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DEATH AND TAXES: Don’t Cry For Me

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It was Shakespeare’s Julius Caesar who said: “If you have tears, prepare to shed them now”. While tears may be common in movies and on stage, it is rare to find them employed by legal counsel. In the course of a trial in the United States, where the jury system operates in serious cases, counsel for the plaintiff was weeping openly during his conduct of the prosecution case.

The action was instituted by a young lady in Tennessee who was seduced under promise of marriage. In court, counsel for the aggrieved lady, in the middle of a very eloquent and impassioned appeal to the jury, shed tears and unduly excited the sympathies of the jury in favour of the plaintiff and greatly prejudiced members of the jury against the defendant – or so counsel alleged in an appeal to the Supreme Court of Tennessee.

On appeal, the Supreme Court held that the conduct of counsel in presenting their cases to court is a matter that must be left largely to the ethics of the profession and the discretion of the trial judge. Some counsel deal wholly in logic – argument without embellishment of any kind. Others use rhetoric and occasional flights of fancy and imagination. Others employ only noise and gesticulation, relying on their earnestness and vehemence instead of logic and rhetoric. The Appeal Court went on to say that, if counsel has tears at his command, it may be seriously questioned whether it is not his professional duty to shed them whenever an appropriate occasion arises.

You may be wondering what on earth this has to do with tax. The discipline of tax arguably lends itself to tears more readily than any other branch of the law. As R E Megarry QC points out in his Second Miscellany-at-Law published by Wildy & Sons in 2006, it was said by the United States Supreme Court that “… no other branch of the law touches human activities at so many points. It can never be made simple but we can try to avoid making it needlessly complex…” It was summed up succinctly by a senior judge of the court who said: “…Looking backward it is easy to see that the line between the taxable and the immune has been drawn by an unsteady hand…”.

In Inland Revenue Commissioners v Wood Brothers, a complex tax case before the Court of Appeal in England, Viscount Simonds observed: “The subject is excessively complicated. Going home yesterday I kept asking myself who said ‘chaos and old night’ and in reference to what?” The answer lies in John Milton’s epic poem Paradise Lost, which was first published in 1667. Seating himself on the Tree of Knowledge, Satan overhears Adam and Eve talking about the prohibition made by God, and resolves to entice Eve to eat the forbidden fruit. Milton wrote:

“Sonorous metal blowing martial sounds
At which the universal host up sent
a shout that tore hell’s concave, and beyondfrighted the reign of Chaos
and old Night.”

This verse was also quoted in the South African case of Greyling v Pretorius when the judge declared that, if the courts failed to enforce the law, however much it might result in tears and distress, we should very soon find that the slender paradise of an ordered community, which our toil has gained for us, had been lost and the dreadful ‘reign of chaos and old night’ would be upon us.

It was said of the late Mr Justice Melamet that, during his stint in the late 1980s as presiding judge in the Johannesburg Special Court for Hearing Tax Appeals, he caused more tears and heartache among appellants than any other judge; because of the number of appeals he dismissed. The criticism is unjust. Judge Melamet’s  patent dislike of artificial and highly creative forms of tax avoidance was well known. At that time, a tax avoidance frenzy had spread unchecked throughout the country, but especially in Johannesburg. Large accounting practices were promoting, on a commission basis, exotic tax loss schemes involving movies and forestry plantations. Many practitioners had serious doubts about the ethics of some of the arrangements, most of which ultimately failed because of their lack of substance.

Taxpayers and their advisers that promoted such schemes and were bold enough to challenge the Commissioner in court, were treated unsympathetically by Judge Melamet and got short shrift in his court. The origin of the expression ‘short shrift’ seemed particularly apposite at times, as it referred to the few minutes in olden days when a criminal that was about to be executed was allowed to make his confession.

At about the same time, offshore captive insurance companies were in vogue. Groups of companies would effect their short-term insurance through a ‘friendly’ offshore company. The premiums were tax deductible and the underwriting profits earned by the offshore company were channelled back to the insured in South Africa as tax free dividends. Judge Melamet’s definitive report on the matter signaled the end of many of these arrangements.

Copious tears were shed by many large corporate groups; there was, however, a greater volume of crocodile tears shed by the Commissioner and his staff, who rejoiced in the judicial condemnation of the schemes.

The last word on the subject of tears should be left to the erudite South African judge, Mr Justice van den Heever, who in a criminal trial (R v M 1953 (4) SA) said that tears after the event are not necessarily persuasive. They may be tears of remorse or apprehension. Gretchen’s famous lament ‘ My peace is gone, my heart is heavy’ he said, is no pointer to her having been ravished by Faust.

Julius Caesar would probably have agreed.

Penelope Webb, who for some years worked in industry, is a former tax partner of a large international accounting firm.