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During the closing stages of the House of Lords Arctic Systems hearing, counsel for HMRC, Michael Furness QC, was asked by Lord Hoffmann whether there were any articles in learned journals on the issues raised by the case. He replied to the effect that there had been some articles in the trade press, but that one wouldn't really call them learned; however there was rather a good one in the British Tax Review (which coincidentally happened to support his case).
I was, at the time, sitting ten feet behind him, futilely looking daggers at his back. It is therefore with great pleasure, following the judgment, that I reproduce the following from my article 'Arctic Killer' (Taxation, 12 May 2005, page 149), referring to an article by my predecessor:
'There are two key questions to be asked and answered in husband and wife company settlement cases:
- is there a settlement at all, and
- if there is, does TA 1988, s 660A(6) prevent the income falling within the section?
'One of the first articles that Taxation published on the subject was by my predecessor as editor, Malcolm Gunn (“All Very Unsettling “, Taxation, 13 March 2003, page 572 (http://www.taxation.co.uk/Articles/2003/03/13/25039/All+Very+Unsettling.htm)). His view, in summary, was that the answer to the first question was 'yes', and the answer to the second was “no, but …”. The “but” was that the Inland Revenue thought the answer to the second question was “yes”, and it would therefore be wise to take further precautions. Over two years later I think that he was right.'
Malcolm's article was written when Arctic Systems was a cloud no larger than a man's fist on the horizon, and he did not mention it by name. However, he gave an analysis which not only asked the right questions and gave the answers as found by the House of Lords, but which also anticipated some of the other issues along the way, such as the argument about paying a fair market salary in Mr Justice Park's High Court decision, and the arguable but impractical approach of seeing each year as a separate settlement raised in the House of Lords.
Taxation certainly doesn't always get it right, but I'm pleased to say that in this case Malcolm's article most spectacularly did, over four years before the case was finally decided.
Mike Truman.
