You may recall that earlier this week Cathy Corns, Corporate Tax Partner at Mercer & Hole wrote an article on the Jones v Garnett case for her SME Blog. Following on from this piece Cathy has submitted an additional blog on the topical "Arctic Systems Ltd" case.
The House of Lords issued their judgement in the case of Jones v Garnett (also known as the “Arctic Systems Ltd” case) on 25 July 2007. To much rejoicing the case was decided in favour of Mr and Mrs Jones. However, the Revenue is a bad loser.
On 26 July a written Ministerial statement was issued by the Exchequer Secretary to the Treasury, announcing the intention to change the law.
Using the standard “the Government is committed to maintaining fairness in the tax system” statement the Government now believes it needs to do something to “ensure that there is greater clarity in the law regarding its position on the tax treatment of income splitting”. Actually, in my opinion, the law is now clear – it may not say what the Revenue wants it to, but that is unfortunate (for them) rather than unclear.
In the Government’s view minimising a tax liability “results in an unfair outcome” that puts other businesses “at a competitive disadvantage”. Surely competition is a vital part of a free market. Anyway, what happened on Lord Tomlin’s statement in IRC v Duke of Westminster in 1936 (yes even in 1936 people were planning to reduce tax):
“Every man is entitled if he can to order his affairs so as that the tax attaching under the appropriate Acts is less than it otherwise would be. If he succeeds in ordering them so as to result this result, then, however unappreciative the Commissioners of Inland Revenue or his fellow taxpayers may be of his ingenuity, he cannot be compelled to pay an increased tax.”
Presumably nowadays that should finish “until the Government change the law so he has to!”.
The Government are therefore planning to bring forward proposals for changes to the law to ensure that individuals such as Mr Jones should pay tax on what is, in substance, their own income. In the meantime, (I assume, grudgingly!) “HMRC will apply the law as elucidated by the House of Lords and will be providing guidance in due course.”
A final throwaway statement – “The Government would not want commercial arrangements to be caught by any change in legislation. Consultation should help to ensure this.”
Watch this space!
