Formalism and Israeli Anti-Avoidance Doctrines in the 1950s and 1960s

FOR MOST OF the twentieth century, British anti-avoidance doctrines were dominated by a formalist respect for tax-planning schemes devised by the wealthy. One explanation for this formalism was to view it as a manifestation of the desire of British judges to assist the upper classes to avoid taxation. This article examines the validity of a class-based interpretation of anti-avoidance doctrines in the Israeli context. The Israeli Income Tax Act contains a general anti-avoidance provision. However, during the first two decades after independence in 1948, Israeli courts were reluctant to use this provision and instead adopted a ‘form over substance’ principle. This formalism was partly the result of class-interests. But it was also created by tax administration considerations. The newly-constituted Israeli tax authorities were at first unable to deal effectively with tax evasion, let alone with tax avoidance. Judges were therefore reluctant to intervene in cases of tax avoidance, which are less clear-cut than cases of tax evasion. Class-interests, the article concludes, may sometimes be an important factor in the shaping tax doctrines, but other, more practical considerations, such as the efficiency of the tax administration machinery also play an important role.