‘The capital gains tax was created to operate in the real world, not that of make-belief. As I said in Aberdeen Construction Group Ltd v Inland Revenue Comrs[1978] AC 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.’
‘The essence of the new approach was to give the statutory provision a purposive construction in order to determine the nature of the transaction to which it was intended to apply and then to decide whether the actual transaction (which might involve considering the overall effect of a number of elements intended to operate together) answered to the statutory description … As Lord Nicholls of Birkenhead said in MacNiven v Westmoreland Investments Ltd[2003] 1 AC 311 , 320, para 8: “The paramount question always is one of interpretation of the particular statutory provision and its application to the facts of the case.”’
‘The ultimate question is whether the relevant statutory provisions, construed purposively, were intended to apply to the transaction, viewed realistically.’
“My Lords, in my opinion the rationale of the new approach is this. 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 virtue of an arrangement which falls short of a binding 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. … Ramsay says that the fiscal result is to be no different if the several steps are pre-ordained rather than pre-contracted.”
“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 pre-ordained 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.”
“As the law currently stands, the essentials emerging from Furniss v. Dawson [1984] A.C. 474 appear to me to be four in number: (1) that the series of transactions was, at the time when the intermediate transaction was entered into, preordained in order to produce a given result; (2) that that transaction had no other purpose than tax mitigation; (3) that there was at that time no practical likelihood that the preplanned events would not take place in the order ordained, so that the intermediate transaction was not even contemplated practically as having an independent life, and (4) that the preordained events did in fact take place. In these circumstances the court can be justified in linking the beginning with the end so as to make a single composite whole to which the fiscal results of the single composite whole are to be applied.”
“Another identifying feature is that all the stages of what is claimed as the composite transaction are pre-ordained to take place in an orchestrated sequence and, in my opinion, that must mean more than simply ‘planned or thought out in advance.’ It involves to my mind a degree of certainty and control over the end result at the time when the intermediate steps are taken. That does not, I think, mean absolute certainty in the sense that every single term of the transaction which ultimately takes place must then be finally settled and agreed. But it does seem to me to be essential at least that the principal terms should be agreed to the point at which it can be said that there is no practical likelihood that the transaction which actually takes place will not take place. Nor is it sufficient, in my opinion, that the ultimate transaction which finally takes place, though not envisaged at the intermediate stage as a concrete reality, is simply a transaction of the kind that is then envisaged …”
“The most important feature of the principle is that the series of transactions is to be regarded as a whole. In ascertaining the true legal effect of the series it is relevant to take into account, if it be the case, that all the steps in it were contractually agreed in advance or had been determined on in advance by a guiding will which was in a position, for all practical purposes, to secure that all of them were carried through to completion.”
“But I do not think that the transaction embodied in the final disposal can be said to be pre-ordained, 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 pre-ordained 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 is clear, in my opinion, … that on 19 July [the date of the transfer to Millor] 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.”
“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 Wilberforce in Ramsay, at the time of completion of the first transaction ‘no likelihood in practice’ that the second would not be completed. I 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, ante, p. 420D-F, confined the ambit of the Ramsay principle too closely by his reference to all the essential features of the second transaction having been determined at the time when the first was effected. There might be circumstances in which at the time of the first transaction arrangements for the effecting of the second transaction had reached a stage at which it could properly be found as a fact that the first transaction was interdependent although a final price or specific buyer had not then been identified. Arrangements for a sale by auction might be such a situation. I read his reference to ability to procure the implementation of the second transaction as covering both the case where there was a binding contract to effect the second transaction as well as the case where there was no such contract but where there was an expectation that it would be effected and no likelihood in practice that it would not. My Lords, in determining whether a number of transactions of which at least one has no purpose other than tax avoidance (the tax step) should be treated for fiscal purposes not as independent but as forming part of one composite linear transaction from which tax consequences flow certain factors must be taken into account. These include: (1) the extent to which at the time of the tax step negotiations or arrangements have proceeded towards the carrying through as a continuous process of the remaining transactions; (2) the nature of such negotiations or arrangements; (3) the likelihood, at the time of the tax step, of such remaining transactions being carried through; and (4) the extent to which after the tax step negotiations or arrangements have proceeded to completion without genuine interruptions. I do not suggest that this list is exhaustive and there may well be other factors of equal or greater importance in particular cases. If it were appropriate to prepare a formula defining ‘composite transaction’ in the light of the passages in the speeches in Ramsay, Burmah and Dawson to which I have referred I should be tempted to suggest the following: ‘A step in a linear transaction which has no business purpose apart from the avoidance or deferment of tax liability will be treated as forming part of a preordained series of transactions or of a composite transaction if it was taken at a time when negotiations or arrangements for the carrying through as a continuous process 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.”
“… 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.”
“Counsel for the Crown fastened on the references in the speeches of Lord Goff and Lord Jauncey to an auction sale. He submitted that there can be no distinction in principle between a case where an asset is transferred to a company with a view to it being sold by auction and a case where marketable securities are transferred to a company with a view to their being sold through the Stock Exchange. In both cases the sale can be said to be ‘preordained’ in the sense that the transfer is made as a step in a planned sale which the person arranging the transfer has the practical ability to procure. I do not think that Lord Jauncey had in mind that a transfer by A to B with the intention that it should forthwith be put up for sale by auction by B followed by a sale by auction should be treated as a single composite transaction—a sale by A. The reference to a sale by auction in the speech of Lord Jauncey must be construed in its context. The first of Lord Jauncey’s guiding factors is that ‘the extent to which at the time of the tax step’, the transfer from A in B, ‘negotiations or arrangements have proceeded towards the carrying through as a continuous process of the remaining transaction’. The reference to ‘the carrying through as a continuous process’ is repeated in his suggested formula. Looked at in its context I think the situation envisaged by Lord Jauncey as possibly falling within the Ramsay principle is one where, at the time of the transfer by A to B, A has already made the necessary arrangements for a sale by auction and the transfer is made in the confident expectation that the asset will be sold at a satisfactory price. It is not difficult to conceive of circumstances where a sale by auction would not differ in any material respect from the sale to Wood Bastow in Dawson; for instance, if property were put up for sale by auction to meet some contractual requirement binding on the vendor with a reserve price at a time when it was known that a particular purchaser was willing to pay that price and that there was no practical likelihood that any other purchaser would outbid him. If the property were transferred shortly before the auction sale took place the outcome might then be as probable as was the prospect that the sale to Wood Bastow would take place at the time when the shares were transferred to Greenjacket. The question whether the Ramsay principle should be applied in such a case or in a case where arrangements had been made for a sale by auction before the transfer from A to B, there being then no purchaser in mind and no practical certainty that the property would reach a reserve price, are questions that will have to be determined when they arise. It is sufficient for the present to say that I do not think that Lord Jauncey, who agreed with the speech of Lord Oliver, could have had in mind that a transfer of an asset by A to B with the intention that the property should be sold by B by auction followed by a sale by auction arranged by B might constitute a single composite transaction within the Ramsay principle Such a situation would not differ in any material respect from the situation in Craven v White where equally the shares were transferred to a holding company with the intention that they be sold and at a time when discussions with the company which was the front runner in negotiations for the disposal of the shares had been resumed and were likely to result in a sale. Save in rare circumstances where property is put up for auction there can be no certainty that it will reach a realistic reserve (if one is set) or the price contemplated if there is no reserve or indeed that it will necessarily be sold at all.”
“There is one other observation that I should make on this point. The brevity of the period between a transfer to a holding company and a sale by the holding company to the intended purchaser may be an important or even a decisive factor in determining whether the two steps were part of a single composite transaction. In Dawson, as has been often observed, all the essential steps were carried through between breakfast and lunch. But there is an important factual difference between a sale of, for instance, shares in an unlisted company and a sale of shares in a listed company. Negotiations for the sale of shares in an unlisted company are often, or indeed normally, protracted. Accountants and legal advisers are brought in to negotiate, for example, the extent of the warranties to be given by the vendors. So, if the sale follows shortly after the transfer to the holding company the tribunal may infer that everything was cut and dried when the shares were transferred to it. A sale of a holding of shares of a listed company through the Stock Exchange is very different. There, all that is normally required is a telephone call to a stockbroker. In the instant case the shares were transferred to [the loss companies] at a time when [News International] had decided that they were ripe for sale. But there is no ground for inferring from the brevity of the period between the transfer of the … shares [to the loss companies] and the sale of those shares on the Australian Stock Exchange alone that arrangements had been made for the sale before the transfers, nor indeed that those shares would have been sold if the price had collapsed on the day following the transfer.”
“The ‘risk bid’ being proposed by Merrill Lynch enabled us to benefit from the share price then prevailing. The shares would be placed on the market over a period of a few days but the trusts would be insulated from any market fluctuations during that period. The outcome was subject to an agreed minimum share price. We therefore obtained the benefit of a sale to the market but at a price that was, in effect, underwritten by Merrill Lynch.”