This lesson provides a detailed examination of the legal architecture upon which tax administration is built. It explores the sources of tax law, the principle of legality, and how legal frameworks differ between common law and civil law jurisdictions, with a focus on the US and Europe.

• The Principle of Legality: The power to tax is a sovereign power and is governed by the rule of law. This principle is fundamental and dictates that taxes can only be imposed and collected under the authority of a valid law enacted by the legislature. Constitutions set the limits for the legislator, creating the first protective level for taxpayers’ rights.

• Sources of Tax Law:

  • Legislation (Statutes/Codes): The primary source of tax law is statutory. This includes the Internal Revenue Code (IRC) in the US, and national tax acts and codes (e.g., Abgabenordnung in Germany) in European countries.

  • Case Law (Judicial Decisions): Courts play a crucial role in interpreting tax statutes and resolving disputes. In the US, the role of courts has evolved; historically, they were key to developing tax law, but today they are more reserved, ceding that role to the legislature. In Europe, constitutional and supreme courts are assuming an increasingly important role, sometimes acting in a manner consistent with common law courts in shaping the interpretation of tax legislation.

  • Administrative Guidance: Tax authorities issue regulations, rulings, and guidance (e.g., US Treasury Regulations, UK HMRC manuals) to provide interpretation and application of the law.

• The Hybrid Nature of Tax Law: Tax law is increasingly viewed as a “hybrid” field. In the US, an historically common law country, tax law relies extensively on a detailed, civil-law-like statutory base. Conversely, some European civil law jurisdictions are adopting common law tools, such as General Anti-Avoidance Rules (GAARs), and their courts are taking on a greater role in interpreting laws, thus becoming more common law-like. This hybridity is critical for global convergence.