Front Matter

Front Matter

Victor Thuronyi
Published Date:
August 1996
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© 1996 International Monetary Fund

This book was designed and produced by IMF Graphics Section

Library of Congress Cataloging-in-Publication Data

Tax law design and drafting / editor, Victor Thuronyi

p. cm.

Includes bibliographical references (p.) and index.

ISBN 9781557755872 (vol. 1)

1. Taxation—Law and legislation. 2. Tax administration and procedure. 3. Bill drafting. 4. Taxation—Government policy. I. Thuronyi, Victor.

K4460.4.T37 1996 96-34672

328.3’73—dc20 CIP

Price: $25.00

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Summary of Contents



For over thirty years, the Legal Department of the International Monetary Fund has provided technical assistance in drafting tax legislation to member countries of the IMF. Because these countries belong to different legal traditions, have different political and administrative structures, and pursue different fiscal policies, each law has had to be specifically designed to fit the traditions, structures, and policies of each country. Yet, this continued empirical exercise in comparative law has led to a cross-fertilization of ideas, where the same issues have had to be faced in comparable contexts.

Initially, the demand for technical assistance came mainly from newly independent countries that wanted to modernize the tax laws they had inherited from the former colonial powers. More recently, countries in transition to a market economy, which have now become members of the IMF, have requested assistance to design tax laws “from scratch.”

One of the benefits of comparative law is that it makes us aware that what is obvious or implicit in our national system either may not be so obvious or is explicitly condemned in other systems. For instance, in some countries courts have held that tax laws should be applied only within their literal terms, while in others the courts have had no difficulty interpreting the laws with a view to giving full effect to the lawmakers’ presumed intent. Fortunately, in most cases, a substantial degree of consensus has emerged, and some general principles have been recognized that may guide legislators. The difficulty, however, is that there is no comprehensive treatise in which these principles can be found.

The objective of this book is to help fill this vacuum. In this respect, it is unique in the literature on comparative law. It is not intended to answer questions on existing laws or treaties. Its purpose is to identify legal issues that arise in the drafting of tax laws, including those that are often revealed only at the time of their subsequent interpretation and implementation, and the different solutions that have been given in national laws. It does offer some guidance while recognizing that there may be no perfect or uniform solution.

Most of the contributors to this book are staff members or consultants of the Legal Department of the IMF. Current and former staff members of the IMF’s Fiscal Affairs Department have also contributed, reflecting the collaboration between these departments in technical assistance activity. All have brought to the IMF’s technical assistance and to this book the invaluable benefit of their extensive experience acquired both inside and outside the IMF.

François Gianviti

General Counsel

International Monetary Fund


Although the editor of this book and the individual authors of each chapter are identified (generally listed alphabetically, where there is more than one author), the book is a collaborative effort of the authors. It also draws on the collective experience of a number of people who have assisted developing and transition countries with the drafting of new tax legislation over the past several years, including some who have not specifically participated as authors of particular chapters, but who may have written material drawn on in this book, Ward Hussey, Jinyan Li, Donald Lubick, Richard Pomp, and others.

Acknowledgment of all indirect contributions would be impossible. Individual chapters acknowledge persons who have contributed to them, by comment or otherwise. In addition, the editor is grateful to those who have commented on larger portions of the manuscript: Hugh Ault, Guy Gest, Minoru Nakazato, and Hans Georg Ruppe. Particular credit is due to Leif Mutén for the extensive comments he provided. Colleagues from the IMF Fiscal Affairs Department, Milka Casanegra de Jantscher, Dale Chua, Julio Escolano, John King, Anthony Pellechio, Janet Stotsky, Victoria Summers, Emil Sunley, and Zühtü Yücelik, and Legal Department, Tobias Asser, François Gianviti, William E. Holder, Ross Leckow, and Aarno Liuksila, have also contributed comments, ideas, and text. I am grateful to all these commentators, and the reader should be grateful, because the book is substantially better for their comments and corrections.

In addition to these commentators and listed authors, the book could not have been produced without the conscientious efforts of Melinda Milenkovich and Pam Sak, who provided expert legal research, checking of citations, editing, and reviewing sources in many languages; Carmen de Perignat, who, together with Melinda Milenkovich, worked on the bibliography of tax laws; and Heather Sera-Leyva, who provided expert word processing and editorial services. Elisa Diehl, of the IMF’s External Relations Department, edited the final version and coordinated production.


This book arises from the substantial and ongoing tax law revision taking place in many developing and transition countries.1 In some cases, laws have remained on the books for many years without major changes and need to be modernized. In most transition countries, the current laws are only a few years old and will require substantial revision as the tax system and the economy develop. Other countries are considering the adoption of new taxes (such as a value-added tax (VAT)). Officials responsible for tax legislation in developing and transition countries would like to study the tax laws of other countries to obtain models and guidance for drafting new laws. Unfortunately, the tax laws of most member countries of the Organization for Economic Cooperation and Development (OECD) have grown so complex that they are barely understandable to tax practitioners in the country concerned and are even more impenetrable to outsiders. This book responds to this need for information and seeks to present it in a way that is relevant and accessible.

The book grows out of the experience of the editor, in collaboration with most of the authors, together with other consultants, in drafting laws and advising on tax legislation for over two dozen countries (in Central and Eastern Europe, Africa, Asia, the Pacific, and Central and South America) over the past five years. The project responds to the suggestion of Richard Vann, who spent a year at the IMF Legal Department in 1990, that there was a need in developing and transition countries for nonprescriptive drafting materials that covered the major choices to be made in constructing a tax system. It represents an effort to distill from our collective experience, and from the tax laws of many other countries of the world, practical guidelines for drafting tax legislation that can be used by officials of developing and transition countries and by their foreign advisors.

While there is discussion of matters of special interest to developing and transition countries, paradoxically, most of the discussion does not focus on the peculiar problems of these countries, but rather is based on a comparative discussion of the tax laws of developed countries. This is because the mechanics of tax law in developing and transition countries are not markedly different from those of developed countries, except that the laws tend to be shorter, and there are some differences in policy. An additional reason for the general scope of the discussion is that the book is intended to be broadly relevant, rather than being directed to a particular group of countries. Drafting tax laws for a particular developing or transition country requires studying a great deal of specific material in addition to the more general background provided in this book.

Because of its general nature, the book should also be of interest to students, academics, and practitioners with an interest in comparative tax law, although the book does not purport to be a complete treatise on this subject.2 There is selective, but not comprehensive, footnoting. The emphasis in the footnotes is on giving practical examples of tax legislation, without reviewing all possible sources or all the available academic literature, on the assumption that those wishing to do further research can readily find the information they need.

The relative paucity of literature on comparative tax law was an important factor in determining to publish this book. To be sure, there are a number of comparative studies of specific topics, such as the annual study by the International Fiscal Association.3 There are a number of studies of the tax systems of particular countries, and some comparisons of two or a few countries, but there exists to my knowledge no general treatise on comparative tax law. Professor Tipke’s recent three-volume work4 comes close, being a theoretical study with many references to non-German literature, but it is based on the German system. In the income tax area, a comparative study involving a wide range of structural issues in nine OECD countries is currently being produced by a group of authors under the leadership of Professor Hugh Ault.

This book consists of two volumes. Volume 1 covers general issues, some special topics, and major taxes other than income tax. Volume 2 deals with the income tax and also contains a bibliography of the tax laws of the world, a guide to foreign tax law research, a short bibliography of recommended books, and the index for both volumes. Although the two volumes are closely related, they can be used independently.

In no sense is the book intended to be the last word on the matters addressed. Rather, the emphasis is on identifying options and providing guidelines and examples so that the book may serve as a useful tool in the drafting of new tax laws. Any recommendations that are made are, first, the personal views of the authors and, in any event, are not intended to be applied indiscriminately. While the major taxes are covered in broad terms, a number of important matters (including fiscal federalism issues, taxation of cooperatives, and taxation of insurance, banking, and other financial institutions and products) are touched on only very lightly, if at all. Nor do we deal with customs duties or any number of other taxes that form part of the tax legislation of many countries. To attempt a more detailed discussion on the matters addressed and to include additional specialized topics and additional taxes, important though they are, would have indefinitely delayed publication. Nonetheless, the coverage is broad enough so that the book can be a useful starting point and guide on many practical questions.

Taxes have an important effect on the life of every member of society. Given the far-reaching effect of taxation and the complexity of taxes in modern societies, the development of tax reform proposals requires contributions from a number of disciplines:

  • Macroeconomists and specialists in public finance can help determine required revenue targets, including cash-flow requirements.
  • Economists who are specialists in estimating revenues from taxation can analyze whether any particular set of proposals is likely to meet the targets determined.
  • Economists can help predict the effects on the economy of alternate tax structures. These include the effects of taxation on savings, investment, work effort, consumption choices, and alternate production methods, as well as macroeconomic effects.
  • Tax administration specialists can evaluate the administrative mechanisms needed to apply particular proposals and can advise on the feasibility of various alternatives.
  • Technical tax specialists (usually lawyers, accountants, or economists) who are familiar with the detailed operation of particular types of provisions can help design the rules needed to implement overall policy.
  • Legislative drafters (lawyers who have experience in drafting tax legislation) can write the actual words of a proposed statute.

Chapter 1 discusses the need for the various professions to work together in designing tax legislation. Although close collaboration is important, each profession brings to bear its own specialized knowledge and approach. This book is concerned in particular with matters that are in the domain of lawyers,5 and the legal viewpoint is emphasized. In particular, problems of drafting are discussed in detail, both as a general matter (chapter 3) and with respect to particular taxes and special issues. The overall legal framework for taxation (chapter 2) and the structure and design issues for particular taxes are examined from the point of view of comparative law. The treatment is of necessity general, focusing on matters that are likely to be of relevance to most countries, rather than exploring the peculiar legal problems of particular countries or groups of countries. The focus on legal matters means that the book cannot serve as a complete manual for the development of tax policy; references to literature on tax policy for developing countries are given in the bibliography (in volume 2).

The bibliography also lists a group of books that together represent a basic library for the study of comparative tax law. The list was intentionally kept short, the aim being to identify a library that could be acquired at modest cost and that would be sufficient to provide working answers to many questions.

In addition to consulting secondary sources, drafters of tax laws must consult the tax laws of other countries. It would be convenient if the tax laws of all countries were published in one place. Unfortunately, this has not been done on a comprehensive basis. As a step toward compiling this legislation, we have prepared a bibliography of current tax statutes of most countries (see bibliography of tax laws, in volume 2). Footnote references in this book are to abbreviations found in this bibliography. Although the bibliography is not complete, it is believed to be the most comprehensive bibliography of its nature currently available. For convenience, the statutes cited in volume 1 have been extracted from the bibliography and reproduced as a table at the end of this volume.

Because of the number of countries whose laws are referred to (some sixty jurisdictions), it has been impracticable to bring all the citations and discussions of particular countries’ laws up to date as of some uniform date. Moreover, the purpose of these references is to furnish examples, not authoritative statements of the law in a particular country. Therefore, the reader should not rely on them as being necessarily up to date or complete.

The term “country” as used in this book does not in all cases refer to a territorial entity that is a state as understood by international law and practice. The term also covers some territorial entities that are not states, but for which statistical data are maintained and provided internationally on a separate, independent basis.

A Note on Terminology

With some exceptions, the terminology for legal categories of persons and things used in this book corresponds to that used in civil law countries:6

“Physical person” corresponds to “individual” in common law countries.

“Legal person”7 is any person who is not a physical person.

“Movable property” corresponds generally to “personal property” in common law jurisdictions.

“Immovable property” corresponds generally to “real property” in common law jurisdictions.

Acronyms and Citation Style

The citation style in the footnotes generally follows The Bluebook: A Uniform System of Citation (15th ed. 1991). This uses some Latin terms that may be unfamiliar to those not accustomed to this style: supra (above, in this book), infra (below, in this book), and id. (short for idem, in the same work). Tax laws and countries cited in the footnotes are abbreviated: see the Table of Laws Cited. This table also contains a list of three-letter country abbreviations. States of the United States are abbreviated in standard form without reference to country. The following acronyms are used in the book:


Consumer price index


European Community (predecessor of EU)


European Economic Area


European Union8


Federal Income Contributions Act


first in, first out


General Agreement on Tariffs and Trade (superseded by WTO)


International Labor Organization


International Monetary Fund


Internal Revenue Code


U.S. Internal Revenue Service


International Social Security Association


last in, first out


North American Free Trade Agreement


Organization for Economic Cooperation and Development9


pay as you earn


Self-Employed Contributions Act


United Nations


value-added tax


World Trade Organization

In numerical examples, “$” is used to refer generically to a country’s local currency. If a reference to U.S. dollars is intended, US$ is used.

1This term is used for brevity to refer both to developing countries and to countries whose economies are in transition to a market-based economy. Any such characterization of countries is imprecise and perhaps inappropriate in some respects, but it is used in this book as shorthand to distinguish in a general way between countries with highly developed, sophisticated tax systems and those whose tax systems are at an earlier stage of development.
2The approach of most of the book may be considered law reform rather than comparative law proper, inasmuch as it involves identifying useful ideas in various jurisdictions that could be transformed into part of the law of the jurisdiction for which one is drafting a tax law. See Alan Watson, Legal Transplants 9, 17 (1974).
3International Fiscal Association, Cahiers de droit fiscal international.
4Klaus Tipke, Die Steuerrechtsordnung (1993).
5Given the interdisciplinary nature of the field, this domain is shared with other disciplines with respect to many issues. The fact that the focus of the hook is on legal issues should not be construed as an implication that these are the most important aspects of tax reform. Such matters as improvement of tax administration and the training of tax officials are critical hut beyond the scope of this book.
6For a detailed discussion of these terms, see infra ch. 3, sec. IV(D).
7Persona juridica in Spanish, personne morale in French, yuridicheskoye litso in Russian.
8As of the beginning of 1996, the 15 member states of the EU are Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden, and United Kingdom.
9As of the beginning of 1996, the members of the OECD are the EU members plus Australia, Canada, the Czech Republic, Iceland, Japan, Mexico, New Zealand, Norway, Switzerland, Turkey, and the United States.

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