Arctic Systems – Final day at the Lords

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AccountingWEB tax editor, Nichola Ross Martin writes: Although scheduled for a three day hearing, the case of Jones v. Garnett came to a close at the House of Lords by lunch time on day two. We had left Mr Malcolm Gammie QC defending Mr Joness corner on the previous day, and so he continued to put his argument forward.

It is worth re-capping on the highlights of yesterday, central to these is the idea that a settlement can only be a settlement if you can find some bounty, and that you must be able to look at the arrangements to find sufficient unity to be able to describe it as a settlement. Mr Gammie argued that bounty describes the character or nature of the arrange...

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06th Jun 2007 16:45

Good news?
I thought I would go down this afternnon (weds 6th) to hear part of the deliberations and arrived just after lunch to discover - that it was all over! I did speak to the attendant who was tidying up committee room one and he expressed the opinion that he couldn't see how the revenue could win - well in logic that is he quickly added. Now bearing in mind that he must listen to more deliberations of their lordships than their lordships this might be good news from the changing room, so to speak. Apparently, according to my same reliable source, we shouldn't expect the verdict for 6 weeks - although by that time their lordships will probably be on holiday so '13 weeks is more like it ' I replied. Has William Hill opened a book yet?

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By dgwsoft
06th Jun 2007 18:04

questions still to be asked
I was going to pop along tomorrow - well that has saved me some fees then. Enough for a bottle of the fizzy stuff when the result comes in, I hope :-)

Nice to see Young v Pearce being given more weight too. This is what I wrote to the tax man in 2003 concerning my own (very similar) case, which is on hold pending this judgement :


Your position seems to be that there is an "element of bounty" sufficient to create a settlement, but not enough to create a "gift" in Section 660A(6). I think this is called "having your cake and eating it" and I see no reason to believe any court would take such a selective view of the legislation.

Indeed this seems to contradict the view taken by Vinelott J in Young v Pearce: "If the creation and allotment of the preference shares constituted a settlement, the subject matter of which was the preference shares allotted to the wife of each of the taxpayers, it must follow that the allotment of the preference shares taken by each wife was an outright gift from which income (the dividends paid on the preference shares) arose".

The fact that the shares created and allotted had never been held by the husbands did not prevent them being a "gift". Of course in this case, it was held that the preference shares were, as a matter of fact, "wholly or substantially a right to income", but there was no suggestion that 660A(6) was not applicable.

I refer you also to the subsequent passage in Young v Pearce, showing that this conclusion depended upon the shares being preference shares rather than ordinary shares. We maintain that ordinary shares consist of a bundle of rights, and are not wholly or substantially a right to income.


When this case is over I hope there will be a lot more questions asked about what on earth the Revenue thought it was playing at.

Instead of making their novel interpretation of the settlements legislation public, and trying to collect all the 'owed' tax going forward, they chose to target a small proportion of those potentially liable, hit them with unpayable bills back-dated five years, and then, we understand, accept a bit more than the cost of representation at a commissioners hearing to go away. Meanwhile allowing the majority to continue a practice that they supposedly believed was 'losing' them hundreds of millions.

Clearly the strategy was to never have to defend such a case in court. This is the kind of tax system that would make a banana republic blush.

I want to know

* where/when was this policy concocted?

* when did ministers know about it?

* what does this say about consistency and fairness in the tax system?

* who is going to campaign for refunds for the several hundred small business men and women who, on the advice of their accountants, paid up under this pressure?

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08th Jun 2007 13:26

Like many I hope the Revenue lose this one
They deserve to. It would be bad law if they won.

They'd have been much better off reintroducing the investment income surcharge on dividends.

Richard Murphy

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11th Jun 2007 22:00

win or lose.... aspect of greatest concern in many ways is HMRC's quite untenable stance that this is not a "test" case.

It was never a credible stance at the High Court, or the Court of Appeal.

But to lose in the manner in which they did in the CoA, be refused permission to appeal to HoL, and then still take it on and insist it is not a test case is simply unacceptable, win or lose.

That truly is a banana republic way of proceeding.

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