Monday 30 July 2012

Computer-generated characters in films

The film Ted, which will appeal to all arctophiles, is about to be released in the UK. The star, a talking and beer-swilling teddy bear, is a piece of computer-generated animation. The human actors had to act as if he were there, then he was inserted after the human actors had been filmed.

Now suppose that human actors will be replaced in the same way, and that we will watch films with wholly realistic animated characters, such that human perceptual apparatus cannot tell the difference between them and human actors. That would take a lot of computing power, and some sophisticated programming, but it is perfectly possible that we shall see this development within the next 50 years, and perhaps sooner.

Philosophers of perception might find this an interesting new source of problems. It seems that there ought to be some difference in how we should describe the perception of the viewer, but it is not obvious how to characterize the difference. Disjunctivists, for example, could not capture the difference merely in terms of seeing human actors versus having an impression that was qualitatively indistinguishable from seeing them, because the stage of generating a mere impression that would be at issue would take place outside the perceiver's head. The fork that reflected the disjunction would have to be placed outside any specific perceiver, at the point of creation of the film, with one prong running back to real actors and the other to a computer that generated images. One might prevent this from being a problem for the philosophy of perception by regarding viewing a film as a species of seeing the objects filmed, but that would be a challenging course to take. However, it does not seem that this sort of problem would be specific to the portrayal of human beings, as distinct from the portrayal of other entities, such as mountains,  by computer-generated images.

Another question would arise in connection with the paradox of fiction. We get emotionally involved in films, even though we know that the characters are not real. If we knew that the characters were not even portrayed by real actors, would that affect our degree of emotional involvement? If the theory that we suspend our disbelief is straightforwardly correct, our degree of emotional involvement should be unaffected. If we suspend disbelief, we do not see the characters as portrayed by actors: we see them as real. Then the fact that actors had been replaced by animations should not matter. We might learn something from the extent of our capacity to get emotionally involved in cartoons that are obviously cartoons. The greater that capacity, the more likely it is that we would get fully involved in films where the characters seemed to be played by real actors, but were in fact computer-generated.

Finally, what would such developments do to the film industry? There would be many more films. They would be cheaper to make, and cheaper to amend after release in order to make small improvements, or to correct continuity errors. Films might be more finely honed to the preferences of audiences, because it would be cheaper to make extracts that could be tried on sample audiences before the final content of the film was determined. Such developments would be disruptive, but I think that on balance, they would be welcome, just as the word processor and electronic publishing have been disruptive, but have also brought great benefits.

Tuesday 10 July 2012

Tax avoidance and the problem of establishing purposes

Tax avoidance is the reduction of tax liabilities by the use of contrived schemes, which are such that when the law is applied to them, the resulting tax liabilities are less than one might have expected. It differs from tax evasion, which is the reduction of tax liabilities by not disclosing the full facts, or by misrepresenting the facts.

The tax code of the UK is likely to have a general anti-avoidance rule, alternatively known as a general anti-abuse rule, or a GAAR, in the near future. The Government proposes to introduce one in 2013. Its consultation document on the proposal, published on 12 June 2012, and related documents, are available here:

(The link to the June 2012 document is about half way down the page, following the heading "GAAR consultation".)

The purpose of a GAAR is to remove the tax advantages that would be obtained by the use of contrived tax avoidance schemes,when the schemes are not defeated by specific provisions (for example, a specific provision that says that when an asset is sold between connected parties for less than its market value, the transaction is to be treated as taking place at market value). Governments are interested in GAARs because the counteraction of avoidance by specific provisions is an endless game of cat and mouse. Each year, new provisions are introduced to defeat known schemes. And each year, new schemes are devised to get round the existing specific provisions.

I shall not discuss the merits of GAARs here. Instead, I shall set out how some problems concerning the identification of the purposes of arrangements that have been devised by human beings arise in the context of GAARs.

It is common for anti-avoidance legislation to include a purpose test of some sort. The legislation may, for example, only take effect if a reduction in tax is one of the main purposes of the arrangements that the taxpayer has chosen. "One of the main purposes" is likely to be the phrase, rather than "the main purpose", so as to catch schemes in which tax avoidance is a significant purpose, but there is some greater commercial purpose that has nothing to do with reducing tax liabilities. For example, clause 2(1) of the proposed GAAR, discussed on page 13 of the June 2012 document, reads:

'Arrangements are "tax arrangements" if, having regard to all the circumstances, it would be reasonable to conclude that the obtaining of a tax advantage was the main purpose, or one of the main purposes, of the arrangements.'

The problem is this: how should we determine whether obtaining a tax advantage was a main purpose of some given arrangements?

The first point to make is that the challenge is not to find a way to look inside the actual taxpayer's head, and establish his or her subjective motives. The question is, "What is the point of these arrangements?", not "What was this taxpayer trying to achieve?". Some of the points that follow would have parallels in a discussion of the problem of establishing motives, but that is not the topic here.

Having said that, we cannot ignore the human element. Purposes are purposes of creatures that have goals. We can reconcile this point with the irrelevance of the motives of the particular taxpayer who in fact entered into the arrangements, by regarding the purposes in question as those of a hypothetical rational taxpayer who entered into the arrangements. Abstracting from the actual taxpayer's psychology, what would we say was going on, if all we knew was that some taxpayer had entered into the arrangements, and we were told nothing more about the taxpayer apart from his or her income, assets, and existing family or financial links to other people who were affected financially, along with any other facts that we would need to know in order to understand his or her tax affairs?

It is not enough for arrangements to be such that tax liabilities are lower than one would expect, for example when a profit is made, but no tax arises on it, nor will arise in the future. That is not enough because the lack of tax might be a pure accident. While the motives of the actual taxpayer may be irrelevant, the achievement of accidental consequences could not be seen as a purpose at all, not even a purpose of a hypothetical taxpayer, about whom nothing psychological was known. It is, however, most unlikely that such accidents would occur. Their occurrence would indicate that the tax system had been very badly designed.

It seems that we must look for indications that tax-saving features were included in the arrangements by design. One sign would be that a feature took some work to include, but that the other likely purposes of the arrangements (such as the transfer of an asset from grandparent to grandchild, or the purchase of some land followed by its sale at a profit) would have been achieved just as well without the feature, and without its replacement by another feature that would have taken a comparable amount of work to include.

This does seem to be the appropriate sort of way to proceed, if we are to abstract from the psychology of the actual taxpayer. We should compare what happened with other things that might have happened. The basis on which we would establish purposes could then be a principle of sufficient reason, something like this, where B is what the taxpayer actually did:

'If some commercial result was achieved by doing B rather than C or D, where all of B, C and D were possible, take it that the purposes of the agent must include enough purposes to explain the preference for B over C, and the preference for B over D, and identify enough purposes accordingly.'

Three problems with this principle as it stands are immediately apparent.

First, the purposes that would explain the preference for B over C might be incompatible with the purposes that would explain the preference for B over D. That would not, however, affect the workability of a GAAR, so long as the purpose of achieving a reduction in tax featured in both sets of purposes. We can imagine one hypothetical taxpayer preferring B to C, and another one preferring B to D.

Second, there might be some differences between B and C, or between B and D, about which the hypothetical taxpayer would be indifferent, making it inappropriate to seek explanatory purposes. If there were other differences which meant that the preference for B could only reasonably be explained by a purpose of achieving a reduction in tax, that would not affect the workability of a GAAR. But if all of the differences were ones about which the hypothetical taxpayer would be indifferent, while B was nonetheless the choice that happened to reduce tax, legislation which ensured that a GAAR still applied would have the same effect as legislation that required people deliberately to arrange their affairs so as not to make tax savings. Such legislation could reasonably be argued to be excessive.

Third, the principle would not always be enough to allow us to work out whether a GAAR should apply to take away a particular tax advantage. There might be a range of possible sets of purposes to impute to our hypothetical taxpayer. Each set would be sufficient to explain his or her preference for B, but some sets would include a purpose of achieving a reduction in tax, and others would not include such a purpose. This problem would become more acute if we were required to determine, not only what the hypothetical taxpayer's purposes were, but which ones were main purposes.

These difficulties may not be insuperable. But if they are not addressed explicitly in the guidance that we are promised will accompany the UK's forthcoming GAAR, it may not be easy to discern a consistent line of thought behind the decisions that judges will make, once cases start to be litigated.