The Gazette 1980

GAZETTE

JANUARY FEBRUARY 1980

Lord Diplock came to his decision "with some reluc- tance". 12 This was because he thought the scheme adopted here was "excellent". 13 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" 14 that he would have reached the same conclusion had he been in the position of the Commis- sioners. 13 Lord Fraser of Tullybelton conceded that there was "clearly room" 16 for the conclusions reached by the High Court and the Court of Appeal and he "sympa- thised" with those conclusions. 17 He felt that the other cases on this topic were "easier" 18 - 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. 19 Any authority at all that exists is still indirect. 20 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. 21 Anyway, Tyrer was under no obligation to perform any future services. He could legally have resigned from the company at any time. 22 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 v Phtlbln [19601 2 AER 763; Ede v 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 v Bairs tow [1955] 3 AER 48; see especially Lord RadclifTe at p. 387. O Footnotes continued on page 14

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