Revenue Law Supplement, File 2: MacNiven v Westmorel and Investments Ltd |
Ever since the decision of the House of Lords in IRC v McGuckian,1 textbook writers and others have been puzzling over how to fit together the composite transaction doctrine stemming from Ramsay v IRC2 and later cases with the approach of Lords Steyn and Cooke in McGuckian and Lord Hoffmann’s dictum in Norglen Ltd v Reeds Rains Prudential Ltd.3 We now have an answer in the decision of the House of Lords and, principally, the speech of Lord Hoffmann, in MacNiven v Westmoreland Investments Ltd.4 The Ramsay approach is not a self standing anti-avoidance doctrine; it is simply one example of the modern courts’ willingness to interpret terms commercially rather than juristically when the context of that legislation permits or requires. If some (or even all) people thought differently, then it follows that they have misunderstood Ramsay for 20 years; they have been wrong about its basis and therefore wrong about its scope. The idea that Ramsay is rooted in statutory interpretation rather than doctrine is not new; what Westmoreland does is to take that basis extremely seriously. However, in its anxiety to put Ramsay on a firm basis, the House has shifted the matter to a higher level of abstraction and so created a new era of uncertainty. One also is left to wonder what is going on behind this smoke screen of language and whether this is going to mean that the judges are going to be more or less hostile to avoidance schemes. |
It is possible to take a much less apocalyptic line. It was Lord Hoffmann himself who, as Hoffmann J, said in 1990, ‘But even a decision of the House of Lords is authority only for the question actually decides’.5 There, the young Hoffmann J applied the Ramsay doctrine to strike down the scheme which had succeeded in the earlier House of Lords decision in IRC v Plummer.6 One could therefore argue that all Westmoreland did was to reject a particularly virulent form of the Ramsay fiscal nullity doctrine advanced for the Revenue (that doctrine was formulated in paragraph 28). This virulent form was framed in terms of tax advantage and not in terms of the distinction between tax avoidance as distinct from mitigation. However, such a narrow approach is unlikely to stand much chance—unless Lord Millett7 and a returning Lord Templeman were to sit in the next appeal. |
To recapitulate the story. Westmoreland (WIL) was a property company that owed £70 m including £40 m arrears of interest on loans from a pension fund, which were also its only shareholders. If the interest could be paid, WIL would be able, thanks to TA 1988, section 338, to use that payment as a charge on income and so create a loss which could be set against any later profits the company might earn in later years, even, subject to TA 1988, section 768, profits earned following a change of ownership. The scheme enabled this payment to be made.8 The pension fund shareholders lent the money to WIL, which passed it back as a payment of interest. The |