TMI Blog1988 (5) TMI 366X X X X Extracts X X X X X X X X Extracts X X X X ..... wable loss with a view to setting it off, for purposes of capital gains tax or corporation tax on a capital gains basis, against chargeable gains. The transactions into which the taxpayer had entered for that end were entirely artificial. They were of a circular selfcancelling character so that the taxpayer ended up no worse off from a financial point of view than before the transactions were entered into. Each successive transaction in the series must inevitably, in order to achieve the desired result, follow upon its predecessor and none of them had any other purpose than tax avoidance. It was held that each set of transactions had to be regarded as a whole and that when it was completed there was no real financial loss such as the relevant legislation allowed to be set off against chargeable gains. Neither in Ramsay nor in Burmah was there any commercial purpose whatever in the transactions entered into. However, Lord Diplock i 'n Burmah, at p. 214 indicated that the new approach adopted by the House in Ramsay to a preordained series of transactions which included steps that had no commercial purpose apart from tax avoidance might apply whether or not there were also incl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usly contracted to transfer the same shares to Wood Bastow for a sum in cash. Under such a tripartite contract the Dawsons would clearly have disposed of the shares in the operating companies in favour of Wood Bastow in consideration of a sum of money paid by Wood Bastow with the concurrence of the Dawsons to Greenjacket. Tax would be assessed, and the base value of the Greenjacket shares calculated, accordingly, Ramsay says that this fiscal result cannot be avoided because the preordained series of steps are to be found in an informal arrangement instead of a binding contract. The day is not saved for the taxpayer because the arrangement is unsigned or contains the words 'this is not a binding contract.-- The formulation by Lord Diplock in Inland Revenue Commissioners v. Burmah Oil Co. Ltd. [19821 S. T. C. 30, 33 expresses the limitations of the Ramsay principle. First, there must be a preordained series of transactions ; or, if one likes, one single composite transaction. This composite transaction may or may not include the achievement of a legitimate commercial (i. e. business) end. The composite transaction does, in the instant case ; it achieved a sale of the shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll which was in a position, for all practical purposes, to secure that all of them were carried through to completion. It is also relevant to take into account, if it be the case, that one or more of the steps was introduced into the series with no business purpose other than the avoidance of tax. The principle does not involve, in my opinion, that it is part of the judicial function to treat as nugatory any step whatever which a taxpayer may take with a view to the avoidance or mitigation of tax. It remains true in general that the taxpayer, where he is in a position to carry through a transaction in two alternative ways, one of which will result in liability to tax and the other of which will not, is at liberty to choose the latter and to do so effectively in the absence of any specific tax avoidance provision such as section 460 of the Income and Corporation Taxes Act, 1970. In Ramsay and in Burmah the result of application of the principle was to demonstrate that the true legal effect of the series of transactions entered into, regarded as a whole, was precisely nil from the point of view of creating an allowable loss such as the relevant legislation intended to make dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntention of selling but so that it may stand in good stead for tax purposes if and when a decision to sell is made. Or it may-take place when negotiations with a particular purchaser are under way but the outcome is still open. In all these cases it is clear that the owner of the shares has so arranged matters that if and when a sale of the shares does take place it will not be a direct disposal of the shares by him but a disposal by an intermediary company which he controls. But 1 do not think that the transaction embodied in the final disposal can be said to be preordained, a matter to be ascertained as at the time of the share exchange, when at that time it is wholly uncertain whether that disposal will take place, or a fortiori when neither the identity of the purchaser nor the price to be paid nor any of the other terms of the contract are known. In my opinion both the transactions in the series can properly be regarded as preordained if, but only if, at the time when the first of them is entered into the taxpayer is in a position for all practical purposes to secure that the second also is entered into. It follows that on the facts of the three appeals I do not Consider th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssioners and their decision was upheld by 'Vinelott J. and by the Court of Appeal. Here again, there was clearly no such connection between the two transactions as could properly lead to the conclusion that they were preordained. In Craven v. White, the facts were considerably closer to the line. The taxpayers owned all the shares in the family company ( Queensferry ) and in 1973 were advised by their accountant that they should either merge the company with a similar business or sell it. Up until 1976, they sought without success to achieve one or the other. The prospects of a merger with a company called Cee-N-Cee were inconclusively investigated, but in early 1976, a company called Oriel showed an interest in purchasing Queensferry. Negotiations were pursued and by May, 1976, broad agreement on price had been reached. A meeting with Oriel on June 17, 1976, however, had the result that the prospects of a sale did not look good. So negotiations with Cee-N-Cee for a merger were again taken up, On June 21, 1976, arrangements were made to acquire an off-the-shelf Isle of Man company ( Millor ) with a view to its being a holding company for a merger with Cee-N-Cee. On the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eir 'Options open, and this warrants the inference that a possible merger with Cee-N-Cee was a subsidiary purpose of the acquisition of Millor, in addition to indicating that on July 19, the sale to Oriel was by no means a certainty. Indeed, at the meeting on August 9, Oriel's proposal for deferred payment of part of the consideration seriously threatened the negotiations and caused a temporary walk-out by the White team. It is clear, in MY Opinion, that Peter Gibson J. was right in his view that on July 19, there was no certainty that the sale to Oriel would take place. On that date the taxpayers were by no means in a position for all practical purposes to secure that the sale went through. The commissioners' finding of a composite transaction including the share exchange, the sale to Oriel and the loans was made before the decision of this House in Furniss v. Dawson and so without regard to Lord Brightman's formulation in that case of the applicable principle. Accordingly it cannot, in my view, be regarded as conclusive against the taxpayers. My Lords, for these reasons, and for those expressed in the speech of my noble and learned friend Lord Oliver of AyImert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the taxpayer had avoided tax on a taxable transaction which was not contractually binding and not within the power of the taxpayer to command at the time of the preceding tax avoidance transaction which was part of an artificial tax avoidance scheme. A principle emerges from the authorities and in particular from Ramsay, Burmah and Furniss. The priciple is that an artificial tax avoidance scheme does not alter the incidence of tax. Ramsay, Burmah and Furniss concerned the Finance Act, 1965, or its successors whereby capital gains tax, or in the case of companies corporation tax, was : 19(1 ). . .charged . . .in respect of capital gains, that is to say chargeable gains computed in accordance with this Act and accruing to a person on the disposal of assets. By section 20(4) : Capital gains tax shall be charged . . .on the total amount of chargeable gains accruing to the person chargeable in the year of assessment, after deducting any allowable losses accruing to that person . . . In Ramsay the taxpayer sought by the scheme to reduce his liability to tax without suffering the loss which entitled him to a reduction. The tax- payer began by a taxable transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bound to consider individually each separate step in a composite transaction intended to be carried through as a whole . . . the commissioners should find the facts and then decide as a matter (reviewable) of law whether what is in issue is a composite transaction, or a number of independent transactions. In Burmah Lord Diplock warned, at p. 214: It would be disingenuous to suggest, and dangerous on the part of those who advise on elaborate tax avoidance schemes to assume that Ramsay's case did not mark a significant change in the approach adopted by this House in its judicial role to a preordained series of transactions (whether or not they include the achievement of a legitimate commercial end) into which there are inserted steps that have no commercial purpose apart from the avoidance of a liability to tax which in the absence of those particular steps would have been payable. Both in Ramsay and in Burmah there was a scheme but no contractual obligation to carry out any of the transactions which made up the scheme. The scheme was capable of being wholly or partly abandoned at any time but in fact was carried through. The scheme was treated as a whole. The sch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ares in the operating company to Wood Bastow in consideration of cash paid to Greenjacket. Lord Fraser of Tullybelton said, at p. 513 : The series of two transactions in the present case was planned as a single scheme, and 1 am clearly of opinion that it should be viewed as a whole. Lord Roskill said, at p. 515 : there was a disposal by the Dawsons to Wood Bastow in consideration of the payment to be made by Wood Bastow to Greenjacket at the behest of the Dawsons. This disposal is not exempt. Capital gains tax is payable. Lord Bridge of Harwich said, at p. 517 : When one moves, however, from a single transaction to a series of interdependent transactions designed to produce a given result, it is, in my opinion, perfectly legitimate to draw a distinction between the substance and the form of the composite transaction without in any way suggesting that any of the single transactions which make up the whole are other than genuine. Lord Brightinan said, at pp. 526-527 : In a pre-planned tax-saving scheme, no distinction is to be drawn for fiscal purposes, because none exists in reality, between (i) a series of steps which are followed through by vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction with a tax avoidance transaction which has no business purpose apart from the saving of the tax involved. The two transactions together constitute a scheme which produces a taxable transaction. The circumstances in which the court will either in the Ramsay or Furniss type of case construe and apply the taxing statute to a scheme as a whole and not to the constituent parts have been variously described. Lord Wilberforce in Ramsay [1982] A. C. 300, 323-324, referred to a nexus or series of transactions, or ... an ingredient of a wider transaction intended as a whole ... a series or combination of transactions, intended to operate as such . . . a composite transaction intended to be carried through as a whole. Lord Diplock in Burmah, 54 T. C. 200, 214, referred to elaborate tax avoidance schemes and to a preordained series of transactions. Lord Fraser of Tullybelton in Furniss [1984] A. C. 474, 513, referred to a series of two transactions . . . planned as a single scheme . . . [which] should be viewed as a whole. Lord Bridge of Harwich, at p. 517, referred to a series of interdependent transactions and to a composite transaction. Lord Brightman, at pp. 526, 527, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xable transaction. Where a taxpayer plans and achieves two transactions, the question is whether the transactions are independent of one another or whether the two transactions are part of a scheme which produces a taxable transaction. In Furniss the exchange with Greenjacket and the sale to Wood Bastow were parts of a scheme which produced a taxable transaction, namely, a disposal of the shares in the operating company by Dawsons to Wood Bastow in consideration of cash paid to Greenjacket. The two transactions formed part of a scheme although they did not involve the same parties ; the exchange of shares involved Dawsons and Greenjacket, the disposal of the shares to Wood Bastow involved Wood Bastow and Greenjacket. The two transactions formed part of a scheme although Dawsons had no control, direct or indirect, over Wood Bastow and could at no stage oblige Wood Bastow to buy the shares in the operating company. But both transactions were part of a scheme which was planned by Dawsons, which in the event was successful and which produced a taxable transaction. Two transactions can form part of a scheme even though it is wholly uncertain when the first transaction is carried out whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... saction and to avoid an assessment to tax. Parliament cannot have intended that an individual tax- payer should be able to elect to carry out a taxable transaction without paying the tax which Parliament has imposed proportionately on all taxpayers. The court is entitled and bound to construe the taxing statute and to apply the taxing statute in relation to the scheme as a whole. The taxpayers involved in the present appeal Put forward a submission which is as extreme in their favour as the argument for the revenue is extreme in favour of the revenue. The taxpayers submitted that Furniss is confined to its own facts. A scheme indistinguishable from Furniss in every respect will suffer the same fate as Furniss . But a scheme which is modelled on Furniss and is indistinguishable from Furniss in every respect save the time factor will, it is said, enable the taxpayer to avoid tax. Where there is a scheme which involves two transactions, the first of which serves no business purpose apart from the avoidance of an assessment to tax on the second transaction, the court cannot, it is submitted, view the scheme as a whole unless both transactions are carried out simultaneously or contem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Wood Bastow had commenced and about a week or a month before the negotiations with Wood Bastow were concluded. When the exchange with Greenjacket took place, Dawsons and Wood Bastow might still have been haggling about the purchase price for the operating company shares ; or if the purchase price had been agreed in, principle, Wood Bastow might have been waiting for a valuation, and survey report on properties owned by the operating company; or Dawsons' solicitors and Wood Bastow's solicitors might have been discussing proposed amendments, essential, important or trivial to a draft contract. Even if the whole arrangement with Wood Bastow had been agreed subject to contract, either Dawsons or Wood Bastow would remain free to resile from the arrangement until Greenjacket, under the control of Dawsons and Wood Bastow, an independent third party, exchanged binding contracts. But the result in Furniss would have been the same whatever the state of negotiations between Dawsons and Wood Bastow at the date when the exchange with Greenjacket was effected. The result would have been the same because Furniss decides that a taxing statute must be applied to an artificial tax avoidan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ude steps that have no commercial purpose apart from the avoidance of a liability to tax which in the absence of those particular steps would have been payable. Of course if there are two transactions separated in time, the commissioners may conclude that the two transactions did not form part of an artificial tax avoidance scheme planned at the time of the first transaction and completed by the second transaction. If at the date of the first transaction no arrangements or negotiations are in train for the second transaction the commissioners may conclude that both transactions were independent and were not part of a scheme. Each case will depend on the totality of the evidence accepted by the commissioners who must ask themselves whether the two transactions were part of a scheme or were independently conceived and carried out. In most cases where there is a scheme, there will be evidence that arrangements or negotiations for the second transaction were commenced before the first transaction was carried out, and in most cases where there is a scheme the interval between the first and second transactions will be short. Sometimes the commissioners on the evidence will conclude th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ket had no business purpose apart from the avoidance of tax on the intended sale to Wood Bastow. After the exchange with Greenjacket the Dawsons retained power to carry out their part of the intended sale to Wood Bastow because they had power through their shareholding in Greenjacket to ensure that Greenjacket sold to Wood Bastow if Dawsons and Wood Bastow agreed. Finally, the sale to Wood Bastow took place thus completing the scheme. The scheme as a whole effected a disposal of the shares in the operating company by Dawsons to Wood Bastow in consideration of cash paid to Greenjacket. The scheme as a whole effected an acquisition by Dawsons of the shares in Greenjacket at the value paid by Wood Bastow for the shares in the operating company. In Ramsay the scheme left a taxable transaction remaining liable to tax. In Furniss the scheme resulted in a taxable transaction. Furniss does not require a taxpayer to pay the maximum amount of tax and does not prevent a taxpayer from taking steps to mitigate tax. A bed and breakfast scheme which consists of a sale and reacquisition of shares is not affected by Furniss because the scheme does not create a taxable transaction apart from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ress and are technically improved, the courts are not obliged to stand still. Such immobility must result either in loss of tax, to the prejudice of other taxpayers, or to Parliamentary congestion or (most likely) to both. To force the courts to adopt, in relation to closely integrated situations, a step by step, dissecting, approach which the parties themselves may have negated, would be a denial rather than an affirmation of the true judicial process. It was also argued that Furniss involves double taxation. This argument is based on a misunderstanding. Furniss only construed and applied the capital gains tax legislation. By the scheme Dawsons disposed of the shares in the operating company for the price paid by Wood Bastow to Greenjacket. Dawsons made a capital gain of the difference between the price originally paid by Dawsons when they acquired the operating company shares and the price paid by Wood Bastow to Greenjacket at the behest of the Dawsons. The scheme also effected an acquisition by Dawsons of the shares of Greenjacket in consideration for the price paid by Wood Bastow to Greenjacket. If and when the Dawsons dispose of their shares in Greenjacket they will m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld succeed or whether the negotiations with Oriel would succeed or whether both negotiations would fail. The taxpayers acquired Millor, an Isle of Man company, which was planned to be employed with the merger with Cee-N-Cee or in the sale to Oriel should either set of negotiations succeed. In July, 1976, as the commissioners found, the taxpayers were advised that if the Queensferry shares were transferred to Millor, and if Millor then sold the Queensferry shares to Oriel, capital gains tax would be avoided and the purchase price could then be loaned by Millor to the taxpayers who would control Millor. On July 19, 1976, the taxpayers exchanged their shares in Queensferry for shares in Millor. This was a classic Furniss scheme. The object was to avoid an assessment of tax on the intended taxable sale to Oriel by means of the prior exchange. In the context of that sale, the exchange with Millor had no business purpose apart from the avoidance of tax on the intended taxable sale to Oriel. The taxpayers retained power to procure a sale to Oriel. On August 9, 1976, the taxpayers procured Millor to sell the Queensferry shares to Oriel for cash on terms arrived at between the taxpayers and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed themselves in a position to escape tax in the future but there was no scheme. The sale by Holdings was a transaction independent from the exchange of shares. In Inland Revenue Commissioners v. Bowater Property Developments Ltd. the Bowater Group negotiated for the taxpayer company which was part of the Bowater Group, to sell land at Crafts Marsh to a company Milton Pipes for 202,500. On March 25, 1980, the taxpayer company sold Crafts Marsh for 180,000 to five companies which were also part of the Bowater Group in equal shares. If the five companies sold Crafts Marsh each would be entitled to claim 50,000 exemption from development land tax afforded by section 12 of the Development Land Tax Act, 1976. Under that Act, the tax is payable on a disposal. The Bowater Group continued to negotiate with Milton Pipes until July, 1980, when Milton Pipes broke off negotiations saying that they no longer wished to purchase the land, In February, 1981, Milton Pipes reopened negotiations and purchased Crafts Marsh on October 23, 1981, for 260,000. The commissioners concluded that the sale of March 25, 1980, and the sale of October, 1981, were not parts of a single composite transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olling shareholders in a family company had negotiated a sale of their. shares to the point at which nothing further required to be agreed, although there was no binding contractual commitment of either side. That, in fact, was the only element that was lacking. At that stage, having taken advice with regard to the tax implications of the proposed sale, they resolved to channel the sale through a company to be formed in the Isle of Man and thus, by taking advantage of the provisions of Schedule 7 to the Finance Act, 1965, to postpone the payment of capital gains tax on the sale until such time as they came to sell their shares in the Manx company, if that ever occurred. They obtained the consent of the purchaser to this change of plan and the arrangements for the incorporation of the Manx company, an agreement to issue shares in that company in exchange for shares in the operating company, the approval and signature of an agreement for the sale of those shares on to the ultimate purchaser and the transfers of the shares were all carried through in a single afternoon, the transaction being actually completed four days later by the appropriate issues and the approval of the transfers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in an informal arrangement instead of in a binding contract. The day is not saved for the taxpayer because the arrangement is unsigned or contains the words 'this is not a binding contract.' The fornulation by Lord Diplock in Inland Revenue Commissioners v. Burmah 011 Co. Ltd. [1982] S. T. C. 30, 33 expresses the limitations of the Ramsay principle. First, there must be a preordained series of transactions ; or, if one likes, one single composite transaction. This composite transaction may or may not include the achievement of a legitimate commercial (i. e., business) end. The composite transaction does, in the instant case ; it achieved a sale of the shares in the operating companies by the Dawsons to Wood Bastow. It did not in Ramsay. Secondly, there must be steps inserted which have no commercial (business) purpose apart from the avoidance of a liability to tax-not 'no business effect.' If those two ingredients exist, the inserted steps are to be disregarded for fiscal purposes. The court must then look at the end result. Precisely how the end result will be taxed will depend on the terms of the taxing statute sought to be applied. The transactions whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e instructions was to provide a convenient vehicle for the suggested merger with Cee-N-Cee, if it took place, although there is no doubt that the taxpayers had very much in mind the advantages from the point of view of capital gains tax if they achieved the preferred option of a sale. The negotiations to that end resumed after the instructions had been given but before the Queensferry shares were exchanged for shares in the intermediate company, an event which took place on July 19. At that date the negotiations were being actively pursued but without any certainty that they would prove successful and the special commissioners, whilst rejecting the taxpayers' evidence that the sole purpose of the formation of the intermediate company was to act as a holding company for the merger with Cee-N-Cee, nevertheless found as a fact that the taxpayers were then keeping their options open. There were at that time considerable difficulties and uncertainties and contemporaneous negotiations with Cee-N-Cee continued. The operation, at that stage therefore, served two alternative purposes. The negotiations with Oriel finally resulted in an agreement for sale on August 9, 1976,-between the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appeals raise essentially three questions for your Lordships' decision. First, are those criteria definitive as they appear to have been intended by Lord Brightman to be or are they capable of expansion so as to embrace all or any of the transactions here in question either because they merely exemplify some wider principle or because it may be thought politic that they should be so expanded ? Secondly, ought they to be expanded by your Lordships as a matter of judicial intervention into an area in which Parliament is demonstrably capable of legislating effectively but has not sought to do so ? Thirdly, and if the answer to the second question is affirmative, what formula or principle are your Lordships to evolve which will be at once certain, effective and easy to apply and upon what legal foundation is such a principle to be based ? As to the first question, the features of the transactions the subject matter of these appeals which are said to produce the result for which the Inland Revenue contend are, on analysis, first an initial contemplation by the taxpayer of a transaction of the kind which has in fact taken place and secondly that what I will call for convenienc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be accepted that Furniss v. Dawson, whilst it purported to do no more than apply the Ramsay principle to a different set of facts, involved in fact an extension of the principle and it did so not simply because it applied the principle to a linear transaction as opposed to a circular transaction. The Ramsay principle is simply that you look at the result which the parties actually intended to and did produce and apply to it the ordinary fiscal consequences which flow from that result. Furniss involved going a considerable step further than this and, by reconstituting the actual constitutent transactions into something that they were not in fact, attributing to the parties an intended result which they did not in fact intend. To that unintended result there are then attached the fiscal consequences which would have flowed if the transaction had actually taken the form into which it is deemed to be reconstituted. It has to be borne in mind that the particular transaction with which Furniss was concerned, and with which each of the three appeals before your Lordships is concerned, was one in which an actual exchange of shares had taken place, a transaction which had permanent leg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction. It has been said in the course of argument on the present appeals that Furniss v. Dawson is 'Judge-made law. So it is, but judges are not legislators and if the result of a judicial decision is to contradict the express statutory consequences which have been declared by Parliament to attach to a particular transaction which has been found as a fact to have taken place, that can be justified only because, as a matter of construction of the statute, the court has ascertained that that which has taken place is not, within the meaning of the statute, the transaction to which those consequences attach. It seems to me, therefore, that the first and critical point to be borne in mind in considering the true ratio of Furniss v. Dawson is that it rests not upon some fancied principle that anything done with a mind to minimising tax is to be struck down but upon the premise that the intermediate transfer, whose statutory consequences would otherwise have resulted in payment of tax being postponed, did not, upon the true construction of the Finance Act, 1965, constitute a disposal attracting the consequences set out in paragraphs 4 and 6 of Schedule 7 to the Act. That is th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of individual transactions linked together with the purpose of producing an end result entirely different from that which, on the face of it, would have been achieved by each successive link in the preconceived chain if such a link fell to be considered in isolation from its partners. That the enterprise was undertaken with an intention of saving tax and was thus categorised as a tax-saving scheme was of course important and relevant in three senses. In the first place, this sort of artificial loss creation is not normally undertaken in any other context. Secondly, the lack of any discernible object other than the saving of tax underlines the total artificiality of the design. And thirdly, of course, the court was concerned specifically with the construction of a taxing statute and its application to the structure artificially brought into being. But the essence of the decision lay not in the fact that the object of the exercise was to save tax but in the approach of the court as a matter of construction to a devised combination of events designed to produce an actual result quite different from that which, for fiscal purposes, it was intended to display. It is, therefore, o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n allowable loss within the meaning of section 23 of the Finance Act, 1965, which they were entitled to set off against the capital gains which they had admittedly made. In each of the two schemes with which the appeals were concerned, there was no purpose in view other than the artificial manufacture of what was intended to be an allowable loss in such a way that the taxpayer suffered no loss at all in fact because, by another integrated and pre-planned transaction, the artificially contrived loss was balanced precisely by a non-chargeable gain. To find in these circumstances that the loss is found not to be a loss within the meaning of the statute when properly construed, is neither very surprising nor very revolutionary. In Lord Wilberforce's words, at p. 326 : To force the courts to adopt, in relation to closely integrated situations, a step by step, dissecting, approach which the parties themselves may have negated, would be a denial rather than an affirmation of the true judicial process. In each case the facts must be established, and a legal analysis made : legislation cannot be required or even be desirable to enable the courts to arrive at a conclusion which co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxpayer and Dovercliff that the whole scheme would be carried through ; that was why the taxpayer had purchased the scheme. The absence of contractual obligation does not in my opinion make any material difference. In these circumstances it is easy to understand why and how the conclusion was reached that the appellants had failed to discharge the burden which they had undertaken. Indeed the contrary conclusion would have been surprising. What the case does demonstrate, as it seems to me, is that the underlying problem is simply one of the construction of the relevant statute and an analysis of ' the transaction or transactions which are claimed to give rise to the liability or the tax exemption. But it does not follow that because the court, when confronted with a number of factually separate but sequential steps, is not compelled, in the face of the facts, to treat them as if each of them had been effected in isolation, that all sequential stops must invariably be treated as integrated, interdependent and without individual legal effect. Indeed, Inland Revenue Commissioners v. Plummer f 19801 A. C. 896 was a case in which, although the transactions effected were integra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... end but, to use the words of Lord Fraser of Tullybelton, at p. 220 : the reality was that the decision had already been taken to carry it through to completion, and that was unquestionably the intention of the directors in this case, just as it was the intention of all parties concerned in Ramsay and in Chinn v. Hochstrasser [1981] A. C. 533. What was significant about the case, however, was the comment of Lord Diplock in relation to the Ramsay approach, which he related specifically to tax avoidance schemes. He said, at p. 214 : It would be disingenuous to suggest, and dangerous on the part of those who advise on elaborate tax avoidance schemes to assume; that Ramsay's case did not mark a significant change in the approach adopted by this House in its judicial role to a preordained series of transactions (whether or not they include the achievement of a legitimate commercial end) into which there are inserted steps that have no commercial purpose apart from the avoidance of a liability to tax which in the absence of those particular steps would have been payable. The difference is in approach. It is this reference to the motive of the taxpayer in engaging ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of what the taxpayer has actually done, but by whether what he has done is acceptable. It may be doubted whether this was indeed what Lord Scarman intended to suggest, but if it was, he was, I think, alone in expressing this view. Indeed Lord Brightman, who delivered the leading speech from which the ratio of the decision is to be deduced, expressly affirmed, at p. 518 : The scheme before your Lordships is a simple and honest scheme which merely seeks to defer payment of tax until the taxpayer has received into his hands the gain which he has made. The suggestion that there should be introduced a moral dimension into the equation is important, however, since it forms the basis of the suggestion implicit in the Crown's submission on the instant appeals that the limits expressed by Lord Brightman in his speech are too narrowly drawn because, when so drawn, it would be easy for the taxpayer to circumvent them. Your Lordships are thus invited not simply to analyse the transaction, to construe the statute and then to apply it to the analysis of what the taxpayer has really done, but to construct a general catch-all formula for rendering ineffective any step underta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son on the disposal of assets. There is no definition of disposal but it scarcely needs definition. Paragraph 6 of Schedule 7 provides certain exceptions in the case of company amalgamations. One exception applies to shares in a company transferred to another company which thereby acquires control, in exchange for shares in the transferee company .... In the instant case Mr. George Dawson and his sons were assessed to capital gains tax in respect of the year 1971-1972 . . . The then argument on the part of the revenue was that Greenjacket did not acquire control of the operating companies within the meaning of paragraph 6 of Schedule 7, because Greenjacket was a nominee or bare trustee for Dawsons. If on the other hand, as the taxpayers contended, Greenjacket did acquire control of the operating companies, any charge to capital gains tax would, it was contended, be deferred until such time as the taxpayers disposed of their shareholdings in Greenjacket and thereby realised a chargeable gain. At this point, the one and only question at issue was whether Greenjacket acquired control of the operating companies within the meaning of the Act. Indeed, that is in a sense the only qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at is logically defensible. Ramsay, as developed in Furniss, merely established that the fiscal consequences of a preordained series of transactions carried to their preordained conclusion are generally to be determined by looking at the preordained end result of the series. The emphasis was, throughout, on the unbroken and predestined chain from start to finish and, in the ultimate analysis, the divergence of view to which I have referred comes down, I think, to the meaning to be attributed in this context to the expressions preordained and a composite transaction. The wider view interprets preordained simply as preconceived or planned to take place in the future so that all events which occur sequentially, which contain a tax-saving element and which result from the same initial conscious volition or contemplation on the part of the taxpayer form part of a scheme, are therefore preordained and accordingly fall to be construed as part of, and indivisible from, the ultimate disposition whether or not, at the time of the transaction in question, the ultimate disposition was certain, uncertain, anticipated or merely hoped for, provided that there was some particular typ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to an ultimate disponee. The question is, when is a disposal not a disposal within the terms of the statute ? To give to that question the answer, when, on an analysis of the facts, it is seen in reality to be a different transaction altogether is well within the accepted canons of construction. To answer it, when it is effected with a view to avoiding tax on another contemplated transaction is to do more than simply to place a gloss on the words of the statute. It is to add a limitation or qualification which the legislature itself has not sought to express and for which there is no context in the statute. That, however desirable it may seem, is to legislate, not to construe, and that is something which is not within judicial competence. I can find nothing in Furniss or in the cases which preceded it which causes me to suppose that that was what this House was seeking to do. Fourthly, I find myself quite unable to discern any rational basis for the proposition which, if the appellants are to succeed in any of the appeals now before your Lordships, has to be derived from Furniss or has to be formulated by your Lordships. The proposition has to be capable of being stated wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y comes back to the same underlying proposition, that any transaction effected for the sole purpose of saving tax payable on another transaction is to be treated fiscally as indivisible from that other transaction. No such tax-saving transaction is ever entered into without some preconception of its ultimate purpose, so that it is, by definition, a planned transaction and one ultimately ends with the proposition that a tax-saving transaction is pre-ordained and therefore indivisible because it is a tax-saving transaction. This result follows from standing the decision in Ramsay on its head and concentrating on the tax-saving purpose as the key element rather than, as Ramsay teaches, upon looking at the transactions as a whole and asking whether realistically they constitute a single and indivisible whole and whether it is intellectually possible so to treat them. It does not appear to me to be either a rational or a permissible approach because it involves substituting a determination to prevent the avoidance of tax for which there is no statutory, moral or logical basis for a rational, factual and intellectually possible appraisal of what is the reality of the position at t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance Act, 1965, had, in Schedule 7, clearly and compulsively attached to that transfer statutory and fiscal consequences which, so long as the transaction stood as a genuine transaction, could not be reversed or ignored. So there were two problems. First, how do you turn genuine contractual arrangements for the sale by A to B and the subsequent sale by B to Q with the consideration being paid by C to B, into a disposition by A to C resulting in a gain realised by A ? Secondly, how do you reconcile that result with the fiscal and legal consequences which have already attached, and permanently attached, to the genuine transfer which has actually taken place from A to B ? The rationale of the answer to the first of these questions is simply this, that if the transactions A to B and B to C, which were in fact contemporaneous, had been linked not merely by contemporaneity but also by a simultaneous contractual obligation binding all three participants, there would be no difficulty in regarding them as no more than a tripartite agreement under which A accepted ab initio an obligation to C to transfer the property to 43 and to procure B to transfer to C ; B accepted an obligation ab initi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plied, and that is found in Burmah. This establishes the further proposition that if you find in what, ex hypothesi, is an integrated and interdependent series of transactions a step inserted which has no other purpose than that of avoiding or minimising a liability to tax which, without that step, would be attracted by the transactions, you are entitled for fiscal purposes to ignore that step in assessing what is the true legal result of the series taken as a whole. So, in reliance upon these two authorities, the House set about considering the true legal effect of the transactions undertaken and they were able to arrive at the conclusion that, although there was in fact no contractual connection between the steps making the tripartite contract, the circumstances were such that the steps could be treated together in exactly the same way as if there were. The tripartite contract concept is an essential feature of the decision because it was only in this way that the House was able to deal with the statutory consequences which otherwise, willy nilly, would have attached to the share exchange and would have resulted in a double taxation on the same gain. To avoid that it had to be sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial that the intermediate transaction bears the stamp of interdependence at the time when it takes place. A transaction does not change its nature because of an event, then uncertain, which subsequently occurs and Ramsay is concerned not with re-forming transactions but with ascertaining their reality. There is a real and not merely a metaphysical distinction between something that is done as a preparatory step towards a possible but uncertain contemplated future action and something which is done as an integral and interdependent part of a transaction already agreed and, effectively, predestined to take place. In the latter case, to link the end to the beginning involves no more than recognising the reality of what is effectively a single operation ab initio. In the former it involves quite a different process, viz., that of imputing to the parties, ex post facto, an obligation (either contractual or quasi-contractual) which did not exist at the material time but which is to be attributed from the occurrence or juxtaposition of events which subsequently took place. That cannot be extracted from Furniss v. Dawson as it stands nor can it be justified by any rational extension of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essive transactions, one of which is undertaken for the sole or dominant purpose of alleviating the burden of tax, fall to be treated as one single composite whole within the Ramsay principle. It was suggested, for instance, that any such step taken at a time when some further or ultimate transaction is in contemplation or under negotiation falls, without more, to be treated as merely a step in asingle composite transaction. I confess, however, that I cannot, for my part, see how there can be any logical difference between intelligent tax planning before commencing negotiations for an ultimate disposition and intelligent tax planning after a particular disposition is contemplated or after negotiations which may lead to it have commenced, so long as the outcome of such negotiations remains wholly uncertain. I doubt, therefore, whether any such universal formula either can be satisfactory or is desirable. Essentially the question in every case is going to be what has the tax- payer actually done and does it amount to a single composite transaction which is different from the constituent parts ? I do not think that that can be answered by any formula more clearly expressed than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lyse the sequence as one single identifiable transaction and if, at the completion of the intermediate disposition, it is not even known to whom or upon what terms any ultimate disposition will be made, I simply do not see how such an analysis is intellectually possible. It is an essential part of the analysis that there is but one disposal and not two and that the transfer to the intermediate company is not a disposal within the meaning of the statute. Whatever the ultimate transaction the fact is that the transfer to the intermediate company has taken place and its shares have been acquired by the taxpayer. That transaction not, clearly, being an arms length transaction, the consideration is statutorily deemed to be the value of the shares transferred as of that date. Unless at that point of time it is possible to account for the transaction as a subscription in cash for the shares issued at a price equal to the ultimate purchase price of the shares transferred-an impossible exercise if that sum is not even known-it seems to me to be quite impossible to say that there has been no disposal to the intermediate company attracting the statutory consequences set out in Schedule 7. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned friend, Lord Jauncey of Tullichettle, whose speech I have had the advantage of reading in draft. It follows that in my view it is quite impossible to apply a Ramsay analysis on any intellectually acceptable basis to the transactions with which the Bowater and Gregory appeals are concerned and I would therefore dismiss both those appeals. Craven v. White displays features more akin to those present in Furniss v. Dawson than do the other two cases, but it clearly does not satisfy either Lord Brightman's test or the formula referred to above. The Whites had been attempting for years to find a purchaser for their business and the project of vesting the shares in a Manx company was conceived and put into operation at a time when two mutually exclusive sets of negotiation were in progress. On no analysis could it be said that at that stage there was a preordained series of transactions, for it was not even known what the ultimate transaction would be, if indeed it eventuated at all. The special commissioners rejected the evidence of the taxpayers that the sole purpose of its formation was as a vehicle for an amalgamation with Cee-N-Cee, but their evidence was that it wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid that there was then no likelihood that it would not take place. It was not then even arranged in any accepted sense of the word. Quite apart from the fact that the intermediate transfer was in part for a commercial purpose 1 can see no ground upon which it could legitimately be said that the transfer of tile Queensferry shares to Millor was not a disposal of them within section 22 of the Act to which the provisions of Schedule 7 accordingly applied. I would accordingly dismiss this appeal also. LORD GOFF OF CHIEVFLEY. My Lords, these appeals raise in an acute form the question of the true scope of what has come to be known as 'the Ramsay principle (from W. T. Ramsay Ltd. v. Inland Revenue Commissioners [1982] A. C. 300). It would be naive in the extreme to imagine that that principle is not concerned with the outlawing of unacceptable tax avoidance. It Plainly is. But it would be equally mistaken to regard the principle as in any sense a moral principle, or having any foundation in morality. It plainly is not. We can see this clearly from Lord Brightman's description of the scheme in Furniss v. Dawson [1984] A. C. 474 as an honest scheme; and I would likewis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2] A.C. 300, 3M, Lord Wilberforce stated that it was within the judicial function to conclude that there was not such a loss (or gain) as the legislature was dealing with : see also an earlier passage in his speech in that case, at p. 323. In the same case, Lord Fraser of Tullybelton stated, at p. 339, that he was prepared to dismiss the appeals on the ground that the relevant asset was not disposed of in the sense required by the statute ; and in Inland Revenue Commissioners V. Burmah Oil Co. Ltd., 54 T. C. 200, 220, he used language reminiscent of Lord Wilberforce's statement of the law in Ramsay (referred to above) to identify the relevant question, which he epitomised as being whether the scheme, when completely carried out, did or did not result in a real loss. But that being so, it follows that tax avoidance schemes are only unacceptable for present purposes if, on a true construction of the statute, they are held to be so. As Lord Diplock recognised in the Burmah Oil case, at p. 214, the Ramsay principle involves a new Judicial approach. Furthermore, we have seen the ambit of the principle, once recognised in Ramsay, being gradually extended in Burmah Oil and more sig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... formulation can never be absolutely complete, and that it is in fact still in a state of active development was expressly recognised in Furniss v. Dawson [1984] A.C. 474 both by Lord Scarman (pp. 513-514) and by Lord Bridge of Harwich (p. 516). It follows that it would be quite wrong to regard Furniss v. Dawson as containing any definitive statement of the law, or as marking the final limit of the development of the Ramsay principle ; so to hold would, in my opinion, not only fly in the face of the express statements in that case to which I have just referred, but in truth constitute a rejection of the spirit of the decided cases. Even so, we can now see, from the statements of the law in the decided cases, what broadly constitutes the Ramsay principle. It is that there is no real disposal, or no real loss (or gain) within the meaning of the statute, if the relevant step has been inserted into a preordained series of transactions or a composite transaction for no commercial purpose other than the avoidance of a liability to tax : see Burmah 021, 54 T. G. 200, 214 per Lord Diplock, and Furniss v. Dawson [1984] A. C. 474, 527, per Lord Brightman. We can see from this broad princip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tination intended by the taxpayer, and the intermediate step or steps are disregarded for the relevant fiscal purposes, whilst otherwise having legal effect. I do not, for my part, consider that the Ramsay principle can sensibly be restricted, in any of the manners suggested in the course of argument. In particular it cannot, in my opinion, be restricted to one type of composite transaction, comprising a tripartite arrangement very close to being an arrangement binding in contract-for example, an arrangement which is only not binding in law because it is expressed to be subject to contract. This would be a true exercise in damage limitation, really restricting the application of the Ramsay principle in linear cases to the facts of Furniss v. Dawson itself. Certainly no trace of so narrow a construction as that suggested is to be found in any of the written cases of the three respondents in the appeals before your Lordships' House. Indeed, so to restrict Furniss v. Dawson would, in my opinion, be wholly artificial ; and such a restriction cannot, in my opinion, be justified by reference to the underlying principle. Nor do I, with all respect, consider that it is necessary to i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mean the same thing, though in each the word transaction is being used in a different sense. In the expression series of transactions, the word transaction refers to each step in an overall transaction, including any intermediate step inserted only for the purpose of avoiding tax ; whereas in the expression composite transaction, the word transaction refers to the overall transaction embracing all the steps within it. The word preordained in the expression preordained series of transactions means simply decided in advance or, to adopt the words of Lord Fraser of Tullybelton in Furniss v. Dawson, at p. 513, planned as a single scheme. Of course, in a composite transaction each step must, by definition, be planned in advance ; but where one refers not to the composite transaction but to the series of transactions which constitute it, the word preordained is added to show that that series of transactions does indeed constitute a composite transaction. But how does one identify any particular transaction (in the overall sense) as being for present purposes a composite transaction ? That the overall transaction should have been preordained, in the sense of planned in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R. 660, 679-680. In the end, the question whether or not the overall transaction constitutes for present purposes a composite transaction is very much one of common sense, which the commissioners are well equipped to decide. I do not for myself regard this as giving rise to any unacceptable uncertainty in practice. I have no doubt that, in practice, the animal is easily recognisable. What is indeed unacceptable is that the principle should be artificially restricted in its meaning and effect. A prominent feature of the submissions of the respondents before your Lordships, and indeed one which found favour with Peter Gibson J. in Craven v. White at fitst instance, is that there cap. be no composite transaction within the principle unless there is, at the time of taking the first step, a practical certainty that the whole transaction will proceed right through to the end. This was indeed a feature of the schemes in cases such as Ramsay itself, and attracted much attention in the earlier cases. But, like Slade L. J. in the Court of Appeal [19871 3 W. L. R. 660, 685 and 686, I do not regard the practical certainty test as apposite. This is because preordained does not mean predes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide. On the One hand, I can envisage a composite transaction which does not comply with his test, as for example where the plan embraces a transfer followed by an auction sale, the first transfer being solely for the purposes of avoiding tax. On the other hand, the test does not, I think, allow for the possibility that a significant interruption between the first step and the achievement of the planned second step may be regarded as preventing the whole from constituting a composite transaction. Mustill L. J, at pages 714 and 715, after commenting on certain features of the case, concluded that: Whatever the precise boundaries of the word 'preordained', it cannot, in my view, be stretched to cover a series of dealings so intermittent in execution and so unformed at the outset. Although I find myself to be in respectful agreement with substantially all the reasoning in the judgment of Mustill L. J, I am unable to agree with his conclusion on this appeal. As it seems to me, the primary facts of the case are such that it would not be right to interfere with the finding of the commissioners that there was here a composite transaction. It is true that the Whites had, at all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made a chargeable gain in an accounting period sought to avoid payment of tax thereon by establishing an allowable loss. To this end a ready made scheme was bought whose sole purpose was to avoid tax. Without going into details suffice it to say that the scheme involved certain self-cancelling operations carried out to a timetable. To quote the words of Lord Wilberforce, at page 332 : At the end of the series of operations, the taxpayer's financial position is precisely as it was at the beginning, except that he has paid a fee, and certain expenses, to the promoter of the scheme ...... Lord Fraser of Tullybelton used similar words, at page 337 The essential feature of both schemes was that, when they were completely carried out, they did not result in any actual loss to the taxpayer. The apparently magic result of creating a tax loss that would not be a real loss was to be brought about by arranging that the scheme included a loss which was allowable for tax purposes and a matching gain which was not chargeable. This House dismissed the taxpayer's appeal thereby effectively concluding that the loss thrown up by the scheme was not such a loss as the legis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first two sentences of this passage were described by Lord Fraser in the Dawson case [1984] A. C. 474, 512F as Lord Wilberforce's statement of the principle in Ramsay [1982] A. C. 300. Lord Wilberforce said, at page 326 : The capital gains tax was created to operate in the real world, not that of make-belief. As 1 said in Aberdeen Construction Group Ltd. v. Inland Revenue Commissioners [1978] A. C. 885, it is a tax on gains (or I might have added gains less losses), it is not a tax on arithmetical differences. To say that a loss (or gain) which appears to arise at one stage in an indivisible process, and which is intended to be and is cancelled out by a later stage, so that at the end of what was bought as, and planned as, a single continuous operation, there is not such a loss (or gain) as the legislation is dealing with, is in my opinion well and indeed essentially within the judicial function. This passage was described by Lord Fraser in the Burmah case, 54 T. C. 200, 220, as the ratio of the decision, in Ramsay. Pausing there it is apparent that Lord Wilberforce was considering a scheme, of which the totality had no purpose other than tax avoidance, where steps fell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business transactions were conducted in a straight- forward way. Lord Diplock said, at page 215 : I agree with Lord Fraser of Tullybelton that the approach to tax avoidance schemes of this character sanctioned by Ramsay entitles your Lordships to ignore the intermediate circular book entries and to look at the end result. . . I understand Lord Diplock in this passage to be referring particularly to circular schemes which had no purpose other than tax avoidance. Lord Fraser of Tullybelton after referring to the ratio of the decision in Ramsay, said, at page 220 : The question in this part of the appeal is whether the present scheme, when completely carried out, did or did not result in a loss such as the legislation is dealing with, which I may call for short, a real loss. In my opinion it did not. Both Lord Fraser and Lord Wilberforce in the passage which he cites and to which I have already made reference used words' such as a loss such as the legislation is dealing with. In so doing they were implicitly recognising that what has become generally known as the Ramsay principle is a principle of construction to be applied in determining what is meant by such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing contract, and (ii) a like series of steps which are followed through because the participants are contractually bound to take each step seriatim. In a contractual case the fiscal consequences will naturally fall to be assessed in the light of the contractually agreed results. For example, equitable interests may pass when the contract for sale is signed. In many cases equity will regard that as done which is contracted to be done. Ramsay says that the fiscal result is to be no different if the several steps are preordained rather than pre-contracted. For example, in the instant case tax will, on the Ramsay principle, fall to be assessed on the basis that there was a tripartite contract between the taxpayers, G. and W. B. Lord Brightman later observed, at p. 527 : The formulation by Lord Diplock in Inland Revenue Commissioners v. Burmah Oil Co. Ltd. [1982] S. T. C. 30, 33 expresses the limitations of the Ramsay principle. First, there must be a preordained series of transactions ; or, if one likes, one single composite transaction. This composite transaction may or may not include the achievement of a legitimate commercial (i. e- business) end. The composite transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Crown contended that this was far too narrow a construction of the principle laid down in Ramsay and applied in Dawson. Mr. Nugee for the Crown suggested four possible situations which might fall within the ambit of the principle : (1) Where at the time when the first disposal takes place (the relevant time) all the terms for the second disposal had been agreed subject to contract, i.e., the position precisely as in Furniss v. Dawson. (2) Where at the relevant time the first disponer has a particular intention such as a particular sale in mind, not necessarilyconfined to known ultimate disponees, for example a sale by auction or the conclusion of current negotiations with a number of different people. (3) Where at the relevant time the first disponer has a genuine intention to effect a disposal but has neither decided upon the method of disposal nor identified a possible disponee. (4) Where the first disposal is merely a step in a strategic tax planning exercise which may not be completed for a period of years. Mr. Nugee submitted that situations (1) to (3) should be covered by the principle but did not press for the inclusion of (4). On the other hand, counsel for the res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s it then an independent transaction or was it an interdependent part of a composite transaction ? I do not consider that a transaction which was initially independent in fact could properly be rendered interdependent ex post facto by subsequent events although it is possible that a transaction which judged at the time had the character of an interdependent transaction could lose that character by the subsequent and unexpected failure to materialise of the second transaction. It must be remembered that in Dawson when the first transaction took place all the arrangements for the second transaction had already been made and indeed that transaction was completed within a very short time, possibly within only minutes, after the first. There was accordingly, to quote the words of Lord Wiberforce in Ramsay, at the time of completion of the first transaction no likelihood in practice that the second would not be completed. 1, therefore, have no difficulty in concluding that situation (3) suggested by Mr. Nugee does not fall within the ambit of the principle. On the other hand, I consider that Slade L. J. in the Court of Appeal [1987] 3 W. L. R. 660, 679 confined the ambit of the Ramsay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cess of a subsequent transaction which actually takes place had reached a stage when there was no real likelihood that such subsequent transaction would not take place and if thereafter such negotiations or arrangements were carried through to completion without genuine interruption. However, I am conscious that this may well constitute too rigid an approach to the problems and I, therefore, put it forward as a tentative guide rather than as a definitive exercise. It may be said that any formula of the type such as I have suggested would make it easy for the taxpayer to avoid tax liability merely by postponing arrangements for the second transaction until after the first had been completed. That is, however, to beg the question. The function of the court is to construe the relevant charging section and to apply it to the facts found. I do not conceive it to be the function of the court to act as the third arm of the revenue in seeking to attack tax avoidance at large. If a series of transactions involving a pure tax avoidance step can, within the principles already laid down, properly be regarded as constituting a disposal or other chargeable event for the purposes of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exchange of shares of the Dawson type between A and B is disregarded as an inserted step or telescoped into the next step for the purposes of determining the relevant taxable transaction of which it forms a part. However, it cannot be totally disregarded since it has produced lasting consequences in the form of A's shareholding in B. If the inserted step formed part of a composite transaction and was not, therefore, such an independent transaction as fell within the scope of paragraphs 4(2) and 6(1) of Schedule 7 to the Finance Act, 1975, how is A to be deemed to have acquired his shares in B for the purpose of calculating the base value thereof ? The respondents say that the matter is quite simple. A acquired his shares in B on the date of the exchange and for a consideration equal to their then market value which was the value of the original shares transferred by him to B on that date. The Crown argue that he must be treated as acquiring the shares on the date of the disposal of the original shares by B to C and for a consideration equal to the market value on that date of the original shares. Thus the Crown's argument involves the assumption that A acquired shares in B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rent company Oriel had been agreed in principle, (2) After a meeting on 17 June, 1976, with Oriel the taxpayers were despondent as to the prospects of a sale and reopened negotiations for the merger with another company, (3) That Oriel then asked for a further meeting with the taxpayers to be held on 25, June, (4) That negotiations between the taxpayers and Oriel were continuing, as were negotiations with the other company for merger, when the agreement to exchange shares in Queensferry for shares in Millor was concluded on 19 July. Against this factual background if, at the date of the share exchange agreement, the question had been asked whether to use Lord Wilberforce's words there was any likelihood in practice that the sale to Jones would not be completed I think that it would have been very difficult to say that there was no such likelihood. In these circumstances, although the issue is very narrow, I think that the share exchange between the taxpayers and Millor was an independent transaction and that there was accordingly no disposal by the taxpayers to Jones for the purposes of section 19(1) of the Finance Act, 1965. 1 would dismiss the appeal. Inland Revenue Commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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