The Gazette 1986

g a z e t t e

s e p t e m b e r 1986

arranged or pre-ordained. One thing is certain: in no sense was the second transaction in the present case prearranged or pre-ordained at the time when the first transaction was carried out." The decision in Bowater represents an extension of Craven -v- White in that in Craven the ultimate purchaser was a different party, while in Bowater it was the same as the proposed purchaser before negotiations broke down. Both Craven and Bowater have been followed in the case of Baylis -v- Gregory? 1 In that case, an arrange- ment similar to that in Furniss was entered into in the expectation of a sale in 1974. Negotiations broke down and a sale was made to an unconnected third party in 1976. Vinelott J. held that, following the interpretation of Lord Wilberforce's remarks in Ramsay adopted in Craven and Bowater , there had been no pre-ordained or prearranged series of transactions, or a single composite transaction. He stated that where the sale of the exchanged shares had not been actually arranged at the time of the exchange, the exchange and the ultimate sale could not be amalgamated and reconstituted as a direct sale chargeable to tax within the Furniss principle. Bird -v- I.R.CN concerned an avoidance scneme designed to allow the taxpayer to extract the proceeds of sale of a valuable property without adverse tax conse- quences. The Inland Revenue sought to attack the arrangement under Section 461 ICTA 1970. Vinelott J. decided the case on the basis that the arrangement fell within Section 461. More importantly, he considered an argument raised by the taxpayer based on the new approach. Part of the scheme involved the extraction of cash by means of loans structured in such a way as to avoid liability under the close company loans to participators' provisions (the U.K. equivalent of Section 98 CTA 1976). Counsel for the taxpayers submitted that in the light of Furniss -v- Dawson this part of the scheme was ineffective with a consequent liability on one of the companies involved in the scheme. Counsel therefore contended that this liability on the company should be deducted in ascertaining the tax advantage enjoyed by the taxpayer. Vinelott J. noted that no assessment had been made under Section 206 ICTA by 1970 by the Revenue and that they were now out of time, and said 14 "The argument faces other difficulties, . . . . the court invited by the taxpayers to treat as basically ineffective steps taken by them to achieve a result which they now seek to say the scheme failed to achieve." It seems clear from this that a taxpayer who has utilised a tax avoidance scheme which failed and who wishes to invoke the new approach in his own favour is unable to do so. These three decisions represent a significant limita- tion on the new approach and provide a measure of confidence to tax practitioners. Firstly, it has been established in Craven -v- White that a step in a series of transactions which is inserted partly for tax avoidance reasons and partly for commercial reasons may not be disregarded under the new approach. This may clarify the status of transactions undertaken in a tax efficient manner where a number of routes would have reached

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