The Ramsay Doctrine seems to be having some kind of renaissance. I think it was generally considered that the House of Lords decisions in 2006 in Barclays Mercantile Business Finance Limited v Mawson and CIR v. Scottish Provident Institution were just about the last word on the Ramsay Doctrine. However, we would appear to be moving back to the original thinking.
Last year in the case of Schofield v HMRC TC 439, the First Tier Tribunal held that a capital gains tax avoidance scheme involving gilt options was a fiscal nullity on original Ramsay principles. We now have the case of Berry v HMRC, which also involved a capital gains tax avoidance scheme, this time involving gilt strips, and this was also done down by the High Court. It has some interesting (and not so interesting) features.
I am no defender of complex tax schemes, but I am quite a fan of the Rule of Law. I have a feeling that this gets a bit lost when tax is in issue – and more particularly when poetry appears as part of the reasoning process in legal judgments.
For those who think I have completely lost it, I would refer to the case of Re McDermott’s Application 1996 STC 483 where a stamp duty issue was decided by the Judge who concluded his judgment by saying that “the answer to [Counsel for the taxpayers] point was supplied long ago by old Khayyam” whereupon he quoted the 71st quatrain of the “Rubaiyat of Omar Khayyam”. I always thought this was a curious approach. However, the idea seems to have been picked up by the judge in the case of Berry v HMRC FTC/29/2010 where his Lordship concludes his judgment with an extract from “Little Gidding” by T.S. Eliot. I think the expression is Go Figure.
Mr Berry’s claim for loss relief failed on Ramsay principles on the basis that the reality of the situation was that there was no genuine loss. There were certain difficulties with this approach because to reach this “reality”, certain real things had to be ignored. In this case there was a real risk that a loss may arise, but it was disregarded as “an anti-Ramsay device”. It is a bit worrying if anything which gets in the way of a Ramsay argument can simply be disregarded as an anti-Ramsay device. As Ramsay is a rule of statutory construction, this is going to apply to the innocent as well as the guilty – collateral damage, I suppose. Blackstone’s celebrated principle that it is better that 10 guilty men go free than one innocent man be convicted seems to have been turned on its head when it comes to the present approach to tax schemes.
The Budget last week contained quite a lot about tax schemes. Measures (to be known as “statutory consequences”) are to be introduced to discourage the use of tax schemes. This would seem to include an additional surcharge where a spotlighted tax scheme is used (and fails) or possibly a requirement for the tax in dispute to be paid up front, the idea being to eliminate any cash flow advantage being obtained by those using such schemes.