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Patrick C Soares, Barrister, considers what a general anti-avoidance rule might look like based on the 'Ramsay' approach.

Introduction 

The Ramsay approach to statutory interpretation, which has evolved over the last 20 years, is not easy to tie down. If it were to be in statutory form at present it may look like the section set out below. Perhaps an important feature of the approach is that it has to stay nebulous. It was given some of the attributes of a statute by Lord Brightman in Furniss v Dawson [1984] STC 153 at 166, but Lord Nicholls in MacNiven v Westmoreland Investments [2001] STC 237 pointed out the dangers of this at page 243[8] where he said:-

“It would be wrong..to set bounds to the circumstances in which the Ramsay approach may be appropriate and helpful”.

That said, there is an irresistible temptation for tax advisers to reduce nebulous concepts to something which they can deal with – something which takes a statutory form. Having succumbed to that irresistible temptation, I hope that the draft section set out below will help practitioners to ensure they take into account all the relevant features of the Ramsay approach in determining whether it applies to a particular set of transactions.

The Ramsay Section

Section 1 Anti-Avoidance

(1) This section is designed to prevent the avoidance of tax.

(2) This section applies if:-

(a) there is a pre-ordained series of transactions; and

(b) steps are REPLACE ed into the pre-ordained series of transactions which have no commercial (business) purpose apart from the avoidance of a liability to tax.

(3) Where this section applies steps REPLACE ed into the pre-ordained series of transactions exclusively for tax avoidance purposes are disregarded for tax purposes and the end result shall be looked at to determine how the provisions of the particular taxing statute shall be applied.

(4) Instead of just disregarding exclusive tax avoidance steps to counter the tax avoidance the courts can in addition or in the alternative recharacterise the tax avoidance steps in order to determine how the particular taxing statute shall be applied.

(5) In determining whether there is a pre-ordained series of transactions steps introduced therein for no commercial purpose other than to take away the element of preordination shall be treated as part of the pre-ordained series of transactions.

(6) If the particular transaction could have been carried out in two or more ways both or all of which would have avoided tax but the taxpayer was genuinely uncertain as to which way to adopt the element of preordination may be absent.

(7) Steps can only be ignored or re-characterised if it is intellectually possible to do this taking into account the final state of affairs which will exist after the excision of the tax avoidance steps and/or the recharacterisation of the steps.

(8) In situations where Parliament intended the tax legislation in question to be construed without taking into account the existence of a pre-ordained series of transactions the existence of a pre-ordained series of transactions shall not be taken into account in construing the tax legislation in question.

(9) A pre-ordained series of transactions includes cases where there is an arrangement that the series of transactions be carried through even though the parties are not contractually bound to take the steps in the series of transactions.

(10) Tax for the purposes of this section includes income tax, capital gains tax, corporation tax, stamp duty, stamp duty reserve tax, stamp duty land tax, inheritance tax and value added tax.

(11) The section is deemed always to have had effect.

Commentary on the Ramsay Section and Relevant Case Law

Subsections (1) & (2): Ramsay Ltd v IRC [1981] STC 174 and Furniss v Dawson [1984] STC 153 at 166 g&h laid down the basic structure of the Ramsay approach to statutory interpretation; MacNiven v Westmoreland Investments [2001] STC 237 at 243[7] and [8], Barclays Mercantile Business Finance Ltd v Mawson [2005] STC 1 at 14[42] and IRC v Scottish Provident Institution [2005] STC 15 at 26 [23] cleared away the cobwebs which had grown over the approach over its first 20 years of evolution.

Subsection (3): “exclusive tax avoidance step”, see Craven v White [1988] STC 476 at 508(e) and IRC v McGuckian [1997] STC 908 at 917 (f).

Subsection (4): “recharacterise steps”, see IRC v McGuckian: Lord Cooke at 919d and Lord Clyde at 992c.

Subsection (5): if taxpayers introduce steps into the transaction to take away the element of pre-ordination and there is no commercial basis for those steps there will still be a pre-arranged scheme caught by the section: IRC v Scottish Provident Institution [2005] STC 15 at 26[22].

Subsection (6): Craven v White [1988] STC 476 at 509c

Subsection (7): Piggot v Staines Investments [1995] STC 114 at 140j; Craven v White ibid at 508j at 509g and Fitzwilliam v IRC [1993] STC 502 at 513j.

Subsection (8): MacNiven v Westmoreland Investments Ltd [2001] STC 237 at 255[58] and 256[59] and Barclays Mercantile Business Finance Ltd v Mawson [2005] STC 1 at 14[42].

Subsection (9): Furniss v Dawson ibid at 166 and McNiven v Westmoreland Investments Ltd ibid at 242[3].

Subsection (10): Some taxes such as stamp duty and value added tax are more likely to come within subsection (8) than others: MacNiven v Westmoreland ibid at 255[58].

Subsection (11): As the Ramsay approach is no more than an approach to statutory interpretation it is timeless: MacNiven v Westmoreland ibid at 243e.

The above article is reproduced with the kind permission of Mr Soares.