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Is tax law universal, or does it vary according to the legal and general culture of the country in question?  What happens when tax norms developed in one context are moved or “transplanted” into another?  Two scholars, one writing about a small country and one about a very big one, have endeavored to provide an answer.

The small country project is by Assaf Likhovski and concerns the income tax in pre-State Israel (or if one prefers, Israel and Palestine), specifically, the era of the British Mandate (1923-48).  During this period the British—who still controlled a substantial portion of the world’s land and population—imported an essentially uniform, “one size fits all” income tax code to Palestine and other colonial territories.  But of course, it didn’t work out that way: the peculiarities of the Middle East, which ranged from unique or at least different business forms to what might be called a diffident attitude toward paying taxes, rendered the system quite different in practice than it would have been in Britain, India, or another location.  Particularly interesting was the imposition (or more properly, the attempt to impose) a uniform system on the country’s Jewish and Arab populations: the Jews feared that their Western-style economic arrangements would provide a juicier revenue target than the Arabs’ more traditional (and often noncash) transactions, so that the tax issue became yet another source of distrust between the two communities.  There is an irony here, in that the Jewish community’s superior tax-raising capacity was ultimately to prove an advantage in the 1948 and later wars with neighboring Arabs; but that is another story.

Likhovski’s piece is valuable as description but also as theory, because it emphasizes the difference between formal and real-world law—what he calls “law in action”—in  tax and other fields. When the latter is taken into account, superficially similar tax systems become more different and often diverge rather than converge in practical outcomes. This is a well-known phenomenon in comparative law, but apt to be forgotten in tax, and the reminder is both useful and significant.

The big country—really two big countries—study is by Jinyan Li and concerns the phenomenon of tax avoidance in China and Canada, each of whom enacted a General Anti-Avoidance Rule (GAAR) in the past generation (the United States now has a parallel provision, the so-called Economic Substance Doctrine, in section 7701(o) of the Internal Revenue Code).  Once again the rules, although phrased in similar terms, have been applied in rather different ways, a divergence which Professor Li traces to substantial differences in law, legal institutions, and public and private attitudes toward tax avoidance in the two countries.  Among the more significant differences are the role of the judiciary (central to Canadian tax administration but largely absent in China); the attitude toward tax planning and tax minimization (accepted within limits in Canada but considered a violation of the taxpayer’s patriotic duty in China); and the relatively recent nature of the Chinese income tax.  The study is one of a number that Professor Li has conducted of the Chinese tax system and its divergences from typical Western norms: her unique status as a native Chinese speaker and a Western tax expert has given her access to a range of materials that would be unavailable—or at very least incomprehensible—to most legal scholars.

Professor Li’s and Likhovski’s papers are each important contributions; but the study of tax culture remains in its infancy.  There remains to be done more descriptive work and—no less important—the development of a theoretical framework for comparative tax law and culture which lends coherence to the overall project (see Recent Developments in Comparative Tax Theory).  By taking the initial steps, these works bring us closer to the goal.

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Cite as: Michael Livingston, Tax Law and Culture: Big Countries and One Small One, JOTWELL (July 14, 2011) (reviewing Assaf Likhovski, Is Tax Law Culturally Specific?  Lessons from the History of Income Tax Law in Mandatory Palestine, 11 Theoretical Inquiries in Law 725 (2010) and Jinyan Li, Tax Transplants and Local Culture: A Comparative Study of the Chinese and Canadian GAAR, 11 Theoretical Inquiries in Law 75 (2010)),