A blog by Jaimie Kaffash, Accountancy Age’s tax reporter
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06 Feb 2008
The tax adviser to Philippa D'Arcy has spoken! Philip Shirley, who advised the City headhunter on a plan that entitled her to claim a £1.5m tax loss as a result of a complex 'accrued income scheme' arrangement, has defended the structures in an article in Taxation.
You wouldn't have to know me very well to realise that I probably don't have a great deal of time for his arguments.
Litigation has ended, he says. Which is new to me, in a sense - that HMRC is appealing the matter no further than the High Court, where it lost.
Mike Truman, the editor of Taxation, took a particular interest in the case, raising it as an example of an 'artificial' scheme.
That's exactly how I would have described it too. It involved a £1.5m tax loss but no economic loss. So her tax bill disappeared.
In his piece, and all credit to him for coming out and expressing his views, Shirley says that the scheme does not 'exploit a loophole' in the legislation. He then goes into an abstruse argument as to why, before saying: 'the real issue thrown up by the D'Arcy case is why such defective legislation was introduced in the first place.'
Which rather begs the question: which is it? Either the legislation is defective (there's a loophole) or it isn't.
Nor were D'Arcy's actions artificial, he says. Which I think we can take with a pinch of salt. She just enters into gilt transactions worth £30m every day, does she?
Shirley's argument is that there was a market risk involved. Really? Would he have advised her to take part, and would she have taken part, if there was a serious risk of losing any money? I don't think so.
Shirley pins the blame on legislators. The law is flawed (you've heard this one before).
Which it is - but the courts ought to be able to appreciate that a transaction is a sham designed to avoid tax without merrily concluding that it is perfectly legitimate under the specific terms of legislation.
It constantly amazes me how literal the courts are on tax cases. One might argue that lawyers have a vested interest in everything being semantic rather than corresponding to reality. But that's a whole different argument.
More to the point, surely clients have some element of moral choice? They have to answer the question: 'Should I enter into this completely artificial transaction, or pay my tax to the society that itself allowed me to make my millions/squillions/etc.'
I'm afraid those who aren't schooled in the sophistry of the 'tax isn't a moral issue' brigade will find this episode, and tax cases like it, quite shameful. The shame, needless to say, does not lie with the tax legislators.
Visitor comments
I am inclined to agree that the terms "defective legislation" and "loophole" are synonymous, the difference being a matter of "spin". The difference lies solely in whether your intention is to to categorise Mr Shirley as a tax terrorist or freedom fighter.
I do not agree with you that any blame or opprobrium should attach to Mr Shirley, who has acted entirely properly, and indeed as he was bound to act if he was to fulfill his obligations, contractual and moral, to his client.
I agree with Mr Shorley that the legislation is defective and only Government and civil servants are to blame for that. However, incompetence is not immoral, unless it amounts to recklessness. I leave it to others to decide whether this is what we have here. My experience is that the Government benefits daily from mistakes made by members of the public through ignorance and lack of good advice and I have never seen any show of conscience on its part.
As far as the moral issue is concerned, it seems to me that that is entirely a matter for the client. Ms D'Arcy had the choice to pay the tax or do the tax planning and had she had any moral qualms about this issue, I am sure she would have acted differently.
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