretation may be employed freely in the interpretation of tax statutes, almost, though not quite, as much as they are used in statutory interpretation generally. In the evolution of the canons of statutory construction, tax statutes have not been exempted from their beam. On the other hand, the received professional wisdom on tax statutory interpretation is that most of the canons are not suitable for construing this elite category of legislation. Indeed, going by some of the most eminent authorities, the Strict Constructionist Approach and the Literal Rule appear to be the only permissible guides to construing tax statutes. Lawyers love certainty of doctrine and precedent along with predictability of their application. They adopt a worshipful backward gaze at rigid precedent and stiffen their necks in the process. They are like Lots wife, who, having looked back, was turned into a pillar of salt1, rigid and unyielding, unable to glance forward. Tax lawyers love to invoke Cape Brandy and Duke of Westminster, and then fold their arms, gleefully expecting a judicial Amen! to whatever fossilised jurisprudence they have uttered. Well, nothing is certain except death and taxes including the death of doctrines about the interpretation of taxes. Cape Brandy and Duke of Westminster are no longer gospel truth. In this paper I essentially submit the proposition for your consideration that while taxes may be certain, their interpretive philosophy is not as settled as tax lawyers have been led to assume or would like to think. The paper therefore muddles the waters that you thought had long been calmed, in order to throw up the pebbles and coral reefs of discord entangled beneath, for possible disentanglement. 1. Canons of Statutory Interpretation Tax statutory interpretation is first and foremost statutory interpretation, and so an overview of the canons of statutory interpretation should aid an understanding of the theme of this paper.

Genesis 19:26, Holy Bible.

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In the first place, these canons are, as a matter of fact, called in aid in construing tax statutes, though they are more commonly relied upon in non-tax statutory interpretation. I submit that they could be more useful in construing tax statutes than they have hitherto been given credit for. I suspect that part of the explanation for their relative relegation in tax statute interpretation in favour of special formulae must be traceable to intellectual indolence on the part of lawyers nestling themselves in doctrinal mediocrity. Secondly, a familiarity with the canons should be of pragmatic value to tax attorneys and advisers for the following reason: even if the interpretation of tax statutes occupies a distinctive place in the jurisprudence of statutory interpretation and is not as dependent on the canons as general statutory interpretation, nobody has alerted most Nigerian judges. They do not draw this distinction. In the foreseeable future at least the Nigerian judiciary will thus continue to approach the interpretation of tax statutes in much the same manner as they do other classes of legislation, at times higgledy-piggledy, often by (facile) resort to the canons of statutory interpretation. You stand to lose a lot, including your case, by a lack of acquaintance with the canons. You need to be able to predict how the courts and tribunals are likely to treat your case that turns on statutory interpretation (and because tax law is entirely statutory, most tax cases do!). The prophecies of what the courts will do in fact, and nothing more pretentious, are what I mean by the law.2 Thirdly, the much-vaunted special character of tax statutory interpretation vis-vis general statutory interpretation has been viably doubted in some respectable professional quarters. A respectable and significant segment of the legal profession would like to see tax statute interpretation tackled in like manner as the rest of statutory interpretation. This trend of professional opinion may gain

Oliver Wendell Holmes Jr, The Path of the Law, Collected Papers, 1920, page 173.

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ground, and if it does, the last shall be the first3 as those judges treating tax statutes no differently from other classes of legislation are vindicated in their approach. How are the canons applied to the interpretation of statutes? As a statute comes up for interpretation before a court, opposing counsel may urge the court to construe it by resort to one or more canons that would produce a result favourable to their respective sides. After considering the opposing arguments, the judge may choose from the proposed canons, or may conjure up a different canon entirely, as appropriate for interpreting the legislative provision in question. In some cases, a particular canon may be so glaringly apt for the interpretation of the statutory clause in issue that there ought to be no room for argument. (But lawyers talking hot air or in love with the sounds of their voices do not need any room to argue- they will argue in a closet!) Judges also show remarkable agility in their use of the canons. Thus while it has been suggested that the canons constrain judges and inhibit their knack for legislating in the guise of interpretation, judges always have a choice between competing canons that lead to different results. So the canons can serve to conceal, rather than reduce judicial creativity in statutory interpretation. If there is one area of judicial work where discretion ought to be minimised if not eliminated, it is statutory interpretation. The severe curtailment of judicial discretion in statutory interpretation is in accord with the fundamental dogma of separation of powers, a bulwark of our constitutional and political system. If the judges get too creative in interpreting statutes, they would, in effect, be making law. The legislature, not the judiciary, has been elected to make laws. The judges should faithfully apply and interpret the laws as made by the legislature. Of course, Congress can always amend a statute to require a result different
3

Mark 10:31; Matthew 19:30, Holy Bible, King James Version.

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from that reached by the Court. In interpreting statutes, the Court recognizes that legislative power resides in Congress, and that Congress can legislate away interpretations with which it disagrees. Congress has revisited statutory issues fairly frequently in order to override or counter the Courts interpretations. Corrective amendment can be a lengthy and time-consuming process, however, and Congress in most instances will probably wish to state its intent clearly the first time around.4 Besides, laws are not made for lawyers, but for everyone. This is especially true with tax laws, aimed as they are at all citizens. Laws should therefore be reasonably accessible and comprehensible to lay people. In taxation, in particular, a huge concern of the modern state, the laws should be rendered in as simple a language as possible, to the end that the honest taxpayer is enabled to seamlessly obey, and the dishonest taxpayer disabled from artful dodging. This simple point (that laws are not made for lawyers alone) is extremely important, and should be taught to legislative drafters and judicial officers, who too often carry out their functions as if their audience hold LLMs. Excessive resort to quaint canons, especially in the area of tax law, beclouds this important consideration: laws are directed at ordinary citizens, who should, at least generally, be able to read and understand them for themselves without legal consultation, and without a mastery of Latin maxims. 2.1 Textual Canons

Textual canons are rules of thumb for understanding the words of the text.5 These are used to help understand the words and wording used within each

Yule Kim, Statutory Interpretation: General Principles and Recent Trends, CRS Report for Congress, 2008, page 6. 5 Wikipedia http://en.wikipedia.org/wiki/Statutory_interpretation, last accessed 6 February 2011.

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statue.6 Textual canons are intrinsic guides to statutory interpretation. When applying a textual canon, you do not go outside the text of the statute. 2.1.1 The Strict Constructionist Approach Strict Constructionist judges apply statutory text only as it is written, allowing themselves no elbow room in pursuit of any higher purpose. Judicial activism or creativity is anathema to the Strict Constructionists. Lord Denning was not fond of them. Nor, for that matter, was Jesus Christ! To those who stuck slavishly to the letter of the law at the expense of its spirit in a context analogous to taxation, the Lord Jesus Christ had this to say: Woe unto you, scribes and Pharisees, hypocrites! For ye pay tithe of mint and anise and cummin, and have omitted the weightier matters of the law, judgment, mercy and faith ...7 In Nothman v Barnet Council8 Lord Denning condemned the Strict Constructionist Approach as a voice from the past ... the voice of those who go by the letter ... who adopt the strict literal and grammatical construction of the words, heedless of the consequences. In Dennings view in Nothman, Strict Constructionism was completely out of date, having been replaced by the Purposive Approach9. Cast your mind back to Candler v Crane, Christmas & Co10, where Lord Denning, albeit in a dissenting judgment11, grouped judicial officers into two ideological camps: timorous souls and bold spirits. I think the bold spirits

6 7

http://www.forthepeople.com/statutory-interpretation--11-1987.html, last accessed 6 February 2011. Matthew 23: 23, Holy Bible, King James Version. 8 [1978] 1 WLR 220. 9 Infra. 10 (1951) 2 KB 164 11 later expressly approved by the House of Lords in Hedley Byrne & Co Ltd v Heller & Partners Ltd (1964) AC 465.

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would pursue the Purposive Approach, while the timorous souls would be petrified in Strict Constructionism. The Strict Constructionist approach was severely criticised by Lord Diplock, who in Fothergill v Monarch Airlines12 decried it as a narrowly semantic approach. 2.1.2 The Literal Rule or the Plain Meaning Rule A learned author had the Literal Rule in mind when he said that the words of a statute are to be interpreted as bearing their natural meaning.13 If the natural meaning is plain, there is no scope for canons of construction,14 except of course the Literal Rule itself. Where the literal reading of a statute ... produced an intelligible result ... there is no ground for reading in words or changing words according to what may be supposed intention of parliament.15 In Caminetti v United States16, the US Supreme Court discussed the Literal Rule, reasoning that it is elementary that the meaning of a statute must, in the first instance, be sought in the language in which the act is framed, and if that is plain... the sole function of the courts is to enforce it according to its terms. And if a statutes language is plain and clear, the Court further warned that the duty of interpretation does not arise, and the rules which are to aid doubtful meanings need no discussion.

12 13

[1981] AC 251,280. th Gerald Dworkin, Odgers Construction of Deeds and Statutes, 5 Edition, London, Sweet & Maxwell, 1967, page 239. 14 Croxford v Universal Insurance Co. [1936] 2 KB 253, 281 per Scott LJ. 15 Oakes (1959) 2 QB 350. 16 242 U.S. 470 (1917).

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In Smith (FL) & Co v Greenwood (Surveyor of Taxes)17 Lord Buckmaster said: Remember the rule which the Courts ought to obey, that where it is desired to impose a new burden by way of taxation, it is essential that this intention be stated in plain terms. The Courts cannot assent to the view that if a section in a taxing statute is of doubtful or ambiguous meaning, it is possible out of that ambiguity to extract a new and added obligation.18 The starting point in statutory construction is the language of the statute itself. The Supreme Court often recites the plain meaning rule that, if the language of the statute is clear, there is no need to look outside the statute to its legislative history in order to ascertain the statutes meaning.19 The Literal Rule is not eternally literal. Under the literal rule, literal reading of statutory text is only the starting point as the rule allows deeper scrutiny or even self-destructs (and activates the Golden Rule) if a literal reading is unhelpful. This is in contrast to the Strict Constructionist Approach, which requires a strict reading of text even if absurdity results. A caveat about the Literal Rules is that the if in its formulation (if the natural meaning is plain, if the meaning of the words is clear etc) is a very big IF, because in practical judicial experience few clauses are so clear as to be immediately applicable without the exertion of some interpretive energy. Another caveat: some words you think have clear, ordinary meanings do not, on closer scrutiny, possess any such clarity of meaning. For example, in this audience we are all familiar with the simple word taxpayer and use it with complete confidence about its clear meaning. But what does it mean? In ordinary English it should mean, shouldnt it, a person who pays tax. Not so

17 18

(1921) 8 TC 193, 206. See Authority v Regional Tax Board NTC 182. 19 Yule Kim, Statutory Interpretation: General Principles and Recent Trends, CRS Report for Congress, 2008, page 6.

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fast, though. In tax statute interpretation you will find that taxpayer includes a person who evades tax or pays no tax at all, and can include a person who has never paid any tax in his life. So the term taxpayer can mean or include taxable person20. {I refer you, to cite just one example, to the use of the word taxpayer in section 33 of the Federal Inland Revenue Service (Establishment) Act which empowers the FIRS Board to levy distraint on defaulting taxpayers.} If the word did not have the expanded meaning I have suggested, any statute prescribing penalties or sanctions, or enabling distraint, on delinquent taxpayers could not apply to those who pay no tax, and an individual who has successfully evaded tax all his life cannot be prosecuted or otherwise dealt with under such a statute, not being a tax payer in the literal sense. A literal reading will excuse from liability or stipulated measures (like distraint) the principal targets of the legislation: the working adult who pays no tax. So in at least one sense, a taxpayer is not a tax payer. The law is an ass! So maybe the term taxpayer includes a person ordinarily liable to taxation, or a person liable to taxation, or, in more ordinary English, a person who should pay tax. By using the word maybe in the previous sentence, I have already shown that the Literal Rule is inadequate for interpreting the simple word taxpayer should you come across it in a statute. 2.1.3 The Golden Rule (The Golden Rule does not mean that he who has the gold makes the rule!) Where a literal reading of the text would produce an absurd or anomalous result, the tribunal may apply the Golden Rule to avoid or remove the absurdity or anomaly, by modifying the language sufficiently to preclude the absurdity, but no further. (So if you want a definition, the Golden Rule is the interpretive

20

Taxable person is defined in section 69 of the Federal Inland Revenue Service (Establishment) Act, but taxpayer is not defined, on the erroneous assumption that its meaning is clear.

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philosophy whereby absurdities and anomalies stemming from application of the Literal Rule are avoided or removed.) In Astor v Perry21, the House of Lords applied the Golden Rule in a tax case to avoid what was perceived to be an inappropriate result by reading extra words into the relevant statutory provision. Lord Reid also applied the Golden Rule in Commissioners of Inland Revenue v Luke22, another tax case when he held: In order to avoid imputing to Parliament an intention to produce an unreasonable result, we are entitled and indeed bound to discard the ordinary meaning of any provision and adopt some other possible meaning which will avoid that result. 2.1.4 The Ejusdem Generis Rule Provisions in statutes often list several specific items and then end the clause with a general word or phrase as to similar items intended to be covered. When that happens, the general word or phrase must not be construed too generally, but must be restricted to items of the same kind, class or nature (ejusdem generis) as the specifically named items. A more elegant formulation of this canon is found in the American case of Harrison v PPG Industries Inc23: where general words follow an enumeration of specific items, the general words are read as applying only to other items akin to those specifically enumerated. For example, where in a statute dealing with prevention of cruelty to animals (A righteous man regardeth the life of his beast, says the Bible24), a clause regulates gentle treatment of cats, dogs, and other animals, the other animals would be interpreted in a limited sense to include, say, domestic animals only and thus cannot include serpents and scorpions. (Who ever heard of cruelty to a scorpion? Even the Bible, full of tender loving care {TLC} as it

21 22

[1935] AC 398 (HL). (1963), 40 TC 630, at 648 (HL). 23 446 U.S. 578, 588 (1980). 24 Proverbs 12:10, Holy Bible, King James Version.

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is, allows us to trample upon serpents and scorpions,25 - but you should not try that at home!) Paragraph 11(1) of the Federal Inland Revenue Service (Establishment) Act empowers the Tax Appeal Tribunal to adjudicate on disputes arising from certain specified federal taxation statutes and other laws made or to be made from time to time by the National Assembly. Does this general or omnibus phrase empower us to settle cases of land disputes under the Land Use Act, or electoral disputes under the Independent National Electoral Commission Act, both statutes made by the National Assembly? Of course not! The other laws must be ejusdem generis (of the same kind as) the specifically itemised statutes- they must be tax statutes, and since the FIRS Act is a federal legislation, they must be federal tax statutes. The Tax Appeal Tribunal cannot adjudicate on husband-snatching! 2.1.5 Expressio unius est exclusio alterius This Latin phrase means the express mention of one thing implies the exclusion of the other. When certain persons or things are specified in a law, contract or will, an intention to exclude all others from its operation may be inferred.26 Except where the context clearly indicates otherwise, as in illustrative lists in a statutory provision, items not on a list are assumed not to be covered by the statute. You can tell illustrative lists by such indicators as includes or such as (but please note that the mere absence of such phrases does not mean a list is not illustrative). In an exhaustive list, the maxim expressio unius est exclusio alterius applies to its interpretation. Items not listed are treated as having been pointedly excluded. If a temple, by way of statutory stipulation, welcomes Buddhists, Christians, and Muslims, the expressio unius rule will apply to exclude Hindus or Zoroastrians. By specifying the
25 26

Luke 10:19, Holy Bible, King James Version. th Blacks Law Dictionary, 6 Edition, St Paul, Minnesota, West, 1990, page 581.

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religious groups allowed, the provision clearly shows its intendment as exclusionary of other religious groups. 2.1.6 Noscitur a sociis This maxim means: it is known from its associates.27 A word is known by the company it keeps. The meaning of a word is or may be known from the accompanying words. Under the doctrine of noscitur a sociis, the meaning of questionable or doubtful words or phrases in a statute may be ascertained by reference to the meaning of other words or phrases associated with it.28 When a word is ambiguous, its meaning may be determined by reference to the rest of the statute, especially the immediately surrounding language. 2.2 Substantive Canons

Substantive canons instruct the court to favour interpretations that promote certain values or policy results.29 These guidelines are designed to lead the judge to choose a particular policy, value or outcome. They may specify that a judge should not create an interpretation that opposes the values that are considered to be held by society as a whole ...30 2.2.1 The Mischief Rule Surprisingly, considering how little recourse is made to it especially in tax cases, the Mischief Rule was formulated centuries ago in Heydons Case31 in the following words: And it was resolved by [the Barons of the Exchequer], that for the sure and true interpretation of all statutes in general (be they penal or beneficial, restrictive or enlarging of the common law), four things are to be discerned and considered: 1st. What was the common law before the making
27 28

Blacks Law Dictionary, 6 Edition, St Paul, Minnesota, West, 1990, page 1060. Blacks Law Dictionary, ibid. 29 Wikipedia http://en.wikipedia.org/wiki/Statutory_interpretation, last accessed 6 February 2011. 30 http://www.forthepeople.com/statutory-interpretation--11-1987.html, last accessed 6 February 2011. 31 (1584), 76 ER 637, at 638 (KB).

th

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of the Act. 2nd. What was the mischief and defect for which the common law did not provide. 3rd. What remedy the Parliament hath resolved and appointed to cure the disease of the commonwealth. And, 4th. The true reason of the remedy; and then the office of all the Judges is always to make such construction as shall suppress the mischief, and advance the remedy, and to suppress subtle inventions and evasions for continuance of the mischief, and pro privato commodo, and to add force and life to the cure and remedy, according to the true intent of the makers of the Act, pro bono publico. In Mobil Oil (Nig) Ltd v Federal Board of Inland Revenue32 Bello JSC wrote of the Mischief Rule: In construing a statute, regard shall be given to the cause and necessity of the Act and then such construction shall be put upon it as would promote its purpose and arrest the mischief which it is intended to deter. The Mischief Rule considers the sociological background of the statute (its cause and necessity) with special attention to the lacunae or shortcomings in the prior law which it was aimed to address, and the remedies it prescribes for dealing with those shortcomings or gaps. The tribunal is enjoined to interpret the statute so as to advance the remedy and minimise the shortcomings (mischief). The Mischief Rule is often very helpful in criminal law, and should be exceedingly useful in tax law as well, especially with reference to antiavoidance legislation. Criminal law deals with forbidden behaviour, and antiavoidance clauses deal with prohibited or restricted conduct. This similarity between criminal law and anti-avoidance tax law, along with their common feature as public law domains, makes the Mischief Rule uniquely suited for construing statutory provisions in both domains. Both criminal law and the antiavoidance branch of tax law are calculated to prevent or punish (or remedy)

32

(1977) 1 NCLR 1.

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defined conduct, or mischief. The Mischief Rule instructs the court to adopt an interpretation that prevents or at least restricts the subject conduct and promote the remedy purposed in the legislation. 2.2.2 The Purposive Approach Lord Diplock gave this interpretive method its name33, but it is more famously associated with Lord Denning, its most ardent disciple. In Nothman v Barnet Council34, Lord Denning said with reference to the Purposive Approach: In all cases now in the interpretation of statutes we adopt such a construction as will promote the general legislative purpose underlying the provision. It is no longer necessary for the judges to wring their hands and say: There is nothing we can do about it. Whenever the strict interpretation of a statute gives rise to an absurd and unjust situation, the judges can and should use their good sense to remedy it by reading words in, if necessary so as to do what Parliament would have done, had they had the situation in mind. Furthermore, Lord Denning wrote in Seaford Court Estates v Asher35: The English language is not an instrument of mathematical precision. Our literature would be much the poorer if it were. This is where the draftsmen of Acts of Parliament have often been unfairly criticized. A judge, believing himself to be fettered by the supposed rule that he must look to the language and nothing else, laments that the draftsmen have not provided for this or that, or have been guilty of some or other ambiguity. It would certainly save the judges trouble if Acts of Parliament were drafted with divine prescience and perfect clarity. In the absence of it, when a defect appears a judge cannot simply fold his hands and blame the draftsman. He must set to work on the constructive task of finding the intention of Parliament, and he must do this not only from the
33 34

Lord Denning, The Discipline of Law, London, Butterworths, 1979, page 16. [1978] 1 WLR 220. [1949] 2 All ER 155.

35

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language of the statute, but also from a consideration of the social conditions which gave rise to it, and of the mischief which it was passed to remedy, and then he must supplement the written word so as to give "force and life" to the intention of the legislature. That was clearly laid down by the resolution of the judges in Heydon's case, and it is the safest guide to-day. Good practical advice on the subject was given about the same time by Plowden in his second volume Eyston v Studd. Put into homely metaphor it is this: A judge should ask himself the question: If the makers of the Act had themselves come across this ruck in the texture of it, how would they have straightened it out? He must then do as they would have done. A judge must not alter the material of which it is woven, but he can and should iron out the creases. The Purposive Approach has been adopted by the European Court probably since inception, where it is termed the schematic and teleological method of interpretation. And with reference to the American jurisdiction: In analyzing a statutes text, the [US Supreme] Court is guided by the basic principle that a statute should be read as a harmonious whole, with its separate parts being interpreted within their broader statutory context in a manner that furthers statutory purpose. The various canons of interpretation and presumptions as to substantive results are usually subordinated to interpretations that further a clearly expressed congressional purpose.36 Such a congressional purpose (or legislative intent, for non-US jurisdictions) should usually be one expressed in the statute itself, for example in a preamble. In some situations an excursion into the legislative history of the statute may be permissible, but this is more common in the United States.

36

Yule Kim, Statutory Interpretation: General Principles and Recent Trends, CRS Report for Congress, 2008, page 2.

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The overriding objective of statutory construction is to effectuate statutory purpose. As Justice Jackson of the US Supreme Court put it in Securities and Exchange Commission v Joiner37: However well these [other] rules may serve at times to decipher legislative intent, they long have been subordinated to the doctrine that courts will construe the details of an act in conformity with its dominating general purpose, will read text in the light of context and will interpret the text so far as the meaning of the words fairly permits so as to carry out in particular cases the generally expressed legislative policy. In Cabell v Markham, Learned Hand J observed: it is one of the surest indexes of a mature and developed jurisprudence not to make a fortress out of the dictionary; but to remember that statutes always have some purpose or object to accomplish, whose sympathetic and imaginative discovery is the surest guide to their meaning.38 Elsewhere the great jurist Learned Hand reasoned that statutes should be construed, not as theorems of Euclid, but with some imagination of the purposes which lie behind them.39 The Purposive Approach does not contemplate voyages of discovery that take the judiciary off the coast of adjudication into the troubled waters of legislation. Lord Denning was perhaps the ultimate, if not extreme, Purposivist. 2.2.3 Charming Betsy Municipal legislation must be construed so as not to conflict with international law. In Murray v The Charming Betsy40 it was held in the US: It has also been

37 38

320 U.S. 344, 350-51 (1943). 148 F.2d 737, 739 (2d Cir. 1945). 39 Lehigh Valley Coal Co. v Yensavage 218 F. 547, 553 (2d Cir. 1914).
40

6 U.S. (2 Cranch) 64 (1804).

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observed that an act of Congress ought never to be construed to violate the law of nations if any other possible construction remains... 2.3 Deference Canons Deference canons instruct the court to defer to the interpretation of another institution, such as an administrative agency or Congress.41 2.3.1 Chevron Deference This is a rule of deference to administrative interpretation and was formulated by the US Supreme Court in Chevron v Natural Resources Defense Council42. It held that if a statute administered by an agency is ambiguous with respect to the specific issue, the courts will defer to the agencys reasonable interpretation of the statute. When a court reviews an agencys formal interpretation of a statute that the agency administers, and when the statute has not removed agency discretion by compelling a particular disposition of the matter at issue, courts defer to any reasonable agency interpretation.43 At the turn of the 21st century, the US Supreme Court clarified and narrowed Chevrons application, ruling that Chevron deference applies only if an agencys interpretation is the product of a formal agency process, such as adjudication or notice-and-comment rulemaking, through which Congress has authorized the agency to speak with the force of law.44 In the Nigerian context, this would include delegated or subsidiary legislation, and in specific context of Nigerian tax law, it would include (interpretive) rules made by the Minister of Finance or the Federal Inland Revenue Service pursuant to statutory enablement.

41 42

Wikipedia http://en.wikipedia.org/wiki/Statutory_interpretation, last accessed 6 February 2011. 467 U.S. 837 (1984). 43 Yule Kim, Statutory Interpretation: General Principles and Recent Trends, CRS Report for Congress, 2008, page 27. 44 Ibid.

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This is by all means a salutary rule. If, for example, the FIRS has been applying a particular statutory provision in a certain reasonable manner in its dealings with the taxpayer, the tribunal or court will prefer that approach to another (even if equally reasonable) interpretation, if both are tenable. Please note that for Chevron deference to apply: the provision in question must be ambiguous; the administrative agencys interpretation must be reasonable; the agencys interpretation must be the result of a formal agency process (for example, internal complaints handling, or

administrative rulemaking); and, preferably, the agencys interpretation should be borne out by application and practice and must not merely be theoretical or academic- in other words, they must already have been proceeding on the basis of that alternative, reasonable understanding (i.e. it must have been concretised by application). In our context here today, the FIRS may in issuing, for example, a Notice of Refusal to Amend (NORA) a taxpayers assessment, give explanations that (purport to) interpret a statutory clause. If so, the tribunal or court should favour the FIRS interpretation if the other conditions of Chevron deference are fulfilled. Another means by which an agency like the FIRS can interpret a statutory provision is through delegated or subsidiary legislation, or administrative rulemaking. Sections 14, 23(2), 26(4), 60 and 61 of the Federal Inland Revenue Service (Establishment) Act empower the FIRS or the Minister of Finance to make or issue certain directives, guidelines or rules, and I submit that if or when made, those may enjoy Chevron deference. It was also said in Chevron: If Congress has explicitly left a gap for the agency to fill, there is an express
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delegation of authority to the agency to elucidate a specific provision of the statute by regulation. Such legislative regulations are given controlling weight unless they are arbitrary, capricious, or manifestly contrary to the statute.45 Chevron Deference promotes systemic harmony. The court essentially says: This is the agency charged with applying this law. This is how they understand and apply it. Their understanding and application are reasonable. There is another reasonable interpretation, but we shall defer to the agencys interpretation- they are used to this business and they must know what theyre doing. 2.4 Avoidance Canons

2.4.1 Avoidance of Constitutional Problems Where a legislative provision is susceptible to several reasonable constructions, one or more of which may raise constitutional difficulties, the tribunal or court should favour an interpretation that poses no constitutional challenge. Commissioners of the Tax Appeal Tribunal should bear this in mind, since theirs is an inferior, administrative tribunal that should hesitate to pronounce on constitutional matters. Of course if such a case went before the highest court in the land, the constitutional challenge would be welcomed with gusto. 2.4.2 Avoidance of Absurdity The tribunal or court should presume that the legislative branch of government could not have intended by its drafting to produce an absurd or unreasonable or manifestly unjust result. With that presumption at the back of its mind, the tribunal should interpret the clause in a way that avoids the absurdity or injustice. This is similar to the Golden Rule. 2.4.3 Avoidance of Conflict with International Law
45

467 U.S. 837, 843-844 (1984).

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This is identical to Charming Betsy. 2.5 TCP- A New Canon?

In 2005 the Supreme Court of Canada was extremely busy battling with the formulation of a suitable methodology for interpreting tax statutes. In Canada Trustco Mortgage Co46 the Canadian Supreme Court created TCP- the Textual, Contextual and Purposive Approach to construing tax statutes. (In the words of the Chief Justice of Canada, the courts must, in order to resolve explicit and latent ambiguities in tax statutes, undertake a unified textual, contextual and purposive approach to statutory interpretation. But in so doing the Canadian Supreme Court appeared to restrict this interpretive guide to GAAR (General Anti-Avoidance Rule) contexts, but I think we can borrow TCP as one of several approaches to interpreting not only clauses in GAAR cases, or avoidance contexts, but to tax statutes, and even statutes generally, in appropriate contexts. The methodology is attractive- you have to look at the text (who can argue with that?) and the context of the provision, with due regard to the purpose of the statute. Please note that this is a simplistic introduction of TCP- for a better understand you should read the case. TCP was further developed in Placer Dome Canada47 and again in Matthew48. The impression persisted that TCP was meant for GAAR cases. Fortunately, in Montreal (City) v. 2952-1366 Qubec Inc49 the Supreme Court applied TCP in a non-GAAR context. All these cases were in 2005, and all were before the Canadian Supreme Court. 3. Basic Rules of Statutory Interpretation

46 47

2005 SCC 54. 2006 SCC 20. 48 2005 SCC 55. 49 2005 SCC 62.

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The bouquet of canons of statutory interpretation constitutes an adjudicatory toolbox from which the tribunal or court may pick and choose appropriate implements for use in specific contexts. But there is an underlying stream of dogmas to guide the court in virtually all scenarios of statutory interpretation, including tax statute interpretation. They include: 3.1 Presumption against Human Rights Derogation Statutes must be read and applied in a manner compatible with the basic rights and fundamental freedoms enunciated in domestic and international human rights instruments. In Nigeria no provision of a tax or any other statute should be interpreted so as to derogate from the Fundamental Rights set out in Chapter IV of our Constitution. Nigerian legislative clauses must also be compatible with the African Charter on Human and Peoples Rights and the United Nations Universal Declaration of Human Rights. 3.2 Presumption against Ouster Clauses

There is a presumption that the legislature could not have intended to oust the jurisdiction of the courts. In the absence of very clear, effective and valid words to that effect, the court would be loath to interpret a clause as ousting its jurisdiction or inhibiting access to justice. Even in the presence of such words, courts are jealous of their jurisdiction and would and should hesitate to welcome an ouster clause.

3.3 Holistic Construction The legislation must be read as a whole. In the case of ambiguity, the scheme of the Act may resolve it. In United Savings Association v Timbers of Inwood Forest Associates50, Justice Scalia wrote: Statutory construction . . . is a
50

484 U.S. 365, 371 (1988).

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holistic endeavour. A provision that may seem ambiguous in isolation is often clarified by the remainder of the statutory scheme because the same terminology is used elsewhere in a context that makes its meaning clear, or because only one of the permissible meanings produces a substantive effect that is compatible with the rest of the law. This approach was not new when this dictum was authored. As far back as 1850, in United States v Boisdors Heirs51 US Chief Justice Taney held: In expounding a statute, we must not be guided by a single sentence or member of a sentence, but look to the provisions of the whole law, and to its object and policy. 3.4 Presumption of Linguistic Consistency Words used in the same context inside a statute or even in a series of statutes on the same subject are presumed to be used in the same sense.

4. Is Tax Statute Interpretation Sui Generis? A noted jurist has contended that there are no special principles of construction applicable only to fiscal legislation.52 Tax law, like Nigerian criminal law, is entirely statutory. (There is no taxation by common law53, but of course there is plenty of common law of tax statute interpretation, and to that extent at least there is a common law of tax54.) All tax liability must be traced to statute, the charging provisions of which must be

51

49 U.S. (8 How.) 113, 122 (1850) (opinion of Court).

52 53

Vinelott J, Interpretation of Fiscal Statutes, *1982+ Statute Law Review, 78. nd F R Davies, Introduction to Revenue Law, 2 Edition by David Williams and Geoffrey Morse, London, Sweet & Maxwell, 1985, page 36. 54 Davies, ibid (italics in the original).

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directly connectible to the target taxpayer. An inferential nexus will not do- the link between the charging clause and the target taxpayer must be direct.55 In light of the wholly statutory basis of tax law, tax disputes and litigation tend to entail statutory interpretation. Generally, tax statutes attract strict interpretation, as a matter of convention. Judges claim to be applying the Literal Rule when interpreting tax statutes, but on close analysis the formula they use is a mixed grill of Literalism and Strict Constructionisism. Learned writers and the legal community in general have not detected this gambit. The purported approach of the courts is to adopt the literal, ordinary meaning of the provision, but if the clause is clearly ambiguous, they take the interpretation, if any, most favourable to the taxpayer. The literal interpretation, coupled with the restrictive interpretation, placed the onus on Parliament to express itself clearly, and if it did not, the benefit of the doubt went to the tax payer.56 The alleged rationale for this taxpayer-friendly approach to ambiguous tax provisions is as follows. Tax is an imposition on the subject. At English common law, any law whereby the Crown sought to expropriate anything from its subjects had to be construed in favour of the subject against the Crown. Well, in Nigeria, we have no subjects since Nigeria is a republic, not a monarchy like England. We are citizens here, not subjects. But perhaps more seriously, is tax an expropriation? Tax may be an imposition, but I doubt it can be characterised as an expropriation. If tax is not an expropriation, and the taxpayer is a citizen not a subject, what is the justification for interpretation of ambiguous clauses in favour of the citizen? (Every citizen has participated, even if notionally, in making the law.) Is this rule of the English common law tenable on Nigerian
55

See Ade Ipaye, Introduction to the Nigerian Tax System, a presentation at the Tax Law and Administration workshop organised by the Chartered Institute of Taxation of Nigeria and Rahmad Research and Consultancy Service, March 20-22, 2001, pages 24, 25, and 26. 56 Florence N Dollo, Tax Legislation and the Lawyers Training Needs- An African Perspective.

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soil? The origins of Nigerian tax law lie in English law, but some of the tenets from the latter need to be jettisoned from the former. In Nigeria tax is more akin to a contribution than an expropriation. In the words of tax law teacher John Townsend: Revenue is the life blood of Government and society as we know it.57 In his dissenting opinion in Compaa General de Tabaco de Filipinas v Collector of Internal Revenue58, Justice Oliver Wendell Holmes of the US Supreme Court wrote: Taxes are what we pay for civilized society.59 That said, the taxpayer should still get the benefit of any doubt, but not on the trite basis of expropriation of subjects. The taxpayer should receive this beneficial consideration for the simple reason that as between the taxpayer and the Government, the taxpayer is the weaker party. But any interpretive manoeuvre that grants the benefit of doubt to the taxpayer without due regard to the legislative intent cannot be valid. In other words, the Purposive Approach to statutory interpretation should still control the allocation of any such benefit. Quaere: Is it necessarily correct to say that the taxpayer is always weaker than the Government? Is Microsoft Corporation weaker than the Government of Southern Sudan? In the interest of full disclosure, I should point out that in the United States, another republic, the benefit of doubt in the context of ambiguous tax provisions is allowed to the taxpayer on the basis that taxation is in derogation of personal rights and property interests. This is similar to the expropriation

57

John A Townsend, Federal Tax Procedure, 2010, page 3, http://www.tjtaxlaw.com/uh-tpc.htm, last accessed

12 March 2011.
58 59

275 U.S. 87, at 100 (1927). 275 U.S. 87, at 100 (1927).

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thesis propounded in the United Kingdom of Great Britain and Northern Ireland. American law of course derived largely from English law, and in the course of American legal development someone forgot to mention that King George was dead. So several US cases have held that tax statutes should be strictly construed, and any ambiguity found should be resolved in favour of the citizen.60 Doubt to be resolved in favour of the taxpayer must be reasonable doubt, and attempts must first be made to resolve the doubt by other means before handing its benefit to the taxpayer. In a judgment in which all his learned brothers and sisters concurred, LeBel J of the Canadian Supreme Court wrote: Although there is a residual presumption in favour of the taxpayer, it is residual only and applies in the exceptional case where application of the ordinary principles of interpretation does not resolve the issue ... Any doubt about the meaning of a taxation statute must be reasonable, and no recourse to the presumption lies unless the usual rules of interpretation have been applied, to no avail, in an attempt to discern the meaning of the provision at issue. In my view, the residual presumption does not assist PDC in the present case because the ambiguity in the Mining Tax Act can be resolved through the application of the ordinary principles of statutory interpretation.61 I am not alone in doubting the benefit of doubt. As far back as 1938, a learned writer had declared: Once upon a time taxing Acts, like penal Acts, were construed as narrowly as possible. Today it is undoubted law that they are to be construed in just the same way as any other Act. The cases are, no doubt, agreed that the benefit of the doubt still goes to the subject and not the Crown; but the
60

Eidman v Martinez 184 U.S. 578, 583; United States v Wigglesworth, 2 Story, 369, 374; Mutual Benefit Life

Insurance Co. v. Herold, 198 F. 199, 201, affirmed 201 F. 918; Parkview Building Association v Herold, 203 F. 876, 880; Mutual Trust Co. v Miller, 177 N.Y. 51, 57.
61

Placer Dome, infra.

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fact that a recent Canadian case found it necessary to collect from previous cases no less than three different reasons why this was so, does seem to indicate that the presumption in favour of the subject is felt to rest on no solid ground and that it will tend to disappear.62 4.1 Cape Brandy

In Cape Brandy Syndicate v Inland Revenue Commissioners63, Rowlatt J stated: In a taxing Act, one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One has to look fairly at the language used. In interpreting a tax statute, the court must not strain itself unduly to assist the tax collector achieve his goal. In Authority v Regional Tax Board64 the Appellant sued for himself and on behalf of other members of the Holy Apostles Community, Aiyetoro. He sought a declaration that the Community was not liable to pay income tax under the Income Tax Law of Western Nigeria. The Community did engage in various income-yielding activities, and the tax authorities alerted them that they would be taxed pursuant to section 3(4)(a) of the Income Tax Management Act 1961, and section 8 of the Income Tax Law of Western Nigeria. The Appellant contended that the Income Tax Law of Western Nigeria could not validly impose tax on his Community without specifically charging the tax on income belonging to one of the three categories listed in section 3(4)(a) to (c). The Appellant lost at the High Court and the Western State Court of Appeal. The Supreme Court allowed his appeal, holding that to validly impose tax on a
62

John Willis, Statute Interpretation in a Nutshell (January 1938), 16 The Canadian Bar Review 1-27, at 25-26. (1921) 2 KB 403. See also Mangin v Inland Revenue Commissioners (1971) AC 739. NTC 182.

63 64

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community, the statute must charge the tax on income determined in one of the three ways set out in section 3(4) of the Income Tax Law of Western Nigeria. In Inland Revenue Commissioners v Ayrshire Employers Mutual Insurance Ltd65 a provision intended to widen the tax net failed to achieve that aim because of linguistic ineptitude. Lord Simonds said: It is at least clear what is the gap which is intended to be filled, and hardly less clear how it is intended to fill that gap. Yet I can come to no other conclusion than that the language of the section fails to achieve its apparent purpose and I must decline to insert words or phrases which might succeed where the draftsman failed. These two cases go along with Cape Brandy in persisting on the path of Strict Constructionism. Lord Simonds dictum in the latter case is in sharp contrast to the Solomonic wisdom of the Denning school of thought. Conversely, the tribunal must not exert its interpretive energies too gallantly to assist the taxpayer avoid or minimise his tax.66 The judiciary must not re-draft the statute to help the legislature. The Judicial Committee of the Privy Council held in Crawford v Spooner67: We cannot aid the legislatures defective phrasing of an Act, we cannot add and mend and, by construction, make up deficiencies which are left there. Lord Denning would differ. Maybe I would too. In Partington v Attorney General68 Lord Cairns held: If the person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand, if the Crown,
65 66

(1946) 1 All ER 637. Aderawos Timber Trading Company Ltd v Federal Board of Inland Revenue NTC 160 or (1966) NCLR 416. 67 (1846) 6 Moore PC 1, 8, 9. 68 (1869) LR, 4 HL 100, 122.

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seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however apparently within the spirit of the law the case might otherwise appear to be. In other words, if there be admissible, in any statute, what is called equitable construction, certainly such a construction is not admissible in a taxing statute. In Gitlitz v Commissioner69 the US Supreme Court sustained a taxpayer benefit that was obviously not intended by the legislature, holding Because the Code's plain text permits the taxpayers here to receive these benefits, we need not address this policy concern. The Court followed Strict Constructionism, disdaining Purposivism. But Lord Wilberforces formulation of the familiar {Strict Constructionist} principle, presumably of Cape Brandy, in Ramsay v Inland Revenue Commissioners70 suggests a subtle and perhaps welcome advance: A subject is only to be taxed on clear words, not on intendment or on the equity of an Act. Any taxing Act of Parliament is to be construed in accordance with this principle. What are clear words is to be ascertained on normal principles; these do not confine the courts to literal interpretation. There may, indeed should be, considered the context and scheme of the relevant Act as a whole, and its purpose may, indeed should, be regarded ...71 Lord Wilberforce was either contradicting himself in the same breadth (Strict Constructionist versus Purposive Approach) or he was advancing the law (Purposive Approach, in italics). I think he was advancing the law. Immediately you begin to consider the context and scheme, and to regard the purpose of a piece of legislation, you are leaving the scorched earth of the Literal and Strict Constructionist desert and moving towards a fertile Purposive oasis.
69 70

531 U.S. 206, 220 (2001). (1982) AC 300. 71 My italics.

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On this dictum of Lord Wilberforces in Ramsay, learned author F R Davies juxtaposed the contradiction brilliantly: So a purpose of a [tax] statute can now be sought, even if equity and intendment can be ignored. Equity, in so far as it means fairness between taxpayers, is not ignored, nor is intendment, in the sense of policy.72 Bello JSC appeared to have strayed from tradition if not principle when in the tax case of Mobil Oil Nigeria Ltd v Federal Board of Inland Revenue73 he wrote for the majority (rather inelegantly, I fear): In construing a statute, regard shall be given to the cause and necessity of the Act and then construction shall be put upon it as would promote its purpose and arrest the mischief which it is intended to deter ... Some companies have been manipulating their accounts with the intent to hide their true assessable profits and in that manner have been avoiding tax which they ought to have paid. The purpose of section 30 (of the Companies Income Tax Act) is to deter companies from engaging in such a fraudulent practice. In so holding Bello JSC recognised no distinction between statutory interpretation generally and tax statute interpretation, but he recognised section 30 of the Companies Income Tax Act as an anti-avoidance mechanism. He did not accord any special place to tax statute interpretation, as conventional wisdom (or foolishness?) holds. He adopted neither the Literal Rule nor the Strict Constructionist paradigm. He followed the Mischief Rule and the Purposive Approach, two interpretive methodologies uniquely suited, in my view, to tax statute construction. The Mischief Rule is virtually tailor made for tackling tax avoidance, and is an excellent anti-avoidance judicial gadget.

72

F R Davies, Introduction to Revenue Law, 2 Edition by David Williams and Geoffrey Morse, London, Sweet & Maxwell, 1985, page 38. 73 (1977) 1 NCLR 1.

nd

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Bello JSCs bold (if you subscribe to the Purposive Approach) or mistaken (if you are an adherent of the Cape Brandy idolatry) departure in the Mobil Oil case may be part of the judiciarys anti-avoidance apparatus74, though if so, obviously this was not conscious on his lordships part. The eminent jurist might, while weeping louder than the bereaved, have stumbled upon an ingenious juridical device for dealing with anti-avoidance schemes. Thus, although that was never part of the rationes decidendi of Mobil Oil, the interpretive approach adopted in that case may be the appropriate tool for dealing with anti-avoidance clauses in tax statutes, without pointedly disturbing the credo in Cape Brandy. But what is so sacrosanct about Cape Brandy? Unfortunately for the numerous Nigerian disciples of Cape Brandy, Mobil Oil is no aberration in Nigerian tax jurisprudence. Section 2 of the Petroleum Profits Tax Act defined petroleum operations as the winning or obtaining and transportation of petroleum and chargeable oil in Nigeria by or on behalf of a company for its own account by any drilling, mining, extracting or other like operations or process, not including refining at a refinery, in the course of a business carried on by the company engaged in such operations, and all operations incidental thereto and any sale of or any disposal of chargeable oil by or on behalf of the company. In Shell Petroleum Development Company of Nigeria Ltd v Federal Board of Inland Revenue75 the Supreme Court construed petroleum operations as used in the cited Act to include expenses incurred by the appellant in paying petroleum profits tax! The Supremes stretched and strung the definition section beyond the wildest imagination of the most hallucinatory draftsman or legislator. They threw Cape Brandy and, more

74

I had almost said arsenal, but that might sound unduly belligerent, whereas the judiciary is supposed to be neutral and peace-loving. 75 (1996) 8 NWLR (Part 466) 256.

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importantly, ejusdem generis into the garbage can of jurisprudence in a manner too helpful, if not ingratiating, to the large corporate taxpayer in that case. The unruly horse of public policy, if not the violent camel of executive programming!, was dragged into the tax-statute interpretation fray by the Court of Appeal in Phoenix Motors Ltd v National Provident Fund Management Board76 where Tobi JCA (as he then was) declared in the lead judgment: If a statute is revenue based or revenue oriented, it will be part of sound public policy for a court of law to construe the provisions of the statute liberally in favour of revenue or in favour of deriving revenue by Government, unless there is a clear provision to the contrary. This is because it is in the interest of the generality of the public and to the common good and welfare of the citizenry for Government to be in revenue and affluence to cater for the people. That is the only way it can distribute wealth to the people to facilitate development to all and sundry. And this is more so in a country such as ours, where most citizens open their mouths with all gluttony to receive assistance and welfare packages from Government in almost all sectors of development in our very frail and flabby economy. This clumsy dictum represents neither good law nor sound policy.77 It is tantamount to a Liberal Misrule! It is a judicial essay in totalitarianism and an epistle in the breakdown of checks and balances. The idea of liberal interpretation of any species of tax statutes is the fallacious antithesis of the literal interpretation represented by Cape Brandy. Both are wrong.

76 77

(1993) 1 NWLR (Part 272) 718, 731D-E. Out of respect for the eminent jurist, I shall refrain from commenting on his unkind comments about Nigerians, a class from which the learned justice has apparently excluded himself. I shall also ignore his lordships gratuitous mischaracterisation of most citizens of Nigeria as gluttons, but I must wonder what assistance and welfare packages are available to Nigerians.

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The court is not the tax collector. It is an arbiter between the tax collector and the taxpayer, and must maintain an emotional equidistance between them. The extravagantly Revenue-biased interpretive attitude urged by Justice Tobi cannot even get under the umbrella of Purposive construction. It is an egregious descent into the arena of conflict between tax collector and taxpayer in unctuous aid of the former. Phoenix Motors is blasphemy in the annals of tax jurisprudence. It is a sublime piece of mysticism and nonsense78. 4.2 Duke of Westminster

In Inland Revenue Commissioners v Duke of Westminster79 the Duke of Westminster paid his gardener 3 a week in wages. He covenanted with the gardener to mutate the wages into certain weekly sums of like value for a period of seven years or the joint lives of the parties. The covenant recited that the payments were made in recognition of past services faithfully rendered to the Duke and that the Duke desired to make provision for the gardener notwithstanding that he may continue in the Duke's service (in which event he would be entitled to remuneration in respect of such future service) or may cease to work for the Duke. It was understood that the payments were in lieu of wages and that the gardener would not demand other or further remuneration for his future work. Under the relevant tax law, the gardener's wage would not have given rise to a tax deduction, but the covenant reduced the Duke's tax liability. The arrangement was clearly a tax avoidance scheme. The House of Lords upheld it, Lord Tomlin stating: Every man is entitled if he can to arrange his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would

78 79

Robert Stewart (Lord Castlereagh) (18 June 1769 12 August 1822) 1936 19 TC 510, [1935] All ER 259 (H.L.), [1936] AC 1 (HL).

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be. If he succeeds in ordering them so as to secure that result, then, however unappreciative the Commissioners of Inland Revenue or his fellow taxpayers may be of his ingenuity, he cannot be compelled to pay an increased tax. This dictum from Duke of Westminster is the holy writ of the tax avoidance industry. Duke of Westminster essentially established the doctrine that taxpayers are entitled to arrange their affairs in such a manner as to minimise their tax liability. 4.3 Anti-Avoidance Interpretive Gadgetry

Prudent businessmen engage in prudent tax planning. If taxes are minimized or postponed, more capital will be available to run the business and more profit will result .... it would be naive to suggest that businessmen can, or should, conduct and manage their business affairs without regard to the incidence of taxation or that they are not, or should not, be attracted to transactions or investments or forms of doing business that provide reduced burdens of taxation.80 Your right to engage in tax planning must be balanced against the governments responsibility to protect the tax base for the benefit of all citizens.81 Whereas conventional wisdom is that you can practise tax avoidance to your hearts content, keep in mind that the legislature can stipulate clauses which limit or even eliminate your room for avoidance manoeuvre, at least in a particular field of activity or a specific category of avoidance. Whatever is statutorily prohibited becomes illegal. The maxim that tax avoidance is not a crime cannot save your transaction tailored to minimise your tax liability if it is caught by an ingenious anti-avoidance legislative clause.
80 81

Ward & Cullity, Abuse of Rights and the Business Purpose Test, 1981, 451, 473-474. Reflections on the Relationship between Statutory Interpretation and Tax Avoidance, Canadian Tax Journal (2001), Vol. 49, No. 1, page 32.

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Tax evasion is a crime, but tax avoidance is not. Tax avoidance is thus legal, even if the morals and ethics may be questionable. Tax avoidance is at times little more than prudent tax planning, although increasingly it has become much more than that. Although tax avoidance is generally legal, this is only a general rule capable of admitting exceptions, especially, if not exclusively, as provided by statute. The tax avoidance industry or community have been extremely busy setting up shrewd stratagems to legally minimise or exclude taxation with regard to certain transactions or classes of transactions engaged in by their clients. They are in love with Duke of Westminster. They essay to almost immunise their clients from certain taxes or categories of taxes. If smart tax planners and advisers have been busy devising tax avoidance schemes, smart legislatures have not been idle. A legislative house should, say through an expert committee or one taking expert advice, continue to craft antiavoidance clauses into tax laws. Just as the good guys of the computer age format anti-virus programs to counter the computer viruses unleashed by the bad guys to wreak havoc on systems, legislative houses of nations, especially developing ones like Nigeria, should be astute to format anti-avoidance clauses to counter the increasingly ingenious and economically damaging (though barely legal) avoidance schemes set up by tax planners to enrich their clients at the expense, not only of the economy as a system, but often also of other taxpayers, onto whose shoulders the unfair burden might have been shifted. Tax avoidance is legal only in the sense, and only to the extent, that it is not illegal. It is not legal in any sense of being above-board. So when we say that tax avoidance is not a crime, it should not be understood to be an approbation of tax avoidance. Indeed, Viscount Simon in Latilla v Inland Revenue Commissioners82 and Lord Greene MR in Lord Howard de Walden v

82

(1943) AC 377.

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Inland Revenue Commissioners83 did not hesitate to condemn tax avoidance arrangements as reprehensible or obnoxious. So what about the judicial branch of government (we often forget that the judiciary is an arm of government)? Should it, along with the legislative branch, be alert to tax avoidance? Should it innovate anti-avoidance implements? Should not the judiciary share the policy objectives and concerns of the government of which it is a part? Does its role as an impartial arbiter have to blind it to the social goals of the realm of which it is an estate? As we have seen (Latilla, de Walden), some English judges harbour no misgivings about regarding tax avoidance schemes as pernicious social sins, not mere peccadilloes, their legal status notwithstanding. Tax avoidance schemes shamelessly exploit the loopholes in the (literal84) language or letter of the tax statutes with the aim of defeating the ultimate or true purpose or spirit of the legislative clause at issue. So their much-vaunted legality is merely the absence of clear, formal illegality. They are on the windy side of the law.85 Tax avoidance is at least a mischief in the sense of the Mischief Rule, and an alert (tax) judiciary should interpret tax avoidance schemes into the ground by suppressing that mischief and advancing any remedy of anti-avoidance provisions found to hand. In Greenberg v Inland Revenue Commissioners86 Lord Reid wrote: We seem to have travelled a long way from the general and salutary rule that the subject is not to be taxed except by plain words. But I must recognise that plain words are seldom adequate to anticipate and forestall the multiplicity of ingenious schemes which are constantly being devised to evade taxation. (Lord Reid was

83 84 85

(1942) 1 KB 389.

So the celebrated Literal Rule might not be such a great tool for tax statute interpretation after all. William Shakespeare, Twelfth Night, Act 3 Scene IV. 86 (1971) 47 TC 240, 272.

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using the word evade in its ordinary sense, synonymously with avoid, rather than in its technical sense of criminally or illegally dodge [tax].) On the other hand, the function of the court is to construe the relevant charging section and to apply it to the facts found. I do not conceive it to be the function of the court to act as the third arm of the Revenue in seeking to attack tax avoidance at large.87 The court may thus be bereft of jurisdiction to attack tax avoidance at large, but it should be able to resist or deflect specific tax avoidance missiles. In so doing the court must still remain in the business of interpreting the language actually used in the statute, and not to escalate the Purposive Approach through an over-zealous pursuit of the wily taxpayer. As Lord Donovan warned in Mangin v Inland Revenue Commissioners88, the words are to be given their ordinary meaning. They are not to be given other meaning simply because their objective is to frustrate legitimate tax avoidance devices .... moral precepts are not applicable to the interpretation of revenue statutes. But the ordinary meaning may itself frustrate avoidance schemes, and the court should of course give effect to it. In Ransom v Higg89 Lord Simon of Glaisdale held: It may seem hard that a cunningly advised taxpayer should be able to avoid what appears to be his equitable share of the general fiscal burden and cast it on the shoulders of his fellow citizens. But for the Courts to try to stretch the law to meet hard cases (whether the hardship appears to bear on the individual taxpayer or on the general body of taxpayers as represented by the Inland Revenue) is not merely to make bad law but to run the risk of subverting the rule of law itself. Disagreeable as it may seem that some taxpayers should escape what might

87 88

Graven v White (1988) STC 476, per Lord Jauncey (1971) AC 739, 746. 89 (1974) 50 TC 1, 94.

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appear to be their fair share of the general burden of national expenditure, it would be far more disagreeable to substitute the rule of caprice for that of law. So tax avoidance schemes may still succeed, but not on the premise of any presumptive creed, like Duke of Westminster, but only if the anti-avoidance statutory language misses its target in spite of the application of broad interpretive philosophies. In Reflections on the Relationship between Statutory Interpretation and Tax Avoidance90 Brian J Arnold argues ... that the [Canadian] Supreme Courts adherence to the Duke of Westminster principle that taxpayers are entitled to arrange their affairs to minimise tax is inappropriate today and inconsistent with a modern, more purposive approach to statutory interpretation ...91 5. Conclusion

I submit that, as a general rule at least, the Purposive Approach should be adopted in construing tax statutes. In this regard, regard should be had to the Solomonic caveat of a New Zealand jurist: A purposive approach should not be made an excuse for starting with an assumption as to the underlying purpose, and then forcing the words into a preconceived and strained construction to fit that assumption.92 You have to grapple with the words first, before invoking purposive interpretation. At the end of any interpretive exercise the result must be compatible with the words used. No interpretation, no matter how golden, should be reached which is not at least one of several probable results of the language employed. Thus, legislative purpose may not be used to supplant

90 91

Canadian Tax Journal (2001), Vol. 49, No. 1. Ibid, from the Abstract. 92 Sir Ian McKay, 'Interpreting Statutes-A Judge's View', (2000) 9 OULR 743, 749.

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clear statutory language, but to arrive at the most plausible interpretation of an ambiguous statutory provision, wrote LeBel J in Placer Dome93. For anti-avoidance provisions, the tribunal should apply the Mischief Rule, if necessary with reference to legislative history and the travaux prparatoires directly bearing on the clause in question. In the South African case of Glen Anil Development Corporation Ltd v SIR94, Botha JA wrote: Section 103 of the Act is clearly directed at defeating tax avoidance schemes. It does not impose a tax, nor does it relate to the tax imposed by the Act or to the liability therefor or to the incidence thereof, but rather to schemes designed for the avoidance of liability therefor. It should, in my view, therefore, not be construed as a taxing measure but rather in such a way that it will advance the remedy provided by the section and suppress the mischief against which the section is directed The discretionary powers conferred upon the Secretary should, therefore, not be restricted unnecessarily by interpretation. Botha JAs result was good, but his premises are burdened with Cape Brandy hangover. Notice that he thought it necessary to classify the statutory provision before him outside taxation statutes to enable him utilise the Mischief Rule rather than the Strict Constructionist tool to which he felt somewhat beholden. My submission is that he ought to have boldly wielded the Mischief Rule without any apologies as to whether the clause was a taxing measure or not. Of course if the provisions are clear, the Literal Rule should be adopted. All the canons should be retained for tax statute construction as appropriate. Where a Literal or Strict Construction would deprive a provision of operational value, I submit that neither approach should be adopted. The tax judge should consider other aids to or canons of interpretation, and may find the Mischief Rule

93 94

Supra. (1975) 37 SATC 319.

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(especially if the provision in issue is an anti-avoidance legislative device) or the Purposive Approach helpful. For ambiguous or hazy provisions, the tribunal should maintain judicial equidistance, but should be prepared to consider legislative history as they do in America. Was learned writer E A Dreidger essaying a synthesis of the canons of statutory interpretation when he said: Today there is only one principle or approach, namely, the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament95? Maybe he was. Maybe he was 22 years ahead of the Supreme Court of Canada, which in 2005 developed TCP- the Textual-Contextual-Purposive Method of Statutory Interpretation. Keep learning. Doubt everything I have said. Keep thinking. Keep looking forward. Remember Lots wife! 96

6.

Exercises 6.1 What role should judicial activism play in statutory interpretation? 6.2 To what extent should tax statutes be amenable to judicial creativity? 6.3 Do judges make law? If so, how? 6.4 If a judge construes a statute by resort to a canon not urged by either side, does he thereby violate the suo motu rule? (The suo motu rule

95 96

Construction of Statutes, 2 Edition, 1983, page 87. Luke 17:32, and see Genesis 19:26, Holy Bible, King James Version.

nd

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says a judge should not of his own motion raise an issue not presented by either party.) 6.5 What is the difference between intent and intendment in the context of statutory interpretation? Please draw a clear distinction between legislative intent with reference to a given provision on the one hand, and the intendment of the provision on the other. 6.5.1 What interpretive enterprise could aid a tribunal or court in giving effect to the legislative intent? 6.5.2 How should the tribunal or court discern the intendment of a statutory provision? 6.6 What is the verb root of the noun construction as used in the phrase construction of statutes? 6.7 How old is Cape Brandy? Is it still good law? 6.8 What are the differences between the Purposive Approach and the Mischief Rule? 6.9 Distinguish between the Golden Rule and the Purposive Approach? 6.10 Compare the status of adultery in southern Nigerian criminal law with that of tax avoidance in tax law. 6.11 In light of section 251(1)(a) and (b) of the Constitution, is the Tax Appeal Tribunal competent to hear and determine tax disputes? (The provisions read as follows: Notwithstanding anything to the contrary contained in this Constitution and in addition to such other jurisdiction as may be conferred upon it by an Act of the National Assembly, the Federal High Court shall have and exercise jurisdiction to the exclusion of any other court in civil causes and matters (a) relating to the revenue of the Government of the Federation in which the said Government or any organ thereof or a person suing or being sued on behalf of the said Government is a party; (b) connected with or pertaining to the taxation of companies and other bodies established or
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carrying on business in Nigeria and all other persons subject to Federal taxation. 6.11.1 What canon of interpretation is most apt for interpreting section 251(1)(a) and (b) of the Constitution? 6.11.2 Why? 6.11.3 How have you applied it? 6.12 What is stare decisis? 6.12.1 How is the title of this paper relevant to the discussion? 6.12.2 To what extent does the warning expressed in the title of this presentation uphold stare decisis? 6.13 A statute forbids driving under the influence of alcohol or drugs. Yinka rides his horse on the highway while drunk. 6.13.1 Has Yinka violated the DUI statute? 6.13.2 What canon of construction is best suited for interpreting this DUI clause? 6.14 Can the National Assembly pass a tax statute with retroactive effect? 6.14.1 If not, why not? 6.14.2 (If you say what I think youre going to say) Who says?

Bibliography Ade Ipaye, Introduction to the Nigerian Tax System, a presentation at the Tax Law and Administration workshop organised by the Chartered Institute of Taxation of Nigeria and Rahmad Research and Consultancy Service, March 20-22, 2001. Blacks Law Dictionary, 6th Edition, St Paul, Minnesota, West, 1990.

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Brian J Arnold, Reflections on the Relationship between Statutory Interpretation and Tax Avoidance, Canadian Tax Journal (2001), Vol. 49, No. 1. Denning, The Discipline of Law, London, Butterworths, 1979. E A Dreidger, Construction of Statutes, 2nd Edition, 1983. Florence N Dollo, Tax Legislation and the Lawyers Training Needs- An African Perspective. F R Davies, Introduction to Revenue Law, 2nd Edition by David Williams and Geoffrey Morse, London, Sweet & Maxwell, 1985. Gerald Dworkin, Odgers Construction of Deeds and Statutes, 5th Edition, London, Sweet & Maxwell, 1967. Holy Bible, King James Version. Ian McKay, 'Interpreting Statutes-A Judge's View', (2000) 9 OULR 743. John A Townsend, Federal Tax Procedure, 2010. John Willis, Statute Interpretation in a Nutshell (January 1938), 16 The Canadian Bar Review Oliver Wendell Holmes Jr, The Path of the Law, Collected Papers, 1920. Vinelott J, Interpretation of Fiscal Statutes, [1982] Statute Law Review, 78. Ward & Cullity, Abuse of Rights and the Business Purpose Test. William Shakespeare, Twelfth Night. Yule Kim, Statutory Interpretation: General Principles and Recent Trends, CRS Report for Congress, 2008. Authors Professional Profile
Chinua Asuzu obtained a BA (Hons) from the University of Nigeria at Nsukka, his LLB (Hons) from the University of Ibadan, and his BL from the Nigerian Law School. Since enrolment in the Supreme Court of Nigeria, Chinua has
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been in active, sometimes activist, legal practice at the Assizes Lawfirm. Chinua has published numerous articles, and presented many papers on law, democracy and governance. Chinua has consulted for Kayode Sofola & Associates, Olisa Agbakoba & Associates, Human Rights Law Service (HURILAWS), Legislative Solicitors, the Nigerian Bar Association, the Catholic Secretariat of Nigeria, and the National Assembly. Chinua Asuzu is now the Senior Partner at Assizes Lawfirm, an Honourable Commissioner of the Tax Appeal Tribunal, an Adjunct Lecturer and External Examiner at the Nigerian Law School, and Nigerian-law consultant to the London firm of Bluestone and Partners. Chinua Asuzu is a member of the Nigerian Bar Association (NBA) and the International Bar Association (IBA), and an Associate of the Chartered Institute of Arbitrators (UK). Asuzu's areas of academic and professional interest or expertise include Dispute Resolution (adjudication, arbitration, litigation, mediation, and negotiation), Legal Writing, Legislative Drafting & Advocacy, and Tax. Asuzu has participated in the preparation of several legislative drafts and proposals to the National Assembly. His contribution to the civil procedure revolution in Lagos State was publicly acknowledged by the then Attorney General of Lagos State, Prof Yemi Osinbajo SAN at the NBA Annual Conference in Calabar in 2002. Asuzu also made very significant and bold contributions to the current Fundamental Rights (Enforcement Procedure) Rules. The overriding directives, the encouragement of public interest litigation, the expansion of locus standi, the resort to regional and international human rights systems, and indeed the entire preamble to the new Fundamental Rights Rules were some of Asuzu's innovations. Asuzu's career has been helped by several senior and contemporary colleagues including Afe Babalola SAN, Prof Epiphany Azinge SAN, Gani Fawehinmi SAN of blessed memory, Prof Itse Sagay SAN, Kayode Sofola SAN, Olisa Agbakoba SAN, Patrick Kola Esq, and Prof Yemi Osinbajo SAN. Olisa Agbakoba in particular gave much-needed direction and opened up vistas of exciting opportunities for the advancement of Asuzu's professional profile. Prof Azinge supplied giant doses of encouragement and support. Kayode Sofola has been a great mentor and a teacher by calm example. Chinua Asuzu is the author of Fair Hearing in Nigeria, Lagos, Malthouse, 2009. Asuzu would appreciate criticisms of or comments on this presentation by phone/sms (0803 341 2508) or email (assizes@ymail.com). You can download this paper from http://ssrn.com/abstract=1920702.

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