Barclays Mercantile Business Finance Ltd v Mawson (Inspector of Taxes)
| Jurisdiction | England & Wales |
| Judge | Lord Justice Carnwath |
| Judgment Date | 13 December 2002 |
| Neutral Citation | [2002] EWCA Civ 1853 |
| Docket Number | Case No: CHRVF/A3/2002/2046 |
| Court | Court of Appeal (Civil Division) |
| Date | 13 December 2002 |
[2002] EWCA Civ 1853
Lord Justice Peter Gibson
Lord Justice Rix and
Lord Justice Carnwath
Case No: CHRVF/A3/2002/2046
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT
OF JUSTICE, CHANCERY DIVISION
Park J.
Royal Courts of Justice
Strand,
London, WC2A 2LL
Mr. Graham Aaronson Q.C. and Miss Camilla Bingham (instructed by Messrs Denton Wilde Sapte of London) for the the Appellant
Mr. David Goy Q.C. and Mr. David Ewart (instructed by the Solicitor of Inland Revenue) for the Respondent
Peter Gibson L.J.:
The taxpayer, Barclays Mercantile Business Finance Ltd. ("BMBF"), appeals against the order made on 22 July 2002 by Park J., dismissing with costs BMBF's appeal against the decision on 18 October 2001 of the Special Commissioners (Mr. T.H.K. Everett and Mr. M.P. Cornwell-Kelly). The Special Commissioners dismissed BMBF's appeals against notices of determination of trading losses for accounting periods ended 31 December 1993 and 1994 respectively and notices of assessment to corporation tax for the same periods.
The issue in dispute is whether BMBF is entitled to capital allowances in respect of what it claims was its expenditure on the acquisition of a gas pipeline for the purposes of its trade. But in resolving that dispute questions arise as to the applicability of the approach laid down in the House of Lords in W.T. Ramsay Ltd. v Commissioners of Inland Revenue [1982] AC 300 (" Ramsay") as explained by the House of Lords in Macniven v Westmoreland Investments Ltd. [2001] 2 WLR 377 (" Macniven"). The Revenue accepts that if one looks only at what BMBF did, it would be entitled to capital allowances. But it says that if the transaction involving the acquisition of the pipeline is looked at in its entirety, on the Ramsay approach BMBF did not incur the claimed expenditure on the provision of the pipeline and accordingly it was not entitled to capital allowances. That submission was upheld by the Special Commissioners and, on appeal, by the judge, who further agreed with another submission by the Revenue that this was not a trading transaction by BMBF at all. BMBF says that this was a standard commercial finance leasing transaction giving rise to the ordinary availability of capital allowances. We are told by Mr. Aaronson Q.C., appearing for BMBF, that the decisions thus far have caused widespread concern within the asset-leasing sector of the financial market. Chadwick L.J., in giving permission to appeal, said that the appeal raised an important point of principle which required early guidance from this court. Hence the expedited hearing of the appeal.
The statutory provisions
Before I turn to the facts it is convenient to set out the statutory provisions in force at the material time governing capital allowances. S. 24(1) Capital Allowances Act 1990 provided:
"Subject to the provisions of this Part, where
(a) a person carrying on a trade has incurred capital expenditure on the provision of machinery or plant wholly and exclusively for the purposes of the trade, and
(b) in consequence of his incurring that expenditure, the machinery or plant belongs or has belonged to him,
allowances and charges shall be made to and on him in accordance with the following provisions of this section."
It is unnecessary to refer to the details of the writing-down and other allowances and balancing charges provided for in the other parts of s. 24.
There are other provisions which restrict the availability of capital allowances in particular circumstances. Thus s. 75 (1) provides (so far as material):
"…. where a person incurs capital expenditure on the provision by purchase of machinery or plant, and
(a) he and the seller are connected to each other, or
(b) the machinery or plant continues to be used for the purposes of a trade carried on by the seller, or
(c) it appears with respect to the sale, or with respect to transactions of which the sale is one, that the sole or main benefit which, but for this subsection, might have been expected to accrue to the parties or any of them was the obtaining of an allowance under this Part,
a first-year allowance shall not be made in respect of the expenditure or any additional VAT liability incurred in respect of it or, if made, shall be withdrawn, and these shall be disregarded for the purposes of section …. 25 …. so much (if any) of the aggregate of the expenditure and any such additional VAT liability as exceeds the disposal value to be brought into account under those sections by reason of the sale."
The Ramsay approach
It is also convenient to say a few words about the Ramsay approach in the light of the authorities. Lord Nicholls in Macniven said ( [2001] 2 WLR at pp. 379, 380):
"1 …. In the Ramsay case the House did not enunciate any new legal principle. What the House did was to highlight that, confronted with new and sophisticated tax avoidance devices, the courts' duty is to determine the legal nature of the transactions in question and then relate them to the fiscal legislation: see Lord Wilberforce at p. 326.
2 The Ramsay case brought out three points in particular. First, when it is sought to attach a tax consequence to a transaction, the task of the courts is to ascertain the legal nature of the transaction. If that emerges from a series or combination of transactions, intended to operate as such, it is that series or combination which may be regarded. Courts are entitled to look at a prearranged tax avoidance scheme as a whole….
4 Second, this is not to treat a transaction, or any step in a transaction as though it were a "sham" …. What this does is to enable the court to look at a document or transaction in the context to which it properly belongs.
5 Third, having identified the legal nature of the transaction, the courts must then relate this to the language of the statute. For instance, if the scheme has the apparently magical result of creating a loss without the taxpayer suffering any financial detriment, is this artificial loss a loss within the meaning of the relevant statutory provisions?"
Lord Hoffmann (with whom all the other members of the House agreed) in Macniven (p. 391 para. 44) regarded as the Ramsay principle the decision of the House of Lords to construe particular statutory terms ("disposal" and "loss") in a commercial sense which transcended the individuality of intermediate circular book entries. He referred to what Lord Brightman had stated in Furniss v Dawson [1984] AC 474 at 572C where, paraphrasing what Lord Diplock had said in CIR v Burmah Oil Co. Ltd. [1982] STC 30 at p. 33, Lord Brightman set out the limitations of the Ramsay approach:
"First, there must be a series of pre-ordained 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."
Lord Hoffmann commented (at pp. 392,3):
"48 My Lords, this statement is a careful and accurate summary of the effect which the Ramsay construction of a statutory concept has upon the way the courts will decide whether a transaction falls within that concept or not. If the statutory language is construed as referring to a commercial concept, then it follows that steps which have no commercial purpose but which have been artificially inserted for tax purposes into a composite transaction will not affect the answer to the statutory question. When Lord Brightman said that the inserted steps are to be "disregarded for fiscal purposes", I think that he meant that they should be disregarded for the purposes of applying the relevant fiscal concept….
49 For present purposes, however, the point I wish to emphasise is that Lord Brightman's formulation in the Furniss case, like Lord Diplock's formulation in the Burmah Oil case, is not a principle of construction. It is a statement of the consequences of giving a commercial construction to a fiscal concept. Before one can apply Lord Brightman's words, it is first necessary to construe the statutory language and decide that it refers to a concept which Parliament intended to be given a commercial meaning capable of transcending the juristic individuality of its component parts. But there are many terms in tax legislation which cannot be construed in this way. They refer to purely legal concepts which have no broader commercial meaning. In such cases, the Ramsay principle can have no application."
Lord Nicholls (at p. 381 para. 7) referred to Lord Brightman's remarks as describing the factual situation where typically the Ramsay approach will be a valuable aid but not as laying down the factual prerequisites for the application of the Ramsay approach.
Lord Hoffmann (at pp. 395,6) under the heading " The limits of Ramsay" gave further guidance on the distinction he was drawing between commercial and legal concepts in taxing statutes:
"58 The limitations of the Ramsay principle therefore arise out of the paramount necessity of giving effect to...
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