Benefits from a Company
24.A75. On the principle asserted by the Committee in relation to settled property, a taxpayer can be deemed to be the owner of an asset actually owned by a company where the taxpayer is entitled to the benefits to be derived from that asset. In the context of shareholding in a company, this principle would involve including only the value of the shares carrying the entitlement. If the principle were to be extended to include benefits the taxpayer could have taken for himself by virtue of the powers he has over the company's affairs, substantial difficulties would arise in applying the principle, especially when the taxpayer does not receive any benefits, or receives some benefits and directs others elsewhere. These difficulties arise because directors and majority shareholders of companies are obliged to act bona fide for the benefit of the company as a whole. These duties must be taken to impose some limitation on the amount of benefits that a taxpayer could have directed to himself, though it is not uncommon for a taxpayer to treat a company he controls as his own and for the other shareholders to accept this situation without complaint. A general rule that a taxpayer who ‘controls’ a company in some defined sense is to be deemed to be entitled to all benefits to be derived from a company's assets cannot be reconciled with basic company law.
24.A76. The Committee does not, therefore, propose that any attempt be made to impose duty by reference to control of a company or the power to take benefits for oneself. Apart from the difficulties mentioned, there would be a major problem under an integrated estate and gift duty of determining the time at which duty should be imposed. No doubt a person relinquishes control or the power to take benefits when he dies, and it is possible to look to the situation that obtained during a period before death to determine what control or power he has relinquished. But a gift duty requires finding a moment of gift during life by the relinquishment of control or power. The Committee is aware that the United Kingdom has legislation that seeks to tax by reference to control and power. But this legislation has been criticised by the Courts and seems rarely to be invoked; moreover, it was introduced at a time when there was no gift duty in that country.