226 / 330
g a z e t t e
s e p t e m b e r 1986
the same en d result. The position o f taxpayers
defending themselves against the application of the new
approach b y th e Revenue i s also strengthened.
Secondly, where a tax avoidance arrangement is entered
into in the expectation that it will be followed through
without the certainty that it will, and the arrangement is
not followed through until later, perhaps with a
different party, because negotiations break down or a
sale does not go through, then the new approach does
not apply. Whether these decisions will be upheld on
appeal remains to be seen. •
New
Footnotes
1.
[1984] S.T.C. 153.
2.
See i n particular "Tax Avoidance i n Ireland — A
Approach" by David Kennedy and Paul McElhinney.
(1985) 7 D.U.L.J. (N.S.) and the materials cited in that article.
3.
Notes o f a meeting between the C.C.A.B. and the Board of
Inland Revenue. [1982] S.T.I. 167.
4.
A 'Swiss roundabout' is an arrangement to allow a U.K. resident
company to borrow funds from a lender resident in a country
with which the U.K. does not have a double taxation treaty in
such a way as to avoid U.K. withholding tax on the interest while
obtaining a U.K. corporation tax deduction for the interest.
5.
CCAB Memorandum TR 487, [1982] S.T. 1. 556.
6.
Tolley's
Practical Tax,
21 March, 1984.
The statement was made a t a n Institute o f Fiscal Studies
Conference held to discuss
Furniss
-v-
Dawson.
7.
Official Report, April 10, 1984, Cols. 254-5.
8.
Standing Committee A, June 7, 1984.
9.
Parliamentary written answer dated 8 March, 1984.
10. A clause proposed by a Conservative back bencher of this kind
was not selected for debate.
11. CCAB Guidance Note TR 588, [1985] S.T. 1. 568.
12. The ones discussed were as follows: Those marked * are of little
Irish significance because of differences in legislation or Revenue
practice.
Capital losses; Hive Downs; payments of dividends before sale
of a company, leasing*, Charities*, bed and breakfast transac-
tions*, transfer between husband and wife, year end stock
adjustments, and the creation of a U.K. holding company.
[1982] S.T.C.344.
[1982] S.T.C. 103.
See also
Tesco Stores
-v-
Irving,
[1982] S.T.C. 881.
Berry
-v-
Warnett
[1982] S.T.C. 396.
I.R.C.
-v-
The Trustees of Sir John Aird's Settlement,
[1982]
S.T.C. 245, [1983] S.T.C. 700.
I.R.C.
-v-
Brandenburg,
[1982] S.T.C. 555.
Chilcott -v- I.R.C.,
[1982] S.T.C. 1.
Page
-v-
Lowther,
[1983] S.T.C. 61; [1983] S.T.C. 799.
Minden Trust (dayman) Ltd.
-v-
I.R.C.,
[1984] S.T.C. 434.
[1984] S.T.C. 637.
Ibid
at p.642.
[1985]S.T.C.124.
[1983] S.T.C.178.
In this case, to render a bónus payment of £5,000 tax free, the
employer gave the employee a loan, the yearly interest on which
was £5,000. The taxpayer employee then immediately paid one
year's interest in advance. Four days later, his liability to repay
the principal was transferred t o a connected third party o n
payment t o the third party o f a sum equal t o the principal
(£50,000) less the interest paid in advance (£5,000). The taxpayer
claimed that the payment of £5,000 was "annual interest" and
would be offset against other income.
23. [1984] S.T.C. 520. This case contains a useful discussion of the
method of applying the new approach.
24. [1985] S.T.C. 260.
25. [1985] S.T.C. 664.
26. [1985] S.T.C. 531. In this case, the taxpayers wished to sell or
merge the shares in Q. Ltd. in 1973. In 1976, they commenced
negotiations with C . Ltd. fo r a merger and explored th e
possibilities of establishing a company in the Isle of Man to act
as a holding company for the merger. In June 1976, M. Ltd. was
incorporated and in July it had acquired the issued share capital
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
of Q. Ltd. i n a share for share (paper for paper) exchange.
Following an inquiry from J. Ltd. the negotiations with C. Ltd.
were abandoned. They were later resumed when it appeared that
the sale to J. Ltd. would not go through. Eventually, in August,
1976, M. Ltd. sold its shares in Q. Ltd. to J. Ltd. for £2m. The
proceeds of sale were loaned back by M. Ltd. to the taxpayers.
The taxpayers were assessed to Capital Gains Tax on the basis
that the disposal of M. Ltd. to J. Ltd. of the shares in Q. Ltd. was
a disposal by them, following
Furniss.
The taxpayers argued that
the only disposal was the share for share exchange and that this
was not a disposal for tax purposes within the U.K. equivalent of
Para. 4 Sch. 2 CGTA J975.
27. [1981] S.T.C. 174 at 180, quoted at [1985] S.T.C. 531, at p.559.
28. [1985] S.T.C. 531, at p.560.
29.
Ibid
atp.562.
30. [1985] S.T.C. 783. In this case, the taxpayer company in 1980
was engaged in negotiation to sell land to U. Ltd. On 25 March,
1980, the taxpayer company contracted t o sell the land t o 5
companies within the group (the first transaction). I t was
accepted that this was done solely t o take advantage o f the
£50,000 exemption from development land tax per company.
Negotiations broke down because of the inability of U. Ltd. t o
pay. By February, 1981, U. Lld.'s circumstances had changed
and a sale was completed in November, 1981, at a higher price
and on different terms (the second transaction). The Revenue
argued the sale should be treated as a direct disposal to U. Ltd.
by the taxpayer company and assessed the taxpayer accordingly.
31.
Ibid
atp.798.
32. [1986] S.T.C. 22. The facts were that shareholders entered into
negotiations for the sale of the share capital of P.G.I. to C. Ltd.
In order to postpone Capital Gains Tax on a direct sale, an Isle
of Man company was set up to exchange its shares for those of
P.G.I., and to sell the P.G.I. shares on to C Ltd. The proceeds
of sale could then be lent interest free with no tax laibility to the
shareholders i n P.G.I. Negotiations ended i n February, 1974.
The exchange went ahead i n March, 1974. The shares were
eventually sold in 1976 to a third party.
33. [1985] S.T.C.584.
34.
Ibid
at p.646-7.
•
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