· Two requirements are needed:
o (1) a preordained series of transactions (or a single composite transaction) which may or may not achieve a legitimate business end. Enough that pre-ordained even if not contractually bound;
o (2) the insertion of steps which have no business purpose apart from the avoidance of a liability to tax. Having established the criteria the inserted steps are to be disregarded for fiscal purposes and the court need only look at the end result.
· Deferment of capital gains tax by channeling the sale of chargeable assets through an intermediary co.
· Before the Special Commissioners, Vinelott J and a unanimous CA CGT was held not to be payable. The sale proceeds had been paid to GJ and the existence of GJ had ‘enduring legal consequences’.
· Lord Brightman in HL in the only full speech, viewed the series of transactions as a pre-planned scheme.
· He suggested that there must be a pre-ordained series of transactions (a ‘scheme’), and there must be steps in the scheme whose sole purpose is to avoid (or defer) a liability to tax. Such steps may have a ‘business effect’ but no ‘business purpose’. The insertion of GJ was such a step: ‘that inserted step had no business purpose apart from the deferment of tax, although it had a business effect. If the sale had taken place in 1964 before CGT was introduced there would have been no GJ.’
· Lord Fraser
· The true principle of the decision in Ramsay was that the fiscal consequences of a pre-ordained series of transactions, intended to operate as such, are generally to be ascertained by considering the result of the series as a whole, and not by dissecting the scheme and considering each individual transaction separately.
· Lord Scarman
· The law in this area is in an early stage of development. Judgments are concerned more to chart a way forward between principles accepted and not to be rejected than to attempt anything so ambitious as to determine finally the limit beyond which the safe channel of acceptable tax avoidance shelves into the dangerous shallows of unacceptable tax evasion.
· The limits within which the Westminster principle is to operate remain to be determined judicially. Difficult though this task may be for judges, it is beyond the power of the blunt instrument of legislation.
· Whitehouse and SB: the transactions entered into by the taxpayers in Furniss v Dawson amounted to a ‘scheme’ whose purpose was the deferment of tax, so that by applying the so-called Ramsay principle, the various steps could be viewed as a whole and capital gains tax was payable. The judgments stress that the cases of Ramsay and Burmah Oil are not confined to circular or self-cancelling schemes but rather are instances of what Lord Wilberforce has referred to as an ‘emerging principle’. The whole emphasis is on the growth of a new set of rules whose boundaries cannot as yet be drawn with precision.
· What has now happened to Westminster? The whole object of the scheme was to make the servants’ wages deductible in arriving at the Duke’s total income by ensuring that they were paid by deed of covenant. Hence, although there was no binding agreement to that effect, it was accepted that so long as payments were made under the covenant the gardeners would not claim their wages. Is this a ‘scheme’? There is certainly a step (the covenant) which has no commercial purpose save for the avoidance of tax.
· Morse: it could almost be expressed in a single q: if the tax provision did not exist would the inserted step still have been inserted? If the answer is no then it is a formal step with no business purpose and so can be ignored. That is perilously close to saying that a man can be taxed according to what he might have done rather than by what he has done, the opposite of the fundamental tenet of the Westminster case.
· Getting ever closer to motive.
McFarlane and Simpson
· With 20 years’ hindsight, Ramsay now seems an uncontroversial identification of the true legal effect of closely interrelated sequence of transactions. Although now widely known as the ‘Ramsay’ principle, the truth is that this ‘new approach’ owes a great deal more to the House’s decision in Furniss v Dawson.
· In Furniss the HL did not simply combine a factually interdependent ‘scheme’ throughout regarded as a single package by the taxpayer, but instead taxed a transaction as if it had been carried out in a different way from the events held by the Commissioners in fact to have taken place.