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GAZETTE
APRIL. 1984
The Uncertain and Crooked Cord of
Discretion —
Some Reflections on
Furniss v. Dawson
by
Charles Haccius, Barrister-at-Law
S
O far, the recent House of Lords decision of
Furniss
-v-
Dawson
[1984] STC 153 HL has generated more
heat than light. The purpose of this article is to endeavour
to dispel some of the misconceptions which have grown
up around the decision and set out what in the writer's
submission it actually lays down, and, what is equally
important, what it does not.
1. What does it actually decide?
The decision follows three earlier decisions of the
House of Lords, the first two of which were
Eilbeck
-v-
Rawling
and
Ramsay
-v-
CIR
(both of which were reported
at 54TC101) and the third of which, delivered subse-
quently and reported at 54TC200, was
CIR
-v-
Burmah Oil
Co. Furniss
-v-
Dawson
is noteworthy as the first occasion
upon which the approach adopted by the House of Lords
in the three earlier decisions referred to above has been
formulated with any degree of precision. The approach,
and its consequences, are stated in unequivocal terms by
Lord Brightman, with whom the other members of the
House concurred. The approach is as follows:—
If:—
(i) There was a "pre-ordained series of transactions"
(which "may or may not include the achievement of
a legitimate commercial (i.e. business) end", and
(ii) the series includes "steps inserted which have no
commercial (business) purpose apart from the
avoidance of a liability to tax",
these inserted steps "are to be disregarded for fiscal
purposes. The Court must then look at the end result.
Precisely how the end result will be taxed will depend on
the terms of the taxing statute sought to be applied": per
Lord Brightman.
This does not mean (as some financial journalists have
assumed) that where the two conditions referred to above
are both satisfied, the Revenue can simply brush aside the
various steps taken and assess tax as if they had never
happened. The effect of the
Furniss
-v-
Dawson
approach
differs from that of the Australian and New Zealand anti-
avoidance legislation considered by the Privy Council in
Peate
-v- C.
ofT.
[1966] 2 All ER 766 and
Mangin
-v-
CIR
[1971] 1 All ER 179 in that it authorises the Revenue to
proceed directly from point A to point Z, and then assess
tax by reference to what it finds at point Z. It does not
authorise the Revenue (as under the Australian and New
Zealand legislation) to assess tax on the assumption that
the taxpayer never left point A.
Whether the two conditions referred to above are both
present is a matter of fact to be determined in each case by
the Appeal Commissioners (or in Ireland by the Circuit
Court in the event of a re-hearing). The findings are
"inferences to be drawn from the primary facts" with
which an appellate court, whose jurisdiction is limited
questions of law, can interfere only where the inference
drawn by the Appeal Commissioners (or by the Circuit
Court) is "insupportable on the basis of the primary facts
so found": per Lord Brightman.
It follows as a corollary from the principle that the
inserted steps "are to be disregarded for fiscal purposes"
that the Revenue can levy tax only on the "end result", and
not on the "inserted steps". Where A sells to B, and B sells
on to C, the Revenue can levy tax on the basis of a sale by
A to C, but is precluded from endeavouring to levy tax
also on the intermediate sales by A to B, and by B to C.
"There could be no additional capital gains tax on the
steps by which the disposal was achieved, namely, the sale
first to (B) and then by (B) to (C), because it is the Crown's
case that the fiscal consequences of the introduction of
(B) are to be disregarded. The Revenue cannot, and does
not claim to, have it both ways": per Lord Brightman.
2. Does it apply in Ireland?
The traditional approach in construing tax legislation
is that laid down over a hundred years ago in
Partington -
-v-
A.G.
LR 4 HL 100. "If the person sought to be taxed
comes within the letter of the law he must be taxed,
however great the hardship may appear to the judicial
mind to be. In other words, if there be admissible in any
statute, what is called an equitable construction, certainly
such a construction is not admissible in a taxing statute,
where you can simply adhere to the words of the statute":
122 per Lord Cairns LC.
Some fifty years later the principle stated by Lord
Cairns LC was reaffirmed in
Cape Brandy Syndicate
-v-
CIR
12 TC 358 " . . . in a taxing act one has to look merely
at what is said. There is no room for any intendment.
There is no equity about a tax. There is no presumption as
to a tax. Nothing is to be read in, nothing is to be implied.
One can only look fairly at the language used": 366 per
Rowlatt J.
Such was the state of the authorities when
CIR
-v-
West-
minster
19 TC 490 came before the House of Lords. The
facts of the case were simple. The Duke of Westminster,
instead of paying wages to his gardener, entered into a
covenant to pay him a fixed annual sum, which was to be
payable to him whether or not he remained in the Duke's
employment. As such, the annual payment was
deductible from the Duke's total income for surtax
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