Epieikeia or “Better Justice”: Formalism in Tax Law Revisited

For Aristotle, “the essence what is equitable is that it is an amendment of the law, in those points where is fails through the generality of its language”. The application of legal rules produces appropriate (just) results in the majority of cases, but not in all. When its application would lead to injustice, a legal rule can be defeated by equity.

The idea of epieikeia (equity) sheds light on the modern discussion about the nature of legal rules, the distinction between rules and principles, and mechanisms of adjudication.

This idea is also relevant in the tax law domain. In this area, the dominant theoretical position is legal formalism, with its focus on (strictly conceived) legal rules in legislation and in the application of the law. The Aristotelian reflection on epieikeia poses challenges to this traditional view: legal rules are deficient, and thus, as demonstrated, so is the formalistic approach to tax law. In particular, the equitable resolution of a tax dispute can be achieved through alternative dispute resolution methods: on the basis of a consensus between a taxpayer and a tax authority that is not strictly based on a legal rule.