The Gazette 1986

g a z e t t e

s e p t e m b e r 1986

than the avoidance of tax. These would therefore be disregarded and the sale would be treated as a direct disposal by the company under the new contract and not under the original contract. Similarly, in Ingram -v- I.R.C. 25 Vinelott J. held that the new approach applied to arrangements to avoid stamp duty. (B) Recent Restrictions on New Approach (1) ' 'Commercial Purpose''/ Preordained Series'' More recently, several important cases have set some boundaries on the new approach. In Craven (Inspector of Taxes) -v- White 26 Peter Gibson J. discussed the meaning of "preordained" and "composite transac- tion" and held that a step in a series of transactions which had a commercial purpose as well as a tax avoidance purpose would not be treated as a fiscal nullity. In that case, the taxpayer entered a tax avoidance arrangement in the expectation that a sale of shares or merger of two companies would take place. Negotiations broke down and a sale was subsequently made to an unconnected third party. Counsel for the Revenue argued that a series of transactions neverthe- less existed, because the test was whether a preordained step was intended by the taxpayers to be one step in a series and not whether it actually was such a step. Peter Gibson J. looked at the words of Lord Wilber- force in Ramsay's case. Lord Wilberforce said that the courts were not bound to consider individually each separate step in a composite transaction intended to be carried through as a whole 27 :

" . . . this is particularly the case where (as in Eilbeck -v- Rawling) it is proved that there was an accepted obligation once a scheme is set in motion, to carry it through its successive steps. It may be so where (as in Ramsay or in Black) Nominees Ltd. -v- Nicol (Inspector of Taxes) there is an expectation that it will be so carried through and no likelihood in practice that it will not." (Italics added) The Judge said Lord Wilberforce had referred to two classes of case where Ramsay would apply, namely contractual and non-contractual arrangements. He continued 28 : "It is to be noted that to the non-contractual class of case Lord Wilberforce applies the description that it is where there is an expectation that the series of steps will be carried through once a scheme is set in motion and there is no likelihood that it will not. The practical certainty . . . . that the series of steps will be completed once started is a feature of the rationale of the Ramsay principle. . . . " The reason for equating contractual with preordained uncontractual was that there was no distinction between the two, as in practice both would be carried through to their intended conclusion. However, this was to be

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