The Westminster Principle

The law says that a taxpayer is entitled to legally arrange her affairs to mitigate tax. Tax planning involves analysis of legislation and its judicial interpretation. Under our system of parliamentary supremacy, legislatures write laws, and courts interpret them.

Tax planning has always stimulated innovative and creative tax schemes. The early history of taxation is the story of how rulers impose innovative taxes to finance wars and how taxpayers devised creative ways to avoid the levies. Tax avoidance appears 4500 years ago in Mesopotamia, where a king levied fines on his citizens who began to swim across the local river to avoid the toll that he had imposed on the local ferry to finance his wars. The king responded with an anti-avoidance rule by making swimming across the river illegal. Here we see the DNA of the general anti-avoidance rule (GAAR) in section 245 of the Income Tax Act.

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