Tax law is complex and requires legal and economic knowledge. Both public authorities and taxpayers should interpret it according to the values and principles of the rule of law.
Rudolf von Ihering said legislators should think like philosophers and speak like ordinary people. Legal clarity matters, yet tax rules tend to be complex and detailed. Benjamin Franklin's observation about the certainty of death and taxes does not make taxes easy to understand.
A principle offering some protection is that tax laws should generally be interpreted in the taxpayer's favour.
Interpretation seeks uniform application and consistency with other laws, general principles, statutory purposes and underlying values. Tax law has its own rules and may use terms differently from other legal fields. Its economic approach determines tax liability primarily by a transaction's substance rather than legal form.
The tax authority must recognise that the taxpayer is the weaker party in the relationship.
The legality principle protects against arbitrary action: taxable objects and other elements must be established by law. Rules must be clear enough for taxpayers to predict the authority's conduct, understand the tax consequences of actions and calculate their obligations.
Clarity does not prohibit open legal concepts such as “business-related expense” or all administrative discretion. Abstract rules are necessary because legislation cannot foresee every situation. Where rules are open, interpretation should respect tax law principles, statutory purposes and constitutional values. Tax liabilities themselves cannot be left to unrestricted discretion.
Where legislation exists but is poorly drafted, interpretation principles provide protection. The authority's powers should be construed narrowly and taxpayers' rights broadly. The principles in dubio pro reo and in dubio pro libertate favour the accused or liberty in cases of doubt.
The Supreme Court has repeatedly stated that tax laws should generally not be interpreted to increase the taxpayer's burden. Public power may not arbitrarily restrict fundamental rights. A provision should not be treated as an exception contrary to general tax principles and restricting taxpayer rights.
Courts have used these principles to prevent repeated taxation of the same income and cumulative VAT. The Supreme Court has also favoured liable persons when interpreting uncertain state fee rules. EU directives cannot fill legislative gaps by expanding tax burdens, but a taxpayer may rely directly on a sufficiently favourable directive provision where the state failed to transpose an exemption or other benefit properly.
The principle is not absolute and must be applied reasonably. Otherwise, the legal system and taxation's fiscal, social and economic purposes could suffer. The risk of taxpayer-favourable interpretation also encourages the state to enact clear, constitutional tax legislation.
Authorities and taxpayers should apply the rules in good faith. Where unclear provisions conflict with the rule of law or statutory purposes, interpretation in the taxpayer's favour provides a measure of protection.