Retroactivity in Legislation:

1. Retroactivity in Legislation: Validation Statutes and Interpretative Statutes Arguments against Professor Peter Melz Stockholm Centre for Commercial Law, Faculty of Law, Stockholm University Professor Peter Melz

2. Thesis: Retroactive tax legislation introduced to - confirm a legal interpretation or - validate a certain practice of the tax authorities is not acceptable, especially in case of back-dating to a moment prior to the date of first announcement. Back-dating only to the date of first announcement is in my opinion normally acceptable if the announcement is clear enough and the resulting legislation is close to the announcement. Professor Peter Melz

3. Interpretative Statutes (IS) - Many variations of interpretative statutes: * Uncontroversial or more controversial interpretations may be transferred into unchallengeable statutory law. - The basic argument against retroactivity is valid for IS : * Tax consequences of a transaction should be possible to determine before entering into the transaction. - An IS may seriously undermine reasonable expectations concerning tax consequences of a transaction. - Even IS within a reasonable latitude of interpretation of the original statute adds to uncertainty. Professor Peter Melz

4. Separation of powers Separation of powers between parliament and courts is a basic component in modern democracies. - Parliaments issue statues. - Independent courts apply and interpret the legislation. - There should not be a fusion of powers * which would be the case if parliament interpret it’s own statutes. Professor Peter Melz

5. Government should not intervene in specific cases. - An IS could in certain situations function as * an intervention in a specific case. - The IS could be used in that way when interpretation of law in a specific case has led to tax consequences that are not acceptable for the Government. Professor Peter Melz

6. Validation Statutes (VS) - many variations - The arguments against IS are also valid for VS. - VS seems normally to cause more serious retroactive consequences than IS. Professor Peter Melz

7. First type: Validating legal practice of tax authorities retroactively. - Risk for bias: * Legislation introduced without normal review of different alternatives. - Not good sport: * The match in court is suspended and Government declares itself the winner by retroactive legislation. Professor Peter Melz

8. Second type: A validation statute (more correct invalidating statute) could be issued in order to reversea court decision retroactively. - Such a VS seriously undermines the independence of the courts: * Parliament will in reality be the Court of last resort. - Not good sport: * If Government loose the match in court, it anyway wins by retroactive legislation. Professor Peter Melz

9. Final conclusion Retroactive tax legislation is not acceptable. However, back-dating only to the date of first announcement normally has not the character of retroactive legislation. Exceptions should be allowed only for serious situations which are uncontroversial and easily identified. Interpretative and validation statutes do not qualify for such exceptions. Professor Peter Melz