Facts (IRC V. Burmah Oil)
In this case, the Burmah Oil group had suffered a genuine loss on the sale of an investment. However, the loss was not of the right kind to be deductible for tax purposes. Accordingly, the company's accountants and lawyers formulated a plan to "crystalise" that loss into a deductible form. They did this by entering into a series of (perfectly genuine) inter-group transactions, the overall effect of which was that the loss already incurred became a deductible capital loss on the liquidation of one of the subsidiaries in the group. These transactions were made using Burmah Oil's own money, and were therefore quite different from the pre-arranged, marketed "schemes" using borrowed money in the Ramsay and Eilbeck cases.
The judges were quite clear that they would have found in favour of Burmah Oil, and against the IRC, had it not been for the decision in the Ramsay case, some months before.
Read more about this topic: The Ramsay Principle
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