Instituto de Estudios Políticos y Derecho Público "Dr. Humberto J. La Roche"
de la Facultad de Ciencias Jurídicas y Políticas de la Universidad del Zulia
Maracaibo, Venezuela
Esta publicación cientíca en formato digital es continuidad de la revista impresa
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ppi 201502ZU4645
Vol.41 N° 79
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Diciembre
2023
ISSN 0798- 1406 ~ De pó si to le gal pp 198502ZU132
Cues tio nes Po lí ti cas
La re vis ta Cues tio nes Po lí ti cas, es una pu bli ca ción aus pi cia da por el Ins ti tu to
de Es tu dios Po lí ti cos y De re cho Pú bli co “Dr. Hum ber to J. La Ro che” (IEPDP) de la Fa-
cul tad de Cien cias Ju rí di cas y Po lí ti cas de la Uni ver si dad del Zu lia.
En tre sus ob je ti vos fi gu ran: con tri buir con el pro gre so cien tí fi co de las Cien cias
Hu ma nas y So cia les, a tra vés de la di vul ga ción de los re sul ta dos lo gra dos por sus in ves-
ti ga do res; es ti mu lar la in ves ti ga ción en es tas áreas del sa ber; y pro pi ciar la pre sen ta-
ción, dis cu sión y con fron ta ción de las ideas y avan ces cien tí fi cos con com pro mi so so cial.
Cues tio nes Po lí ti cas apa re ce dos ve ces al año y pu bli ca tra ba jos ori gi na les con
avan ces o re sul ta dos de in ves ti ga ción en las áreas de Cien cia Po lí ti ca y De re cho Pú bli-
co, los cua les son so me ti dos a la con si de ra ción de ár bi tros ca li fi ca dos.
ESTA PU BLI CA CIÓN APA RE CE RE SE ÑA DA, EN TRE OTROS ÍN DI CES, EN
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Re vicyhLUZ, In ter na tio nal Po li ti cal Scien ce Abs tracts, Re vis ta In ter ame ri ca na de
Bi blio gra fía, en el Cen tro La ti no ame ri ca no para el De sa rrol lo (CLAD), en Bi blio-
gra fía So cio Eco nó mi ca de Ve ne zue la de RE DIN SE, In ter na tio nal Bi blio graphy of
Po li ti cal Scien ce, Re vencyt, His pa nic Ame ri can Pe rio di cals In dex/HAPI), Ul ri ch’s
Pe rio di cals Di rec tory, EBS CO. Se en cuen tra acre di ta da al Re gis tro de Pu bli ca cio-
nes Cien tí fi cas y Tec no ló gi cas Ve ne zo la nas del FO NA CIT, La tin dex.
Di rec to ra
L
OIRALITH
M. C
HIRINOS
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ORTILLO
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Asis ten tes Ad mi nis tra ti vos
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Re vis ta Cues tio nes Po lí ti cas. Av. Gua ji ra. Uni ver si dad del Zu lia. Nú cleo Hu ma nís ti co. Fa-
cul tad de Cien cias Ju rí di cas y Po lí ti cas. Ins ti tu to de Es tu dios Po lí ti cos y De re cho Pú bli co
“Dr. Hum ber to J. La Ro che”. Ma ra cai bo, Ve ne zue la. E- mail: cues tio nes po li ti cas@gmail.
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Vol. 41, Nº 79 (2023), 734-749
IEPDP-Facultad de Ciencias Jurídicas y Políticas - LUZ
Recibido el 14/07/23 Aceptado el 19/09/23
Interpretation of tax law in cases
involving commercial entities:
Opportunities to exchange best
practices in the area of corporate social
responsibility regulation
DOI: https://doi.org/10.46398/cuestpol.4179.49
Andrii Zakharchenko *
Yaroslav Sydorov **
Valeriia Novoshytska ***
Vasyl Manzyuk ****
Abstract
The article aims to develop a correct understanding of
the essence and implications of the basic principles and legal
provisions governing tax matters, as well as to form an insight into
their evolutionary transformations on the basis of the exchange of
relevant best practices between Ukraine and other countries. Relying on
methods of comparative review, as well as methods of systematic review
and standard techniques of text analysis, the author covers theoretical and
practical issues related to the balanced combination of literal and intentional
interpretation of tax legislation provisions, in dubio pro tributario in the
interpretation of tax laws and question of reasonable cause and good faith
of taxpayers. It is noted, in particular, that common law countries and
continental legal systems are united by a tendency towards a balanced
combination of literal and purposive interpretation. It is emphasized in the
conclusions that, along with the literal wording of tax law provisions, the
purpose of their introduction and the general principles of tax law are taken
into account. Moreover, in some countries, reference to the intention of the
legislators is even allowed.
* Doctor of Law, Professor, Head of of the research laboratory of public security of communities of the
Donetsk State University of Internal Aairs, Mariupol, Ukraine. ORCID ID: https://orcid.org/0000-
0002-6359-2475. Еmail: an_zaharchenko@ukr.net
** PhD., in Law, Associate Professor, Associate Professor of the Department of Civil Law, Zaporizhzhia
National University, Zaporizhzhia, Ukraine. ORCID ID: https://orcid.org/0000-0002-4828-3834.
Еmail: yaroslavznu@gmail.com
*** PhD., in Law, Senior Lecturer of the Department of Information, Economic and Administrative
Law, National Technical University of Ukraine “Igor Sikorsky Kyiv Polytechnic Institute”, Faculty
of Sociology and Law, Kyiv, Ukraine. ORCID ID: https://orcid.org/0000-0003-4008-8660. Email:
usis@ukr.net
**** PhD in Law, Associate Professor, Associate Professor of the Department of Economic Law, Uzhgorod
National University, Zaporizhzhia, Ukraine. ORCID ID: https://orcid.org/0000-0003-2133-1573.
Еmail: vasyl.manziuk@uzhnu.edu.ua
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CUESTIONES POLÍTICAS
Vol. 41 Nº 79 (2023): 734-749
Keywords: jurisprudence; comparative law; companies; legal
interpretation; taxation.
Interpretación de la legislación scal en casos que
involucran entidades comerciales: Oportunidades para
intercambiar mejores prácticas en el aspecto de la
regulación de la responsabilidad social de las empresas
Resumen
El artículo tiene como objetivo desarrollar una comprensión correcta de
la esencia y las implicaciones de los principios básicos y las disposiciones
legales que rigen los asuntos tributarios, además de formar una visión de
sus transformaciones evolutivas sobre la base del intercambio de mejores
prácticas relevantes entre Ucrania y otros países. Apoyándose en métodos
de revisión comparativa, así como en métodos de revisión sistemática y
técnicas estándar de análisis de texto, el autor cubre cuestiones teóricas
y prácticas relacionadas con la combinación equilibrada de interpretación
literal e intencional de las disposiciones de la legislación tributaria, in dubio
pro tributario en la interpretación de las leyes tributarias y cuestión de
causa razonable y buena fe de los contribuyentes. Se observa, en particular,
que los países del common law y los sistemas jurídicos continentales
están unidos por una tendencia hacia una combinación equilibrada de
interpretación literal y deliberada. Destaca en las conclusiones que, junto
con la redacción literal de las disposiciones de la legislación tributaria, se
tienen en cuenta el propósito de su introducción y los principios generales
de la legislación tributaria. Además, en algunos países, incluso se permite
la referencia a la intención de los legisladores.
Palabras clave: jurisprudencia; derecho comparado; empresas;
interpretación juridica; scalidad.
Introduction
Interpretation and application of taxation principles and provisions
is often accompanied by complex law enforcement situations related to
the peculiarities of tax administration, which results primarily from the
complexity and high dynamics of changes of tax laws and regulations and
its signicant impact on the nancial standing of enterprises.
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Andrii Zakharchenko, Yaroslav Sydorov, Valeriia Novoshytska y Vasyl Manzyuk
Interpretation of tax law in cases involving commercial entities: Opportunities to exchange best
practices in the area of corporate social responsibility regulation
In light of this, getting a correct understanding of essence and
implications of core principles and legal provisions governing taxation
matters, along with forming a vision of their evolutionary transformations
in accordance with shifts in relevant economic relations, as well as the
development of optimal ways of their application for determination of
rights, duties and liabilities of taxpayers in real law enforcement situations
– set a task for the scientic community to provide tax authorities and
administrative courts with the best recommendations regarding the most
progressive and consistent ways of interpretation of the provisions of tax
law and regulations.
The global nature of tax legislation along with the absence of internationally
unied reference mechanisms for tax regulation and administration lead to
the fact that the countries of the world have accumulated diverse experience
that they can use for mutual enrichment of the practice of interpretation
and application of their national tax legislation.
1. Analysis of recent research and publications
A review of scientic sources shows that the world scientic community
has made signicant eorts to accumulate and systematize scientic
knowledge on the best approaches to solving key issues of interpretation of
tax laws and regulations. In particular, the fundamental publication ‘Legal
Interpretation of Tax Law’ (Eds.: R. Krever, R. van Berderode), as well as
research papers by certain scientists and practitioners, cited within this
study, attract particular attention. However, these scientic developments
need further comprehending and updating. Moreover, relevant Ukrainian
experience, which can be useful for scientic discussions on the subject of
practical interpretation of tax legislation provisions at the level of supreme
courts and ways of further improvement of relevant theoretical knowledge,
is insuciently represented in international scientic publications. While
covering these issues a particular set of methods of scientic is required.
Among them are comparative review methods as well as systematic review
methods and standard techniques of text analysis.
2. Results
2.1. Interpretation of Tax Principles and Rules: Literal and
Purposive Approach
It is to be noted at the outset that the interpretation of law is the process
of determining the meaning of a law, as well as its application to a particular
set of facts. It is a fundamental part of the legal process, and its importance
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lies in making sure that the law is applied fairly and consistently. The
European Court of Human Rights has acknowledged in its case law that
however clearly drafted a legal provision may be, in any system of law there
is an inevitable element of judicial interpretation.
The court, furthermore, highlighted that there will always be a
need for elucidation of doubtful points and for adaptation to changing
circumstances. Again, whilst certainty is highly desirable, it may bring in its
train excessive rigidity and the law must be able to keep pace with changing
circumstances. Accordingly, many laws are inevitably couched in terms
which, to a greater or lesser extent, are vague and whose interpretation
and application are questions of practice. The role of adjudication vested in
the courts is precisely to dissipate such interpretational doubts as remain.
However, the ECHR may nd that the requirement of foreseeability
is not met if the application or interpretation of legislation has
been unexpected, overly broad, or bordering on the arbitrary (OAO
Neftyanaya Kompaniya Yukos v. Russia, no. 14902/04, § 568).
For instance, in light of the foregoing it is generally accepted, that
“no person should be forced to speculate, at peril of conviction, whether
his or her conduct is prohibited or not, or to be exposed to unduly broad
discretion of the authorities, in particular if it was possible, either by
drafting legislation in more precise terms or through judicial interpretation,
to specify the relevant provision in a way that would dispel uncertainty”
(Matić and Polonia d.o.o. v. Serbia (dec.), no. 23001/08, § 50).
Interpretation of tax laws and regulations is of particular importance
task because tax laws are complex and often dicult to understand. It
is believed that: “Because of their general nature, tax norms are always
targeted at a certain “average” type of life situation and do not reect the
specics of an innite variety of tax situations” (Demin, 2019: 13). Owing
to this interpretation of tax laws is essential for ensuring that taxpayers
comply with their obligations and that the government can eectively
enforce tax laws. Additionally, interpreting taxation provisions helps to
ensure that taxpayers are not unfairly advantaged or disadvantaged when
it comes to taxation.
When studying peculiar features of the interpretation of the principles
and provisions of tax legislation, rst of all, attention should be paid to the
fact that as the pace of development of tax regulation and administration
systems accelerates and as these phenomena become more and more
complicated, the search for the optimal ratio of elements of strict and
purposive interpretation in modern states becomes more and more urgent.
In light of this, the theoretical and practical approaches followed by the
competent authorities of the counties of the common law and continental
legal systems are of considerable scientic interest from the point of view of
the potential for their mutual approximation and enrichment.
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Interpretation of tax law in cases involving commercial entities: Opportunities to exchange best
practices in the area of corporate social responsibility regulation
Turning to scientic and legal sources, which reveal the rationale for
the mostly literal interpretation of the provisions of the tax legislation, the
following standpoint of His Lordship Bhagwati J. of the Supreme Court
of India could be noted. In A. V. Fernandez vs. State of Kerala the judge
stated that in construing scal statutes and in determining the liability of a
subject to tax one must have regard to the strict letter of law. If the revenue
satises the court that the case falls strictly within the provisions of the
law, the subject can be taxed. If, on the other hand, the case is not covered
within the four corners of the provisions of the taxing statute, no tax can be
imposed by inference or by analogy or by trying to probe into the intentions
of the legislature and by considering what was the substance of the matter
(Supreme Court of India, 1957).
The strict interpretation premises on overarching implicit rationale based
on the Latin tenet ‘ubi lex voluit dixit, ubi tacuit noluit’, which amounts to a
counterfactual: if the legislator did not say something, then it clearly did not
actually mean to say something. That means, that “if legislator had wanted
something, it would have said so” (Garbarino, 2014: 215). In scientic
literature and analytical publications, it is noted that tax law remained
remarkably resistant to the new non-formalist methods of interpretation.
It is commonly acknowledged that if the taxpayer was entitled to stand
on a literal construction of the words used regardless of the purpose of the
statute [...] tax law was by and large left behind as some island of literal
interpretation. However, with the passage of time it became more and
more apparent that literal interpretation of tax statutes and the formalistic
insistence on examining steps in a composite scheme separately allowed
tax avoidance schemes to ourish, which led the United Kingdom courts
to insist that the same principles of statutory interpretation applied to tax
statutes as to other legislation (Irish Revenue Commissioners, 2021: 35).
The literal interpretation of the law in the legal doctrine of the common
law states is juxtaposed to a certain extent to the purposive interpretation,
which is based on the concept called the golden rule of interpretation or the
rule of reasonable construction.
This rule is a modication of the literal rule. It states that if the literal
rule produces an absurdity, then the court should look for another meaning
of the words to avoid that absurd result. According to Asuzu (2017) the rule
was closely dened by Lord Wensleydale in Grey v. Pearson (1857), who
stated that:
The grammatical and ordinary sense of the words is to be adhered to unless
that would lead to some absurdity or some repugnance or inconsistency with the
rest of the instrument in which case the grammatical and ordinary sense of the
words may be modied so as to avoid the absurdity and inconsistency, but no
farther (Asuzu, 2017:19).
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Applying this approach when deciding tax disputes, in particular, the
Supreme Court of Ireland, as conrmed by Dunnes Stores v. Revenue
Commissioners, holds the opinion that if a strict manner of interpretation
is absurd or ambiguous, read the piece of legislation as a whole (including
the long and short titles, preamble, schedules, denition and interpretation
sections, and marginal notes) and apply the plain intention of the Oireachtas
or maker of the legislation where it is clear based on the context of the
provision within the act as a whole, but potentially more broadly than that
(Supreme Court of Ireland, 2011).
In other words, as the Supreme Court of Ireland reiterated in McGrath
v McDermott, it is clear that successful tax avoidance schemes can result in
unfair burdens on other taxpayers and that unfairness is something against
which courts naturally lean.
The function of the courts in interpreting a statute of the Oireachtas is,
however, strictly conned to ascertaining the true meaning of each statutory
provision, resorting in cases of doubt or ambiguity to a consideration of the
purpose and intention of the legislature to be inferred from other provisions
of the statute involved, or even of other statutes expressed to be construed
with it. The courts do not have a function to add to or delete from the
express statutory provisions so as to achieve objectives which to the courts
appear desirable. In rare and limited circumstances words or phrases may
be implied into statutory provisions solely for the purpose of making them
eective to achieve their expressly avowed objective (Supreme Court of
Ireland, 2011).
As Garbarino (2014) pointed out within the Italian context purposive
interpretation emerged for two reasons: (i) the need to address so-called
‘hard cases’, i.e., cases that cannot be solved through strict interpretation
due to the increasing complexities of the tax system; and (ii) the need to
counteract aggressive strategies of taxpayers exploiting the limitations of
strict interpretation.
This has resulted in a new brand of interpretive ideologies – particularly
in governmental agencies – according to which individual positions of
taxpayers can be ‘compressed’ by social policies and this has ultimately
created a problem of protection of constitutionally protected rights. Because
of the increasing complexity of auditing techniques and the judicial activism
of the Italian Corte di Cassazione, a paradigm shift is currently under way
in which the purposive interpretation is gradually predominating over the
strict interpretation (215).
Thus, the common law countries and continental legal systems are united
by a tendency towards a balanced combination of literal and purposive
interpretation of the provisions of tax legislation. This tendency is based on
its increasing complexity and dynamics of its development, as well as has its
740
Andrii Zakharchenko, Yaroslav Sydorov, Valeriia Novoshytska y Vasyl Manzyuk
Interpretation of tax law in cases involving commercial entities: Opportunities to exchange best
practices in the area of corporate social responsibility regulation
roots in its focus on achieving both public interests and, in a certain sense,
the private interests of conscientious taxpayers related to preventing their
competitors from gaining unjustied competitive advantages via tax fraud.
With this in mind, next to the literal wording of tax legislation provisions,
the purpose of their introduction and the general principles of tax law
are taken into account. In addition, in some countries, even reference to
the intention of the lawmakers is allowed. However, the limit of a broad
interpretation of the norms of tax law is in the fact that it is only acceptable
to eliminate absurd law enforcement situations.
The case law of Ukrainian courts is quite rich in examples of the
application and combination of literal and purposive interpretation.
For instance, their commitment to proper balancing the literal
perception of legislative provisions with their purposive interpretation is
clearly demonstrated by the following judgment of the Supreme Court of
Ukraine. The central issue of the case was the validity of the standpoint of
the courts of previous instances regarding the fact that the plainti’s BMW
X5 cannot be subject to transport tax under the legislation of Ukraine, since
the cylinder volume of its engine (2993 cubic cm) is smaller, than specied
by the Ministry of Economy of Ukraine in the List of passenger cars subject
to transport tax in the relevant year (3.0 liters). Having considered the case,
the Supreme Court of Ukraine pointed out that the volume of the engine
in the totality of elements that aect the value of the car as an object of
taxation is used as an economic characteristic of the car, and not a purely
technical indicator of it.
Therefore, the court considers it justied to use the generally accepted
designation of the engine volume in liters, and not its detailed technical
characteristics in cubic centimeters, since this is enough to identify the car.
Deviation by a few thousandths from the indicator in liters of engine volume
applied by the Ministry of Economy of Ukraine does not indicate that the
corresponding car is not subject to taxation, as it does not aect its average
market value. Thus, the court chamber came to the conclusion about the
lawfulness of charging the transport tax, since a car with such properties
as the one belonging to the plainti is included in the list of passenger cars
that are subject to taxation in the corresponding year (Supreme Court of
Ukraine, 2022a).
In the case law of the Supreme Court of Ukraine, there are also cases of
systematic interpretation of several basic principles of tax legislation, as
a result of which the highest judicial institution deviated from the literal
wording of one of them.
To form a sucient context, rst of all, we note that in Article 4,
subparagraph 4.1.9 of the Tax Code of Ukraine it is established that the tax
legislation of Ukraine is based on several principles, one of which is stability.
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The stability of tax legislation provides that changes to any elements of
taxes and fees cannot be made later than 6 months before the start of the
new budget period, in which new rules and rates will apply. Moreover, it is
determined that taxes and fees, their rates, as well as tax benets cannot
change during the budget year (Tax Code of Ukraine, 2010).
At the same time, the Supreme Court of Ukraine recognized the increase
in the rate of rent for the use of subsoil for the extraction of natural gas
from 28% to 55% less than 6 months before the start of the new budget
period as justied and not amounting to an arbitrary interference with
the right to peaceful enjoyment of property, as it had been done in view of
public interests. It was highlighted that the principle of stability should be
applied in conjunction with the principles of generality of taxation, scal
suciency and social justice. The court also noted that the social eect
of such a policy was directed, in particular, to the real implementation of
the state’s functions in terms of balancing the budget (Supreme Court of
Ukraine, 2022b).
Having considered these legal opinions of the Supreme Court of Ukraine,
I have reasons to support the viewpoint, according to which, taking into
account the peculiarities of the taxation sphere, a negligible deviation of a
particular object from the qualifying parameters of the object of taxation
cannot lead to its removal from taxation. This statement fully complies with
the generally accepted conditions of purposive interpretation, because the
opposite conclusion would lead to an absurd decision that is inconsistent
with the clear and correctly interpreted purpose of the relevant provisions
of the tax legislation.
On the other hand, despite the fact that the conclusion of the Supreme
Court of Ukraine on the need to balance several basic principles of tax
legislation, which are inconsistent in the context of the circumstances of the
case, has a signicant theoretical and legal value, the statement implying
that one of the principles of tax legislation can completely nullify another
seems questionable.
2.2. In Dubio Pro Tributario in Interpreatation of Tax Laws and
Regulations
Continuing the research, it is to be noted that an important global trend
in the development of the interpretation of tax legislation provisions is the
consistent armation of the presumption of lawfulness of the taxpayer’s
behavior in conditions when the legislation gives rise to ambiguous
(multiple) interpretations of the rights and duties of taxpayers or tax
authorities, as a result of which there is an opportunity to make a decision
in favor of both the taxpayer and the tax authority.
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Interpretation of tax law in cases involving commercial entities: Opportunities to exchange best
practices in the area of corporate social responsibility regulation
As Demin (2019) asserts, such defects are the fault of the law-maker,
not the taxpayer. Therefore, it is the state as the guilty party that takes upon
itself the burden of the negative consequences of all the shortcomings of
the legislation. Since the law-maker is obliged to formulate tax legislation
in such a way that every person knows precisely which taxes (levies) they
must pay, and when, and according to what procedure they must pay them,
then it is the state that should be responsible for the non-fulllment of this
duty. Legal uncertainty caused by the legislator’s insucient work should
be interpreted in favor of the taxpayer (24).
According to Preston’s apt statement the principle of in dubio pro
tributario in its tax projection is fully consistent with the purposive approach
to the interpretation of tax legislation. The author indicates that:
Traditionally there was only one exception to the plain meaning rule and
this was where the taxpayer was at risk of having imposed upon him a liability
so farfetched and so fantastic that the suggestion that that was what parliament
intended could not be entertained. This is used in conjunction with the minor rule
that the taxpayer has the benet of the doubt (Preston, 1990: 45).
In scientic literature, attention is also drawn to the fact that application
of the principle in dubio pro tributario in the interpretation of the tax law
is to ensure implementation of the principle of certainty in tax legislation.
This principle should perform the function of clarifying and simplifying
legislation, which is important from the point of view of the general state
of tax law. This particularly applies to the situation when the position of
regulation lead to conclusions that do not make sense, contradictory or
ambiguous, then the best solution is a choice of interpretation of legal
norms, which will be benecial to the taxpayer (Juchniewicz and Stwoł,
2017: 309).
Turning to the practice of applying the principle in dubio pro tributario
during the judicial settlement of tax disputes, rst of all, it should be noted
that respected national and international judicial institutions consider
it a fundamental guideline for the correct interpretation of tax laws and
regulations. In particular, the US Supreme Court adheres to the view that if
the words of a statute are doubtful, the doubt must be resolved against the
government and in favor of the taxpayer (US Supreme Court, 1923).
The legal opinions of the Supreme Court of Ukraine describing in
more detail the grounds for applying the above-mentioned principle
of interpretation of tax legislation provisions are also of considerable
scientic and practical value. In particular, the court emphasized that in
the event that the national legislation gave rise to an ambiguous or multiple
interpretation of the rights and duties of individuals and business entities,
national authorities are obliged to apply the most favorable approach for
individuals and business entities.
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That means that conicts in the legislation are always resolved in favor of
the individual or business entity. Moreover, the simultaneous existence of
other conicting norms gives the court indisputable grounds for resolving
conicts in legislation in favor of a person (Supreme Court of Ukraine,
2020).
The presumption of lawfulness of the taxpayer’s decisions accrues when
the tax rules directly or as a result of their interpretation are not unambiguous
and allow the multiply ways of interpretation of assessment powers both in
favor of the taxpayer and the tax authorities. It is necessary and sucient
to identify two or more alternative options for lawful behavior, choosing the
most benecial one for the taxpayer to feel protected from possible negative
consequences from both the tax authority and the court. At the same time,
the burden of proving the absence of legal grounds for the behavior option
chosen by the taxpayer is assigned by law to tax authorities (Supreme Court
of Ukraine: 2020).
In other words, in the case of inaccuracy, lack of clarity, and
inconsistencies in the norms of positive law, the norm must be interpreted
in favor of the non-government person (if one of the parties to the dispute
is a representative of the state or a local self-government body), because if
the state is unable to ensure the issuance of clear rules, then it is it and must
pay for its shortcomings. This is the so-called rule of priority of the norm
according to the most favorable interpretation for the person (Supreme
Court of Ukraine, 2022c).
A plain and illustrative example of a situation, in which the rule of priority
of the norm according to the most favorable interpretation is applicable, is
the duplication of the product in two dierent columns of the table of excise
tax rates (Supreme Court of Ukraine, 2021).
Having thought through the above, it could be noted that the general
trend in the development of the interpretation of the tax legislation
provisions is the assertion of the absolute responsibility of the state for the
clarity and accuracy of the wording of tax laws and regulations. Both in the
common law countries and in the continental legal systems tax authorities
and courts are expected to adhere to the concept prescribing an opportunity
for the taxpayer can choose the most benecial option for itself in event
that rules of tax law directly or as a result of their interpretation are not
unambiguous and give rise to multiple interpretations of executive powers
of tax authorities both in favor of the taxpayer and the supervisory authority.
2.3. Reasonable Cause and Good Faith of the Taxpayers
Approaching the next matter, it is to be highlighted that tax control, as
well as judicial control of the lawfulness of an increase in the taxpayer’s tax
liability or the amount of the tax benet claimed is often accompanied by the
744
Andrii Zakharchenko, Yaroslav Sydorov, Valeriia Novoshytska y Vasyl Manzyuk
Interpretation of tax law in cases involving commercial entities: Opportunities to exchange best
practices in the area of corporate social responsibility regulation
interpretation of the provisions of tax legislation, for the correct application
of which the good faith of the taxpayer’s behavior must be assessed, which
is not limited to a purely legal dimension, but also covers the economic
aspects and the essence of its economic operations.
This issue is particularly acute, because it is quite dicult to distinguish
the signs of business operations, which indicate their legitimate structuring
in order to optimize the tax burden on their participants, from the
circumstances that indicate commitment of tax fraud by taxpayers, which
has the form of understating their tax obligations or overestimation of the
tax benet.
Relying on legal opinions of the Supreme Court of Ukraine on the issue
of the formation of a tax credit, it could be noted that this court consistently
emphasizes that the determining factor for this is the compliance of the tax
invoice with the order of its lling and the subsequent use of the purchased
goods (xed assets) in taxable transactions within the economic activity of
the taxpayer. Developing this opinion, it was concluded that by submitting
to the tax authority all properly drafted primary documents required by
law the taxpayer can receive a tax benet only if the tax authority does not
prove falsehood, inauthenticity or discrepancies in the information in such
documents.
Furthermore, the Supreme Court of Ukraine emphasized that the
current legislation does not make the condition of the tax obligations of the
taxpayer dependent on the state of the tax accounting of its counterparties,
the presence or absence of xed assets or personnel, submission / non-
submission of tax reports. The court also added that when resolving tax
disputes, the court is guided by the presumption of good faith of the
taxpayer, which encompasses economic justication of actions resulting in
tax benets, as well as the reliability of information in accounting and tax
reporting. The bad faith of the payer must be proven by unconditional and
unambiguously interpreted evidence (Supreme Court of Ukraine, 2022d).
A clear predisposition towards human rights protection in the
interpretation of tax legislation can also be traced in the case law of the
Supreme Court of Ukraine on matters relating to taxpayers’ expenditures.
In particular, the court repeatedly stated that the tax authority could not
make determinations about recognizing or non-recognizing of expenditures
relying on far-fetched conclusions.
Moreover, this judicial institution demonstrates a sucient
understanding of the nature of entrepreneurship and the essence of
business processes, noting that it is not necessary that the economic eect
be observed immediately after the transaction; it is possible that as a
result of objective reasons, the economic eect may not occur whatsoever.
The taxpayer must have the intention to obtain an appropriate economic
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eect. The failure of the enterprise to receive income from a separate
business operation does not indicate that such an operation is not related
to the economic activity of the enterprise, since when conducting business
operations there is a normal commercial risk of not receiving income from
a specic operation (Supreme Court of Ukraine, 2022a).
Thus, the Supreme Court of Ukraine, when interpreting principles
and provisions of the tax legislation related to assessment of business
operations of taxpayers, is guided by coherent concepts about the nature
of entrepreneurship and the commercial risks inherent in it, which could
possibly lead to decisive inuence on the economic consequences of
business operations.
Bearing in mind these considerations, the Supreme Court of Ukraine
adheres to the presumption of the existence of an economic rationale for
the activity of taxpayers, if the tax authority does not prove the falsehood,
unreliability or contradictory nature of information in documents related
to specic economic transactions, or the absence of changes in assets and
liabilities of taxpayers as a result of specic nancial transactions. On the
other hand, accompanying circumstances, such as the company’s failure to
receive income from a separate business operation, the suciency of xed
assets and personnel, and the submission of tax returns by themselves
cannot lead to conclusions not in favor of taxpayers.
Recognizing the potential signicant value of the above-mentioned legal
opinions for interpretation and application of tax laws and regulations
within the European legal space, it should, however, be noted that in
Ukraine the issue of distinguishing the optimization of the tax burden and
tax fraud is not suciently sorted out. The practice of interpreting the tax
legislation of Ukraine is not distinguished by a deep understanding of the
nature of internal and external business processes.
In particular, having looked into the research materials of Garbarino
(2014), we could infer that they include a suciently coherent and
progressive doctrine. While revealing it, the author noted that whether a
‘valid business purpose’ for a certain transaction exists is determined on
the basis of a substantive analysis of the business and nancial strategies
of a rm. With reference to the assessment of the valid business purpose,
there are basically two interpretive arguments. In the rst argument, if the
tax saving is the only reason underlying a transaction, then it has no valid
business purpose; these kind of transactions are ‘tax-driven’ and imply tax
avoidance.
In the second argument, if the transaction has both a valid business
purpose and a tax reason, then one has to assess the prevailing nature of the
tax reason versus the business reason. For example, in structured nance
transactions it is usually required that the transaction be ‘pre-tax positive’;
i.e., that the gain of the transaction is not exclusively deriving from tax
savings.
746
Andrii Zakharchenko, Yaroslav Sydorov, Valeriia Novoshytska y Vasyl Manzyuk
Interpretation of tax law in cases involving commercial entities: Opportunities to exchange best
practices in the area of corporate social responsibility regulation
In other words, the existence of a ‘purposive scheme’ aimed at ‘by-
passing of rights and duties’ is the typical situation in which the taxpayer
arranges his course of aairs in such a way to unduly avoid or prevent
the application of the normal taxing rules. Moreover there is a ‘purposive
scheme’ when the transaction conicts with (i) general principles of tax law,
(ii) specic principles of a certain area of tax law, (iii) the function of tax rules,
or (iv) the natural entitlement of tax positions. For example, a taxpayer may
violate: (i) the general principles of tax law according to which one should
not allocate income to other parties; or (ii) specic principles of a certain
area of tax law such as the rule that if capital gains on participations are
exempt, capital losses are not deductible; (iii) the function of tax rules, such
as the function of jurisdictional links for taxing income sourced in Italy; or
(iv) the natural entitlement of tax positions by allocating portions of income
to related parties.
However, by-passing of tax rights does not occur when the taxpayer
makes an election, which is expressly provided for by tax rules between
two alternative courses of action equally available, thereby achieving
a tax reduction. In such cases, the taxpayer has a right to choose among
alternative tax treatments that are considered by the tax system as equally
available and legally obtainable (Garbarino, 2014, pp. 235-236).
Thus, in order to correctly distinguish between optimization of the
tax burden and tax fraud, it is necessary to investigate the nancial and
economic aspects of the taxpayer’s business activities to determine whether
this or that business operation was aimed solely or predominantly at tax
evasion. At the same time, it is customary to adhere to the opinion that by-
passing of tax rights does not occur when the taxpayer makes an election
which is expressly provided for by tax rules among two alternative courses
of action equally available, since in such cases, the taxpayer has a right to
choose among alternative tax treatments that are considered by the tax
system as equally available and legally obtainable.
Conclusions
Having regard to the above considerations it could be inferred that,
the common law countries and continental legal systems are united by
a tendency towards a balanced combination of literal and purposive
interpretation of the provisions of tax legislation. Along with the literal
wording of tax legislation provisions, the purpose of their introduction and
the general principles of tax law are taken into account. In addition, in some
countries, even reference to the intention of the law-makers is allowed.
For instance, a negligible deviation of a particular object from the
qualifying parameters of the object of taxation cannot lead to its removal
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from taxation. However, the limit of a broad interpretation of the norms
of tax law is in the fact that it is only acceptable to eliminate absurd law
enforcement situations. For example, the legal opinion of the Supreme
Court of Ukraine implying that one of the principles of tax legislation can
completely nullify another is untenable.
Another general trend in the development of the interpretation of the tax
legislation provisions is the assertion of the absolute responsibility of the
state for the clarity and accuracy of the wording of tax laws and regulations.
Both in the common law countries and in the continental legal systems tax
authorities and courts are expected to adhere to the concept prescribing an
opportunity for the taxpayer can choose the most benecial option for itself
in event that rules of tax law directly or as a result of their interpretation
are not unambiguous and give rise to multiple interpretations of executive
powers of tax authorities both in favor of the taxpayer and the supervisory
authority.
It is also noteworthy that the Supreme Court of Ukraine adheres to the
presumption of the existence of an economic rationale for the activity of
taxpayers, if the tax authority does not prove the falsehood, unreliability
or contradictory nature of information in documents related to specic
economic transactions, or the absence of changes in assets and liabilities
of taxpayers as a result of specic nancial transactions. However, in order
to correctly distinguish between optimization of the tax burden and tax
fraud, it is necessary to investigate the nancial and economic aspects of
the taxpayer’s business activities to determine whether this or that business
operation was aimed solely or predominantly at tax evasion.
At the same time, it is customary to adhere to the opinion that by-passing
of tax rights does not occur when the taxpayer makes an election which is
expressly provided for by tax rules among two alternative courses of action
equally available, since in such cases, the taxpayer has a right to choose
among alternative tax treatments that are considered by the tax system as
equally available and legally obtainable.
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Esta revista fue editada en formato digital y publicada
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Universidad del Zulia. Maracaibo-Venezuela
Vol.41 Nº 79
