The Gazette 1980

GAZETTE

JANUARY FEBRUARY 1980

Lord Diplock came to his decision "with some reluc-

tance".

This was because he thought the scheme

adopted here was "excellent".

He felt that it might, if

generally adopted, be of great benefit to industry and to

the entire economy. Far from elaborating on the "reason-

ableness" of the Commissioners' conclusions Lord

Edmund-Davies frankly admitted that he was

"dubious"

that he would have reached the same

conclusion had he been in the position of the Commis-

sioners.

Lord Fraser of Tullybelton conceded that there

was "clearly room"

for the conclusions reached by the

High Court and the Court of Appeal and he "sympa-

thised" with those conclusions.

He felt that the other

cases on this topic were "easier"

- than the present one.

Lord Salmon said that the borderline in cases like this was

a "narrow" one and also that in this case "it may well be

that different Judges of fact . . . [might have reached

different conclusions]." Lord Russell of Killowen did not

contribute. All in all then a rather inadequate justification

for overruling both the High Court and the Court of

Appeal. The House of Lords seemed to uphold the assess-

ment because they felt that there were at least some

grounds for the Commissioners coming to the conclusion

that they did (namely that the advantage the taxpayer got

was a reward for past services or an inducement to future

services). But could even such a conclusion of itself make

the taxpayer assessable? Firstly, there is hardly any

attempt in the House of Lords' judgments to ascertain

whether the advantage was actually for past or future

services or both. It is by no means certain that past

services are taxable.

Any authority at all that exists is

still indirect.

As far as future services are concerned it is

now settled that a payment simply to induce future

services is not taxable under Schedule E.

Anyway,

Tyrer was under no obligation to perform any future

services. He could legally have resigned from the

company at any time.

An attempt has been made in the United Kingdom to

tighten up and clarify the law on this topic. The relevant

legislation is S. 79 of the Finance Act 1972 and S. 20 of

the Finance Act 1974. S. 79 applies if the person who

gets a benefit got the shares in pursuance of a right or

opportunity acquired as a director or an employee. If

such an acquisition has taken place and, at a certain time

the market value of those shares exceeds the market value

at the date of acquisition the excess is chargeable to tax

under Schedule E. A charge to Schedule E arises immedi-

ately if the person by virtue of his/her ownership of the

shares receives a benefit not received by the majority of

ordinary shareholders. Only time will tell how effective

this legislation will prove to be. The drafting is, I feel, a

little loose and there seems to be no limit to the ingenuity

of tax consultants.

FOOTNOTES

1. See e.g.

Abbott

Phtlbln

[19601 2 AER 763;

Ede

Wilson and

Cornwall

11945] 1 AER 367;

Salmon v Weight

11935] 1 AER 904.

2. 11979] 1 AER 321 (H.L.).

3. Under schedule 2, par. 1 (1), of the U.K. Finance Act 1956.

4. [1976] 3 AER 537; [1976] S.T.C. 521.

5. To use the terminology of Megarry, J., in

Pritchard v Arundale

[1971] 3 AER 1011; see post.

6. [1978] 1 AER 1089; [1978] S.T.C. 141.

7. [1979] 1 AER 321.

8. See

Edwards

Bairs tow

[1955] 3 AER 48; see especially Lord

RadclifTe at p. 387.

Footnotes continued on page 14

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