W T Ramsay Ltd v IRC
[1982] AC 300
Independent editorial summary — not the official judgment. Read the full judgment via the source link.
Ratio Decidendi
It is the task of the court to ascertain the legal nature of a transaction to which a tax consequence is sought to be attached, and where that emerges from a pre-ordained series or combination of transactions intended to operate as such, it is that series or combination, and not each step viewed in isolation, which the court may regard.
Facts
W T Ramsay Ltd, a farming company, realised a chargeable gain of £187,977 on a sale-and-leaseback transaction and, to avoid corporation tax on it, purchased a ready-made scheme from a specialist promoter designed to manufacture an equivalent allowable loss. The scheme created two assets, one of which was sold at a loss while the other was sold for a matching gain intended to be tax-exempt, so that once the promoter's fee was paid the company's overall financial position was unchanged from before the scheme began.
Judgment Summary
The House of Lords held that where it is shown that a document or transaction was intended to take effect as part of a pre-ordained series of transactions, or as one ingredient of a wider transaction, the court is not obliged to consider each step in isolation and may instead look at the effect of the composite transaction as a whole. Applying that approach to a scheme whose steps were accepted to be self-cancelling and undertaken with no likelihood in practice of being broken off part-way through, the House held that the artificial loss the scheme purported to create did not achieve the tax result claimed.
Key Quotes
The court is not confined to the form of the transaction but can look at its substance and effect.
Editorial summary of reasoning attributed to Lord Wilberforce(not a verbatim quotation)
Subsequent Treatment
Foundation of the purposive approach to tax avoidance in UK law.
What To Do Next
Get Professional Help