The Ramsay Principle - Judgments

Judgments

In the Ramsay case, Lord Wilberforce distinguished three ingredients of the schemes involved

• 1 that there was a ' clear and stated intention that once started each scheme shall proceed through the various steps to the end' whether admitted or implied
• 2 that the taxpayer does not need to use his own funds, typically provided by a financial group with only the customer's security, and that by the end of the scheme his financial position is unchanged (other than in providing fees and expenses to the scheme's promoter), so that 'in some cases one may doubt whether, in any real sense, any money existed at all'

and the key ingredient

• 3 that 'it is candidly, if inevitably, admitted that the whole and only purpose of each scheme was the avoidance of tax'.

Wilberforce summed up the emerging principle

It is the task of the court to ascertain the legal nature of any transaction to which it is sought to attach a tax or a tax consequence and if that emerges from a series or combination of transactions intended to operate as such, it is the series or combination which may be regarded.

and ruled that in the particular facts of Ramsay

a faulty analysis, to pick out, and stop at, the one step in the combination which produced the loss, that being entirely dependent upon, and merely, a reflection of the gain. The true view, regarding the scheme as a whole, is to find that there was neither gain nor loss, and so I conclude.

The core of the Ramsay Principle is to be found in the Burmah Oil case in this remark by Lord Diplock:

It would be disingenuous to suggest, and dangerous on the part of those who advise on elaborate tax-avoidance schemes to assume, that Ramsay's case did not mark a significant change in the approach adopted by this House in its judicial role to a pre-ordained series of transaction (whether or not they include the achievement of a legitimate commercial end) into which there are inserted steps that have no commercial purpose apart from the avoidance of a liability to tax that, in the absence of those particular steps, would have been payable.