Craven (HM Inspector of Taxes) v White; Commissioners of Inland Revenue v Bowater Property Developments Ltd; Baylis (HM Inspector of Taxes) v Gregory

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeLORD JUSTICE SLADE,LORD JUSTICE PARKER,LORD JUSTICE MUSTILL
Judgment Date24 March 1987
Judgment citation (vLex)[1987] EWCA Civ J0324-1
Date24 March 1987
Docket Number87/0269

[1987] EWCA Civ J0324-1

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

REVENUE LIST

Royal Courts of Justice

On Appeal From Mr. Justice Peter Gibson

On Appeal From Mr. Justice Warner

On Appeal From Mr. Justice Vinelott

Before:

Lord Justice Slade

Lord Justice Parker

Lord Justice Mustill

87/0269

Peter Sidney Craven (H.M. Inspector of Taxes)
Appellant
and
Stephen White
Respondent

and

Peter Sidney Craven (H.M. Inspector of Taxes)
Appellant
and
Brian White
Respondent
The Commissioners Of Inland Revenue
Appellants
and
Bowater Property Developments Limited
Respondents
Robert Anthony Baylis (H.M. Inspector of Taxes)
Appellant
and
Robert Felix Gregory
Respondent

and

Robert Anthony Baylis (H.M. Inspector of Taxes)
Appellant
and
Robert Felix Gregory and Bernard John Weare
Respondents

MR. S. J. SHER Q.C. and MR. A. G.MOSES (instructed by The Solicitor or Inland Revenue) appeared for the Appellant in each appeal.

MR. A. L. PRICE Q.C. and MR. GRANT CRAWFORD (instructed by Messrs. Berwin Leighton) appeared for the Respondents in the First Appeal.

MR. A. E. W. PARK Q.C. and MR. D. J. L. GOY (instructed by C. W. S. Goodger, Esq.) appeared for the Respondents in the Second Appeal.

MR. M. C. FLESCH Q.C. (instructed by Messrs. Berwin Leighton) appeared for the Respondents in the Third Appeal.

LORD JUSTICE SLADE
1

There are before the court appeals by the Crown from three judgments. The first is from a judgment of Peter Gibson J. delivered on 24th May 1985 in the cases of Craven v. Stephen White and Craven v. Brian White reported at (1985) S.T.C. 531. The second is from a judgment of Warner J. delivered on 18th October 1985 in the case of Commissioners of Inland Revenue v. Bowater Property Developments Ltd. reported at (1985) S.T.C. 783. The third is from a judgment of Vinelott J. delivered on 26th November 1985 in the cases of Baylis v. Gregory and Baylis v. Gregory & Weare reported at (1986) S.T.C. 22. The first and third of these judgments concern assessments to capital gains tax. The second of them concerns an assessment to development land tax. The three cases are quite separate from one another on their facts. However, they raise similar problems concerning the extent and limitations of the principle relating to tax avoidance schemes which has come to be known as "the Ramsay principle". This was first stated by the House of Lords in W. T. Ramsay Ltd. v. Inland Revenue Commissioners and Eilbeck v. Rawling (1982) A.C. 300 (to which two cases I will refer together as "Ramsay"). It has subsequently been developed by their Lordships in Commissioners of Inland Revenue v. Burmah Oil Co. Ltd. (1982) 54 T.C. 200 ("Burmah") and Furniss v. Dawson (1984) A.C. 475 ("Dawson") in which they reaffirmed the correctness of the dissenting judgment of Eveleigh L.J. in Floor v. Davis (1978) Ch. 295 ("Floor").

2

The facts of all the cases now before this court have certain common features. In each of them there has been a disposition by the taxpayers of assets to one or more companies, followed by a disposition of those assets by the company or companies to an ultimate purchaser. Save possibly in the case of Craven v. White, where this element is in dispute, the first disposition has had no commercial purpose other than that of tax avoidance. In none of the cases now before the court did there exist a contractual obligation to effect the second disposition at the time when the first was made. In each case the Crown, in reliance on the Ramsay principle, asserts that, for the purpose of ascertaining their fiscal consequences, the two steps or transactions involved should be treated as a single, composite transaction under which there was a "disposal" by the taxpayers in favour of the ultimate purchaser.

3

Section 19(1) of the Finance Act 1965 ("the 1965 Act"), which introduced capital gains tax, provided:

"Tax shall be charged in accordance with this Act in respect of capital gains, that is to say chargeable gains computed in accordance with this Act and accruing to a person on the disposal of assets."

4

Since a "disposal of assets" in the event which gives rise to the charge, the first inquiry must always be whether or not such a "disposal" in the relevant sense has occurred. The 1965 Act contained provisions stating in effect that certain specifically defined events should or should not (as the case might be) be treated as involving a disposal of assets. However, it contained no comprehensive definition of the word "disposal". Accordingly, where an assessment of capital gains tax is under challenge and the transactions in question are not specifically covered by a particular statutory provision, the task of the court, in the final analysis, must always involve the identification of the relevant disposal or disposals of assets (if any). In deciding whether a disposal has occurred within the meaning of the statute, it may have to consider in particular (i) who were the parties to that disposal; (ii) what was its date; and (iii) what were the assets disposed of.

5

The identification of the relevant disposal or disposals was the essential issue before the court in Dawson and is the essential issue in each of these three appeals, though the second of them happens to concern disposals with reference to the Development Land Tax Act 1976 ("the 1976 Act") rather than the 1965 Act.

6

There are many similarities (though the taxpayers would say essential differences) between the facts of the first and third appeals and the facts of Dawson. A brief reference to the facts of that well known case will suffice for present purposes. The Dawsons held shares in two operating companies. They reached an agreement in principle with another company ("Wood Bastow") that Wood Bastow would purchase all those shares. Before the sale took place, they entered into a scheme designed to defer the liability to pay capital gains tax to which the transfer of the shares to Wood Bastow would otherwise have given rise. To that end, with the concurrence of Wood Bastow, they arranged for their shares to be exchanged for shares in a company ("Greenjacket") specially incorporated for the purpose in the Isle of Man. The final part of the scheme, which was implemented on 20th December 1971, involved two distinct steps, namely (a) a transfer by the Dawsons to Greenjacket of the shares in the operating companies; (b) a subsequent transfer of the same shares (on the same day) by Greenjacket to Wood Bastow. The thinking behind the scheme was that paragraph 6 of Schedule 7 to the 1965 Act ("Schedule 7") would apply, so as to prevent the transfers by the Dawsons to Green-jacket from being chargeable disposals of the shares in the family companies.

7

The facts of Dawson had at least four features in common with the facts of each of the three present appeals. They involved a transfer of assets by A to B, followed by a transfer of those same assets by B to C. The Commissioners in each case accepted that the transfer by A to B was a genuine transaction; there was nothing sham about it in the sense that it purported to be something that it was not in fact. The Commissioners in each case further accepted that the transfer by A to B had passed to B the full legal and beneficial ownership of the assets in question. In each of the four cases the Revenue has further sought to exact tax on the basis that for fiscal purposes there has been a disposal by A not in favour of B but in favour of C.

8

There are, however, certain significant differences between the facts of Dawson and the present case. In particular, in Dawson (unlike the present cases) at the time when the transfer of assets by A to B took place, there existed, by virtue of the pre-arranged scheme, the practical certainty (albeit covered by no pre-existing legally binding contractual arrangements) that the transfer of the same assets by B to C would almost immediately follow. Whether or not this renders Dawson distinguishable on its facts is one of the important issues on each of the present appeals.

9

On appeal by the Crown to this court from the decision of Vinelott J. in Dawson, this court rejected the Crown's claim that there had been a disposal of the shares in the operating companies by the Dawsons in favour of Wood Bastow. All its members (of whom I was one) found difficulty in accepting the re-analysis of the relevant transactions for which the Crown contended, in such a way (in Oliver L.J.'s words at p. 483) "as to attribute to them, for fiscal purposes, a legal result which they did not have and which indeed they were specifically designed to avoid having". Oliver L.J. was also particularly concerned with the prospect of double taxation. He considered (at p. 482) that, if the Crown's argument were right, when the taxpayers sold their shares in Greenjacket, their value on the sale would, under Schedule 7, fall to be measured by the asset content of Greenjacket, which would include the assets representing the proceeds of sale of the original shares in the operating companies; the gain on that transaction would then be computed under that Schedule on the difference between that value and the acquisition cost of the original shares, which (on this hypothesis) would already have been taxed. In my own judgment (at pp. 505–506) I referred to what seemed to me the conceptual difficulties involved in regarding a composite transaction embodying a transfer by A to B of the full legal and beneficial title to property and a subsequent transfer of the same property by B to C as giving rise to three disposals for capital gains tax purposes, namely a disposal by A in favour of B, a disposal by B in favour of C and a disposal by A in favour of C...

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