Not sure what is meant by the Ramsay principle? Here is a quick guide.

The principle has evolved through case law. If one is looking at a tax avoidance scheme which involves a transaction effected via a series of steps, one should look at the effect of the whole series and not at the tax position of each individual step. The principle can only be applied when the legislation requires this approach and each step need not be a sham for the principle to apply, so this adds greatly to make interesting legal argument.

Following the landmark decision of the House of Lords in WT Ramsay Ltd v IRC [1982] AC 300, (1981) 54 TC 101, a series of decisions by the House of Lords and Privy Council, each drawing on its predecessors have developed a clear line of authority. The decisions are further and fully analysed in the recent judgment of Arden LJ (with whom Keene and Sullivan LJJ agreed) in Astall v HMRC [2009] EWCA Civ 1010, [2010] STC 137. They can be set out as a series of propositions:

i) The jurisprudence following Ramsay did not introduce a special doctrine peculiar to tax law. It represents the application in the tax field of established principles of broad, purposive statutory interpretation, rejecting formalism in fiscal matters: IRC v McGuckian [1997] 1 WLR 991, per Lord Steyn at 1000, Lord Cooke at 1005.

ii) The approach involves giving the statutory provision a purposive construction in order to determine the nature of the transaction to which it was intended to apply and then determining whether the actual transaction (which might involve considering the overall effect of a number of elements together) answers the statutory description: Barclays Mercantile Business Financial Ltd v Mawson [2004] UKHL 51, [2005] 1 AC 684, (2004) 76 TC 446, per Lord Nicholls at [32].

iii) Revenue statutes are in general concerned with the characterisation of the entirety of transactions which have a commercial unity rather than individual steps into which such transactions may be divided: Carreras Group Ltd v Stamp Commissioner [2004] UKPC 16, [2004] STC 1377, per Lord Hoffmann at [8].

iv) Composite transactions do not cease to have a commercial unity only because they contain a commercially irrelevant contingency, deliberately included to create an acceptable risk that the scheme might not work as planned: IRC v Scottish Provident Institution [2004] UKHL 52, (2004) 76 TC 538, per Lord Nicholls at [23].

v) The approach is not limited to a composite transaction. It can apply to a single multi-faceted transaction which on its face operated in a particular way but which when examined against the facts of the case does not operate as a transaction to which the statute was intended to apply: Astall, per Arden LJ at [42].

vi) However, whether the statutory provision under consideration is concerned with a single step or a broader view of the acts of the parties depends upon the construction of the language in its context: MacNiven v Westmoreland Investments Ltd [2001] UKHL 6, [2003] 1 AC 311. Hence, the purpose must be discernable from the statute: the Court must not infer one without a proper foundation for doing so: Astall per Arden LJ at [44].

vii) Accordingly, the mere fact that a transaction is designed for no commercial purpose other than obtaining a tax advantage is not in itself sufficient ground to interpret the application of the statute to the transaction, or an element within it, so as to deny that advantage: MacNiven.

This article is a summary from the decision in Revenue and Customs v PA Holdings Ltd [2010] UKUT 251 (TCC)

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