The Gazette 1986

g a z e t t e

s e p t e m b e r 1986

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arranged or pre-ordained. One thing is certain: in

no sense was the second transaction in the present

case prearranged or pre-ordained at the time when

the first transaction was carried out."

The decision in

Bowater

represents an extension of

Craven

-v-

White

in that in

Craven

the ultimate

purchaser was a different party, while in

Bowater

it was

the same as the proposed purchaser before negotiations

broke down.

Both

Craven

and

Bowater

have been followed in the

case of

Baylis

-v-

Gregory?

In that case, an arrange-

ment similar to that in

Furniss

was entered into in the

expectation of a sale in 1974. Negotiations broke down

and a sale was made to an unconnected third party in

1976. Vinelott J. held that, following the interpretation

of Lord Wilberforce's remarks in

Ramsay

adopted in

Craven

and

Bowater

, there had been no pre-ordained or

prearranged series of transactions, or a single composite

transaction. He stated that where the sale of the

exchanged shares had not been actually arranged at the

time of the exchange, the exchange and the ultimate sale

could not be amalgamated and reconstituted as a direct

sale chargeable to tax within the

Furniss

principle.

Bird

-v-

I.R.CN

concerned an avoidance scneme

designed to allow the taxpayer to extract the proceeds of

sale of a valuable property without adverse tax conse-

quences. The Inland Revenue sought to attack the

arrangement under Section 461 ICTA 1970. Vinelott J.

decided the case on the basis that the arrangement fell

within Section 461. More importantly, he considered an

argument raised by the taxpayer based on the new

approach.

Part of the scheme involved the extraction of cash by

means of loans structured in such a way as to avoid

liability under the close company loans to participators'

provisions (the U.K. equivalent of Section 98 CTA

1976). Counsel for the taxpayers submitted that in the

light of

Furniss

-v-

Dawson

this part of the scheme was

ineffective with a consequent liability on one of the

companies involved in the scheme. Counsel therefore

contended that this liability on the company should be

deducted in ascertaining the tax advantage enjoyed by

the taxpayer. Vinelott J. noted that no assessment had

been made under Section 206 ICTA by 1970 by the

Revenue and that they were now out of time, and said

"The argument faces other difficulties, . . . . the

court invited by the taxpayers to treat as basically

ineffective steps taken by them to achieve a result

which they now seek to say the scheme failed to

achieve."

It seems clear from this that a taxpayer who has

utilised a tax avoidance scheme which failed and who

wishes to invoke the new approach in his own favour is

unable to do so.

These three decisions represent a significant limita-

tion on the new approach and provide a measure of

confidence to tax practitioners. Firstly, it has been

established in

Craven

-v-

White

that a step in a series of

transactions which is inserted partly for tax avoidance

reasons and partly for commercial reasons may not be

disregarded under the new approach. This may clarify

the status of transactions undertaken in a tax efficient

manner where a number of routes would have reached

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