The Gazette 1986

g a z e t t e

s e p t e m b e r 1986

possibility that a planned series may. not be completed as planned" which was not the equivalent of either a contractual agreement or a non-contractual arrangement. In the case before him, Peter Gibson J. therefore concluded that when the avoidance arrangement was entered into, there was a possibility that the sale would not take place. This was because when the share exchange took place, there was a possibility that the sale of the shares would not take place because there was no agreement for sale at that time. The Judge further concluded that the arrangement was not a step that could be disregarded in any event as it was not wholly for tax avoidance purposes in that at the time the arrangement was entered into the intermediary holding company was to serve as a vehicle for a merger with the original prospective purchasers, and, therefore, had an independent commercial purpose. The Court could not abuse the benefit of hindsight and had to look at the circumstances at the time the step was made. The fact that the merger did not take place and that the step did in fact have the sole result of avoiding tax had to be disregarded. He concluded 29 : "It is one thing for the Court to treat as a fiscal nullity a purely artificial step which will inexorably be followed by one or more others so as to achieve the desired end result. It.is quite another for the Court to treat as a fiscal nullity a step which had a commercial purpose in addition

to tax avoidance and which in reality at the time it was taken might not have been followed by the other steps." The decision in Craven -v- White was confirmed in the subsequent case of I.R.C. -v- Bowater Property Developments Ltd? 0 In that case the taxpayer company entered a tax avoidance arrangement prior to the sale of land to an unconnected purchaser. Negotiations broke down but were resumed and a sale took place subse- quently at a higher price and on different terms. The Revenue argued that the transaction should be treated as a direct sale under the Furniss principle and contended that when a step was taken by a taxpayer with a view to avoiding tax in a certain event, and that event occurred, then what mattered was the expectation or intention of the taxpayer at the time the step was taken. Warner J. did not agree and held that the transactions were not prearranged or pre-ordained. Following-the words of Lord Wilberforce in Ramsay, Lord Brightman in Furniss and Peter Gibson J. in Craven -v- White, he concluded that it would not be said that there was " no likelihood in practice" that the second step would not follow the first. The second transaction was therefore an independent transaction 31 : " . . . as Lord Brightman's words show, and indeed as the whole tenor of the authorities shows, a single composite transaction, in this context means one, all the steps in which have been pre-

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