Commissioners of Inland Revenue v Bowater Property Developments Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 18 October 1985 |
| Date | 18 October 1985 |
| Court | Chancery Division |
Chancery Division.
Mr. Jules Sher Q.C. and Mr. A. Moses (instructed by the solicitor of Inland Revenue) for the Crown.
Mr. Andrew Park Q.C. and Mr. D.G. Goy (instructed by Bowater Corporation PLC) for the taxpayer.
Before: Warner J.
This was an appeal by the Inland Revenue Commissioners against a decision of the Special Commissioners discharging an assessment to development land tax on the taxpayer company in respect of a disposal of land by way of a fragmentation scheme.
The taxpayer, BPD, one of the directly-owned subsidiaries in the Bowater Group, owned land near Sittingbourne in Kent. During 1977 negotiations were begun with a view to selling the land to a local company, MP, that wished to expand its business. In November 1978, an agreement subject to contract was reached between the taxpayer and MP for the sale to that company of 23 acres of land at a price of £202,500. To avoid incurring liability to development land tax on that sale the taxpayer became involved in a fragmentation exercise designed to make the maximum use of the exemption from the tax provided for in Development Land Tax Act 1976 section 12sec. 12 of the 1976 Act (at March 1980 that exemption was £50,000). In March 1980 the beneficial interest in the land was transferred by the taxpayer to five Bowater companies as tenants in common in equal shares, each company paying the taxpayer £36,000. The sole qualification for the selection of each of those companies was that none of them had used any part of its £50,000 development land tax exemption. It was conceded that that was a transaction devoid of commercial purpose other than the avoidance of tax. In July 1980 MP wrote to the taxpayer stating that for economic reasons it was not prepared to purchase the land. However in February 1981 MP once again became interested in purchasing the land and in November 1981 sale of the land by the five Bowater companies to MP for £26,000 was completed. Each of the five companies received for its own benefit its due share of the net proceeds of sale.
The taxpayer was assessed to development land tax on the basis that the sale of the land to MP in November was to be treated as a disposal by it rather than as a disposal by each of the five companies.
The taxpayer appealed against the assessment. The Special Commissioners held that for the Ramsay principle, as enunciated by the House of Lords in Furniss v. Dawson, to apply it was not essential for "everything to have been to all intents and purposes fixed in advance" but only that there be "expectations of the party introducing the tax avoidance transaction that the ultimate transaction will occur". However they decided the case in favour of the taxpayer, finding that to give effect to two or more transactions as a "single composite transaction" for the purposes of applying the Ramsay principle, there had to exist throughout an unbroken intention of an active nature. The break in continuity of the taxpayer's intention in the case prevented the two transactions from being a "single composite transaction" so that the true disponors of the land were the five Bowater companies. They accordingly discharged the assessment.
The Crown appealed to the High Court and submitted that the Ramsay principle applied whenever a step was taken with a view to avoiding tax in a certain future event and that event actually occurred. All that mattered was the expectation or intention of those concerned on the taxpayer's behalf at the time of the first transaction. The sole purpose of the first transaction was to avoid DLT on the sale. Therefore, the Ramsay principle applied.
Held, dismissing the Crown's appeal:
1. A limitation had been placed on the application of the Ramsay principle, the first requirement being that there had to be a pre-ordained series of transactions.
2. In no sense could it be said that the actual sale of land to the eventual purchaser was pre-arranged or pre-ordained at the time when the first transaction was carried out by the taxpayer. Therefore, the first requirement of the Ramsay principle had not been satisfied and the principle could not be applied.
3. In the circumstances the taxpayer was not liable to the tax in respect of the sale of the land to MP by the five Bowater companies.
1. On 19, 20 and 21 March and 9 and 10 August 1984 the Special Commissioners heard the appeal of Bowater Property Developments Ltd. (hereinafter, "BPD") against an assessment to Development Land Tax in the sum of £207,220 made in connexion with a disposal of an interest in certain land effected by a contract dated 23 October 1981.
2. BPD is one of a number of companies in the Bowater group of companies. At the beginning of 1980 BPD was the owner of certain land in Kent, a sale of which to Milton Pipes Ltd. (a company outside the Bowater group) was under negotiation. On 25 March 1980 BPD transferred its beneficial interest in the said land to five other companies in the Bowater group; and on 23 October 1981 the said five companies contracted to sell their interests in the said land to Milton Pipes Ltd. The sole question for our determination was whether, on all the facts of the case, the latter disposal is (by virtue of the decisions inW. T. Ramsay Ltd. v. I. R. Commrs. ELR[1982] A.C. 300 and subsequent cases) to be treated as a disposal for Development Land Tax purposes made by BPD (rather than as disposals made by each of the aforementioned five companies).
3. [Paragraph 3 listed the witnesses who gave evidence before the Commissioners.]
4. [Paragraph 4 set out the documents containing the agreed statement of facts.]
5. The facts of the case (so far as material to the issue before us) and the contentions of the parties are set out in our reserved decision issued on 2 October 1984. A copy of the said decision is attached to and forms part of this case. For the reason expressed on pp. 17, 18 thereof we held that there was insufficient continuity to constitute BPD's disposal to the five Bowater companies and the latters' disposal to Milton Pipes Ltd. "one transaction"; and therefore that BPD could not be treated as the disponor in the relation to the disposal to Milton Pipes Ltd. We accordingly discharged the assessment under appeal.
6. The appellant Commissioners immediately after the determination of the appeal declared to us their dissatisfaction therewith as being erroneous in point of law and on 29 October 1984 required us to state a case for the opinion of the High Court pursuant to the Taxes Management Act 1970, Taxes Management Act 1970 section 56sec. 56, which case we have stated and do sign accordingly.
The question of law for the opinion of the court is whether, in the light of all the facts, we erred in deciding that BPD should not be treated for the purposes of Development Land Tax as the disponor in relation to the disposal which occurred on 23 October 1981.
This is an appeal by Bowater Property Developments Ltd. ("BPD") against an assessment to Development Land Tax dated 13 February 1984 in the sum of £207,220. The assessment arises out of the disposal on 23 October 1981 of some 23 acres of land at Cooks Lane, Milton Regis, Sittingbourne, Kent by five other companies in the Bowater group of companies to Milton Pipes Ltd. ("Milton Pipes"). Immediately before 25 March 1980 that land had belonged to BPD and negotiations for its acquisition by Milton Pipes had reached the "subject to contract" stage. The Inland Revenue's case for assessing BPD (rather than the five companies) is, shortly, that the 1981 disposal to Milton Pipes was in reality that of BPD, an intermediate disposal by BPD to the five Bowater Companies on 25 March 1980 being an artificial transaction the only purpose of which was to obtain five separate exemptions of £50,000 under the Development Land Tax Act 1976, Development Land Tax Act 1976 section 12sec. 12. The "Ramsay principle"UNK[1981] STC 174 and Furniss v. Dawson TAXUNK[1984] BTC 71, [1984] STC 153 were prayed in aid.
The primary facts are not in dispute and are as follows.
The Bowater group of companies comprises (so far as relevant) the Bowater Corporation Ltd. ("Bowater") and a number of subsidiaries which are wholly owned by it either directly or at one remove.
Bowater's offices are at Knightsbridge, in London; and the legal and taxation departments serving the group as a whole are there. From the legal department we had as witnesses Mr. R. H. Miller, who had been its head since 1978, and Mr. C.W.S. Goodger, who was responsible for conveyancing matters. A third, and more important witness from Knightsbridge was Mr. A.F. Barrett FCA. Having worked in the taxation department since 1966, Mr. Barrett became Bowater's Assistant Taxation Adviser in 1973, a post which he still holds. He has, furthermore, been intimately concerned with the affairs of BPD since 1973 and has been a director of that company since 1979.
BPD is one of the directly-owned subsidiaries in the Bowater group. We were not told much of its history apart from the fact that when the Bowater group and Ralli International Ltd. merged in 1972 and the latter was put into liquidation, BPD was left with allowable capital losses of not far short of £50m. It has traded as a land dealer and developer since 1973 and, not surprisingly, the policy of the Bowater group has been to channel sales of property through BPD - at any rate if substantial capital gains were likely to be realised. BPD operates from Knightsbridge. Another of the directly owned subsidiaries in the Bowater group is Bowaters United Kingdom Paper Co. Ltd. ("BUKP"). That company operates from Kemsley, near Sittingbourne, and on its staff there is, or was at the material time, a Mr. H. T. J. Austen. Despite a rather grand title ("Group Property Co-ordinator") Mr. Austen was not a director of BUKP (he referred elsewhere for decisions), and he was concerned...
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