·       ‘It is not – and probably never will be – possible to state the true doctrine of tax avoidance conclusively. This is partly because of the changing membership of the judiciary, partly because of the nature of the judicial process, partly because of the variety of the situations and partly because questions of statutory construction are matters of opinion on which views may differ.’ [Tiley’s Revenue Law by Glenn Loutzenhiser, p.103].
·       For a helpful attempt to summarize the present state of the law on the Ramsay principle, see Lewinson J in Berry v. Revenue & Customs Commissioners [2011] UKUT 81, STC 1057 at para 31.
·       While courts must have respect for the legal facts created by the parties, the approach in IRC v Duke of Westminster no longer represents the law.
·       Courts look to facts and not labels.
·       In relation to transactions, the Courts will look at end results, i.e. whether the transaction is (a) circular and self-cancelling (Ramsay & Burmah), or (b) linear (Furniss v. Dawson).
·       In Ramsay, the court used the ‘composite transaction’ approach to decide that a series of ‘self-cancelling’, ‘preordained’ transactions, affected solely to generate an allowable loss for CGT purposes, was not to be given that effect. The wider ratio of the case is that the court is entitled to look at the ‘whole transaction’. As Lord Wilberforce said: ‘[The approach which the Crown contends] does not introduce a new principle: it would apply to new and sophisticated legal devices, the undoubted power and duty of the court to determine their nature in law and to relate them to existing legislation. While the techniques of tax avoidance progress are technically improved, the courts are not obliged to stand still.’
·       The new approach applies to mainstream commercial transactions by major companies , IRC v. Burmah Oil Co Ltd [1982].
·       ‘Today since MacNiven and Barclays Mercantile Business Finance, all is a matter of statutory construction, so that the basic principle is clear. However, while the basis may be clear, this simply opens the door to the real issue, which is how the statutes should be interpreted: this is not easy . … Following UBS AG and DB Group Services (UK), the key question will be whether the legislation operates “in the real world”; if so, there will be considerable scope for judges to interpret the statute in a way that justifies disregarding non-commercial steps in tax schemes. … What is clear is that, even though a GAAR has been introduced, the players (government and taxpayers alike) are still at the mercy of the courts. It is also clear that in recent years HMRC has been winning almost every pre-GAAR tax avoidance case it has brought before the courts.’ [Tiley’s Revenue Law by Glenn Loutzenhiser, p.122].

Note that the following propositions about the composite transaction doctrine are stated in Tiley:

• In determining whether there is a composite transaction the court asks whether, at the time of the first transaction, it was ‘practically certain’ that the second would follow.
• Where the composite transaction is commercial in nature the end result must reflect the commercial reality.
• The result of the application of the composite transaction doctrine must be intellectually sustainable; the court’s job is to identify the composite transaction; it may not alter the character of the transaction or pick bits out of it.
• The essence of the new approach is to give the statutory provision a purposive construction in order to determine the nature of the transaction to which it is 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) answers to the statutory description.
• The courts do not have to put their reasoning into the straitjacket of first construing the statute in the abstract and then looking at the facts. It might be more convenient to analyze the facts and then ask whether they satisfy the requirements of the statute.
• However one approaches the matter, the question is always whether the relevant provision of the statute, upon its true construction applies to the facts as found..
• The composite transaction doctrine is thus to be seen as a rule of statutory application as much as interpretation.
• The correct characterization of the composite transaction is a question of law.
• The composite transaction doctrine, as formulated in Furniss v. Dawson, applies where steps are inserted which have no business purpose other than the avoidance of tax.
• Where a particular step has been inserted in a composite transaction, the composite transaction doctrine will not apply if the taxpayer can show that there is a commercial purpose, however slight, behind the inserted step.
• The composite transaction approach is not confined to income tax or CGT; whether it applies to another tax depends on the nature of that tax.
• Both the taxpayer and the revenue may invoke the composite transaction approach.
• Where the taxpayer can bring itself clearly within (the purpose of) a specific relieving provision of the tax legislation, the court will not withhold that relief.

Lewison J in Berry v. Revenue & Customs Commissioners [2011] UKUT 81, STC 1057 at para 31, summarised the present state of the law on the Ramsay Principle as follows:

‘The Ramsay principle.

I was expertly guided by both Ms Nathan and Mr Gammie QC through the origins and development of the Ramsay principle in the House of Lords from its birth in WT Ramsay Ltd v Commissioners of Inland Revenue (1981) 54 TC 101 to its maturity in Commissioners of Inland Revenue v Scottish Provident Institution (2004) 76 TC 538. I will state my own conclusions on this array of learning as shortly as I can.

In my judgment:

i) The Ramsay principle is a general principle of statutory construction (Collector of Stamp Revenue v Arrowtown Assets Ltd (2004) ITLR 454 (§ 35); Barclays Mercantile Business Finance Ltd v Mawson [2005] STC 1 (§ 36)).

ii) The principle is twofold; and it applies to the interpretation of any statutory provision:

a) To decide on a purposive construction exactly what transaction will answer to the statutory description; and

b) To decide whether the transaction in question does so (Barclays Mercantile Business Finance Ltd v Mawson (§ 36)).

iii) It does not matter in which order these two steps are taken; and it may be that the whole process is an iterative process (Barclays Mercantile Business Finance Ltd v Mawson (§ 32); Astall v HMRC [2010] STC 137 (§ 44)).

iv) Although the interpreter should assume that a statutory provision has some purpose, the purpose must be found in the words of the statute itself. The court must not infer a purpose without a proper foundation for doing so (Astall v HMRC (§ 44)).

v) In seeking the purpose of a statutory provision, the interpreter is not confined to a literal interpretation of the words, but must have regard to the context and scheme of the relevant Act as a whole (WT Ramsay Ltd v Commissioners of Inland Revenue (1981) 54 TC 101, 184; Barclays Mercantile Business Finance Ltd v Mawson (§ 29)).

vi) However, the more comprehensively Parliament sets out the scope of a statutory provision or description, the less room there will be for an appeal to a purpose which is not the literal meaning of the words. (This, I think, is what Arden LJ meant in Astall v HMRC (§ 34). As Lord Hoffmann put it in an article on Tax Avoidance: “It is one thing to give a statute a purposive construction. It is another to rectify the terms of highly prescriptive legislation in order to include provisions which might have been included but are not actually there”: See Mayes v HMRC [2010] STC 1 (§ 30)).

vii) In looking at particular words that Parliament uses what the interpreter is looking for is the relevant fiscal concept: (MacNiven v Westmoreland Investments Ltd [2001] STC 237 (§§ 48, 49)).

viii) Although one cannot classify all concepts a priori as “commercial” or “legal”, it is not an unreasonable generalisation to say that if Parliament refers to some commercial concept such as a gain or loss it is likely to mean a real gain or a real loss rather than one that is illusory in the sense of not changing the overall economic position of the parties to a transaction: WT Ramsay Ltd v Commissioners of Inland Revenue (1981) 54 TC 101, 187; Inland Revenue Commissioners v Burmah Oil Co Ltd (1981) 54 TC 200, 221; Ensign Tankers Ltd v Stokes [1992] 1 AC 655, 673, 676, 683; MacNiven v Westmoreland Investments Ltd (§§ 5, 32); Barclays Mercantile Business Finance Ltd v Mawson (§ 38).

ix) A provision granting relief from tax is generally (though not universally) to be taken to refer to transactions undertaken for a commercial purpose and not solely for the purpose of complying with the statutory requirements of tax relief: (Collector of Stamp Revenue v Arrowtown Assets Ltd (§ 149)). However, even if a transaction is carried out in order to avoid tax it may still be one that answers the statutory description: (Barclays Mercantile Business Finance Ltd v Mawson (§ 37). In other words, tax avoidance schemes sometimes work.

x) In approaching the factual question whether the transaction in question answers the statutory description the facts must be viewed realistically. (Barclays Mercantile Business Finance Ltd v Mawson (§ 36).

xi) A realistic view of the facts includes looking at the overall effect of a composite transaction, rather than considering each step individually: (WT Ramsay Ltd v Commissioners of Inland Revenue (1981) 54 TC 101, 185; Carreras Group Ltd v Stamp Commissioner [2004] STC 1377 (§ 8); Barclays Mercantile Business Finance Ltd v Mawson (§ 35).

xii) A series of transactions may be viewed as a composite transaction where the series of transactions is expected to be carried through as a whole, either because there is an obligation to do so, or because there is an expectation that they will be carried through as a whole and no likelihood in practice that they will not: (WT Ramsay Ltd v Commissioners of Inland Revenue (1981) 54 TC 101, 185).

xiii) In considering the facts the fact finding tribunal should not be distracted by any peripheral steps inserted by the actors that are in fact irrelevant to the way in which the scheme was intended to operate: (Astall v HMRC (§ 34)).

xiv) In considering whether there is no practical likelihood that the whole series of transactions will be carried out, it is legitimate to ignore commercially irrelevant contingencies and to consider it without regard to the possibility that, contrary to the intention and expectation of the parties it might not work as planned: (Commissioners of Inland Revenue v Scottish Provident Institution (2004) 76 TC 538, 558 § 23). Even if the contingency is a real commercial possibility it may be disregarded if the parties proceeded on the basis that it should be disregarded: (Astall v HMRC (§ 34)).

Although I have referred to rather more authority than the FTT (in deference to the very detailed submissions that were made to me) I do not consider that there is any difference in the general approach between my summary and the test that the FTT applied. So far, therefore, I do not consider that the decision under appeal involved any error of law.’

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