Constructing Compliance: Game Playing, Tax Law, and the Regulatory State

• Published date: 01 January 2007
• DOI: http://doi.org/10.1111/j.1467-9930.2007.00243.x
• Author: SOL PICCIOTTO
• Date: 01 January 2007

LAW & POLICY, Vol. 29, No. 1, January 2007 ISSN 0265–8240

© 2007 The Author

Journal compilation © 2007 Baldy Center for Law and Social Policy

Blackwell Publishing LtdOxford, UKLAPOLaw & Policy0265-8240© 2007 The Author Journal compilation © 2007 Baldy Center for Law and Social PolicyJanuary 2007291

Original Article

LAW & POLICY January 2007Picciotto CONSTRUCTING COMPLIANCE

Constructing Compliance: Game Playing,

Tax Law, and the Regulatory State

SOL PICCIOTTO

This article proposes a rethinking of approaches to compliance, extending

perspectives that view regulation as an interactive or reflexive process mediated by

sociolinguistic practices. These suggest that the meaning of rules is not fixed ex

ante, but may emerge and change through such interactions, which therefore actually

help to construct what it means to comply. The analysis supports proposals to base

tax law on purposive general principles combined with detailed rules. However, it

suggests that this should be the approach adopted for the tax code as a whole,

instead of focusing mainly on the merits of a general anti-avoidance principle, as

some of the recent debates have done. The article explores the question of inter-

pretation of rules and the problem of avoidance and game playing. It reexamines the

issue of the indeterminacy of rules and relocates it within the context of professional

and regulatory practices, suggesting that it is these interactions that construct

the meaning of rules and hence of compliance. The analysis is applied to income

taxation, to sketch out how the international tax system has been constructed

through the interaction of contending views of fairness in the allocation of tax

jurisdiction, while in the process becoming refined into a formalist and technicist

process of game playing. It argues that the central factor in this process has

been the inherent contestability of the core concepts of international taxation,

the rules on corporate residence and source of income. The article concludes by

considering some of the current proposals for improving tax compliance, in particular

by reducing complexity, improving clarity, and the use of broad principles.

I. THE CONSTRUCTION OF COMPLIANCE

A. NEGOTIATING THE MEANING OF RULES AND LEGITIMACY

Much of the discussion of “compliance” with rules implies an instrumental

view of law, in which the aim of the regulator is to induce the regulatee to

A first version of this article was drafted during an all-too-short visit of four weeks to the Centre

for Tax System Integrity at the Australian National University, and presented to a seminar

attended by staff of the Australian Tax Office and the Treasury; a subsequent version was

published as a CTSI Working Paper. My grateful thanks to John Braithwaite and all his colleagues

at RegNet for the opportunity to work in such a stimulating and friendly environment, and

more specifically to Val Braithwaite and her colleagues in the CTSI, especially Jenny Job and

Greg Rawlings, and to ATO and Treasury staff, for all their help, comments, and discussions.

Address correspondence to Sol Picciotto, Lancaster University Law School, Lancaster

LA1 4YN, United Kingdom. Telephone: 0044 1926429600; e-mail: s.picciotto@lancs.ac.uk.

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LAW & POLICY January 2007

© 2007 The Author

Journal compilation © 2007 Baldy Center for Law and Social Policy

comply with the requirements of a rule. This assumes that regulator and

regulatee both have a relatively clear understanding of what the rules mean,

and indeed a shared understanding. Although there have long been juris-

prudential debates about the imprecision or indeterminacy of rules,

1

only

relatively recently have some authors explored the implications of this from

a sociolegal perspective (Black 1997; J. Braithwaite 2002; Braithwaite &

Braithwaite 1995; Lange 1999; McBarnet & Whelan 1991, 1999; McCahery

& Picciotto 1995; Reichman 1992).

However, even sociolegal studies tend to assume that there is basic agree-

ment on the meaning of the “core” of the rules, and that any ambiguity lies

in the “penumbra,” or the “gray areas.” Regulatees are generally seen as

being on a continuum between the committed or compliant at one end, and

at the other the avoiders or evaders—those who enjoy game playing or like

to “play for the gray.” Avoidance also tends to be seen as involving “creative

compliance,” complying with the letter while avoiding the spirit or policy of

the law (McBarnet 2003: 229). This again implies that those involved share

a common understanding of the requirements of the rules. However,

Valerie Braithwaite has recently asked the question, “What does it mean to

comply?” She suggests that it is not always easy to assess whether a person

has done “what is asked of him or her,” and that “whether or not a person

interprets the request in accordance with its intent is far from certain”

(V. Braithwaite 2003a: 276). This implies a different view, in which various

players may have different and genuinely held understandings of a rule’s

meaning, and may each consider theirs the correct and clear meaning.

Indeed, the existence of different understandings or interpretations of

“what is required” by a rule is, I suggest, a frequent and even normal situation.

Let us take a basic tax provision, such as what deductions are allowable

against employment income. Even a cursory piece of research would show,

I think, that taxpayers have very different understandings of “what is

asked” of them by this rule.

2

This may of course be because of a variety of

factors, not least of which is that few people are enthusiastic about reading

tax legislation. It must nevertheless be a concern for any regulatory regime,

and to researchers studying compliance with it, if there can be different

understandings or interpretations of the rules to which its subjects are

expected to adhere. It may mean, for example, that people who regard

themselves as compliant, based on their understanding of the regulatory

requirements, may from the regulator’s viewpoint be avoiders or game players.

This suggests that the primary task in designing a regulatory system is to

build it on principles that are widely accepted as fair and hence help foster

shared understandings. The instrumental view of law generally considers

that compliance is best achieved by formulating law in clear language and

using precise or specific rules rather than more abstract general principles.

This view has been undermined by critiques based in linguistic philosophy

that point to the indeterminacy of law. Sociolegal studies generate a separate

concern, that instrumentalism takes a unidirectional view of compliance