Stanley Surrey and the Transformation of Administrative Law in Japan

Abstract

Stanley Surrey, one of the most important figures in the history of American tax law scholarship, was a member of the Shoup Mission, which made a thorough recommendation on the Japanese tax system after the Second World War. In the Mission, he was in charge of the modernization of Japan’s tax administration system. Among other things, he recommended implementing the Blue Return System, a set of incentives for taxpayers to file their tax returns based on actual data on their economic activities. As is well-known in Japan, the System contributed significantly to public acceptance of the self-assessment approach. However, it is less known that Stanley Surrey, despite his original ideas that aimed at rationalizing the tax dispute resolution system, happened to have a considerable influence on the transformation of administrative law in Japan, especially on the birth of a common law doctrine with respect to the administrative agency’s duty to provide reasons in a wide range of administrative determinations. In this article, the author points out the following facts. First, in the Report of the Shoup Mission, Surrey proposed several measures for mitigating tax disputes between the government and the taxpayers. The proposal was identical to one that he and Roger Traynor had previously put forward to improve the federal tax administration of the United States. Second, Surrey suggested that the taxpayer had to be notified of the reason for an assessment of deficiency and that the more comprehensively the tax office could investigate the taxpayer, the more detailed reasons should be provided to him. However, Japanese lawmakers made the notification a privilege for blue return filers, that is, for those who filed tax returns based on data that recorded details of their economic activities. Third, the Japanese judiciary followed the literal interpretation rule in reading the statutory mandate to give reasons. Above all, the Supreme Court of Japan in Udono, a 1963 decision, held that an administrative determination sent to a taxpayer without sufficient reasons for it should be revoked. The Court did so mainly because it believed that the statutory mandate to notify the taxpayer of the reasons embodied the spirit of due process and that to obey the spirit, it was inevitable to sacrifice the collection of a correct amount of tax in favor of ensuring the administrative agency’s rational decision-making.