How to interpret tax legislation – a guide for the perplexed

Key points

• HMRC and taxpayers often have different interpretations of the same tax law provision. But there is a framework for deciding who is right.
• The framework can be summarised as: ‘The ultimate question is whether the relevant statutory provisions construed purposively were intended to apply to the transaction viewed realistically.’
• In other words it is necessary to work out what fact patterns parliament must in light of the objective purpose of the provision have intended to be covered.
• Usually parliament will not have intended fact patterns that amount to tax avoidance to have been covered. But what counts as tax avoidance is a minefield.

Ultimately tax law is about words. More specifically the words in the statute book as supplemented or interpreted by the words of judges. But words are flighty creatures that are hard to pin down. They almost always...