06 March 2008


The room I occupy at the office wa previously designated for a corporate tax partner, and only assigned to me when no corporate tax parter materialised. One story surrounding this is not suitable for publication, but Nancy pointed out when I moved to this part of Siberia (I think we decided that, as her desk had been deemed to be in the Urals, so not quite Siberia, my room should be Chelyabinsk, just the other side of the mountains which is why Stalin relocated so much of the munitions industry there and it became known as Tankograd) that I would have to do corporate tax now as well as IP.
Yesterday one of my favourite clients summoned me to a meeting, at about four hours' notice, to discuss the disposal of some IP assets to a new holding company in order to obtain relief from capital gains tax before the government reduce it - part of their assault on private equity. So the proposed arrangements would have to be put in place by 5 April, which on the face of it is not a particularly demanding timetable.
The disposal ("disposal" being a term of art for capital gains tax CGT, purposes) is to take the form of an exclusive licence, limited to specified territories and to certain fields of activity. The client's accountant and an IP valuer were to be present at the meeting, so I assumed I would be called upon only to consider whether he actually owned the assets over which he was now going to grant a licence, and to advise on the detail of the licence. In fact, we barely touched on these points, but I was party to a fascinating discussion about the accounting and tax treatment of the arrangements and how the client might take his money - material, perhaps, to be worked into a piece of fiction one day. But then my opinion on whether the proposed licence would suffice was canvassed. I was being asked to justify my room in the office.
Worse still, the other professionals present had had more warning of this meeting. I hadn't had time, eve if I had thought it necessary, to find out who at the office would know the answer to such a question or where I might get hold of them if the question arose. HM Revenue and Customs will look very hard at the arrangements, so it is important that the rights are indeed owned by the client and it is of fundamental importance that the licence be completely watertight. We have a couple of days in which to sort out whether the proposal stands a chance of working, and then a few days in which the valuation will be prepared and submitted to the Revenue.
The client (who is a law graduate) had in front of him a printout of the judgment in Evans Medical Supplies Ltd v Moriarty (HM Inspector of Taxes). How could someone called Moriarty infiltrate the civil service and rise to so high a position? It seemed to be a House of Lords case, and although I couldn't read the date it emerged in discussion that it was 1957. It was presented as authority for the proposition that the grant of an exclusive licence over intellectual property was a disposal - though the case predated CGT, and the point at issue was whether the lump sum proceeds were rightly chraged to tax as trading income.
I am now confused, because (a) the case concerned the disclosure of know-how and a non-compete covenant, which functionally looks similar to an exclusive licence of a patent or copyright but legally is something very different, and (b) in the House of Lords the appeal was allowed on other grounds, so comments on whether it was income or capital look obiter to me: two Lords of Appeal thought it was income, but one of them was Lord Denning so perhaps (despite his legendary status among law students of my generation) that will have to be slightly discounted, two thought it was capita and one thought it was a bit of both, which was also what the Court of Appeal had thought. So a couple of hours into my new career as a tax lawyer, I don't think I'm getting the support from the case law that I'd hoped for.When I studied for my MA, just a few years ago, I enjoyed the tax option. I forget why I chose it, but I do recall that my first year choices were made in consultation with my employers, who were paying the bill. I think the course cost about £100 a year, and I remember signing up for it one evening and immediately departing for Party Conference in Brighton. Those were the days.
Of courses, it was the choice of IP as one of the two courses in the first year that set me on the course I had followed until I moved to Chelyabinsk and became a tax lawyer, and I have always thought it a good thing that I took that path.

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