Tax Law and Public Opinion : Explaining IRC v Duke of Westminster

Abstract

It has been argued that the decisions of the House of Lords on tax avoidance in the early decades of the 20th century, and specifically the Westminster case decided in 1935, should be viewed as an expression of an ideological bias in favor of wealthy taxpayers. This article claims that another possible way to understand judicial reactions to tax avoidance is to view them as a balancing act between two conflicting aspects of public trust - the need to combat tax avoidance on one hand, and the need to preserve the notion of the rule of law on the other. Pro-taxpayer results may be influenced by ideological bias, but they are also influenced by institutional considerations and by the level of public concern with tax avoidance at the time that a specific case is decided. When public concern declines, the courts tend to favor the taxpayer. This argument is illustrated by contextualizing the history of the Westminster case. Based on official documents as well as a variety of non-legal sources, the article reconstructs the administrative, political and social setting in which the case was decided. It shows that public interest in tax avoidance grew and then declined between the early 1920s and the mid-1930s. It argues that in the immediate period before the case was decided in 1935, the public (though not professionals) took little interest in the issue of tax avoidance. This, together with the traditional reluctance of British courts to intervene in matters of taxation, was one of the factors that led the law lords to reach a pro-taxpayer result in the Westminster case.