Craven (IOT) v White (Stephen); Inland Revenue Commissioners v Bowater Property Developments: HL 1989

In Craven, the taxpayers owned shares in Q Ltd. In early 1976 they began to negotiate with C Ltd for a merger of the two companies and steps were taken to establish an Isle of Man holding company to act as a vehicle for the taxpayers’ shares should the merger materialise. Later in that year the taxpayers were approached regarding the possibility of a sale of Q Ltd to J Ltd. The merger negotiations with C Ltd ceased during negotiations to sell Q Ltd. Later, amid fears that the sale to J Ltd would not materialise, those merger talks were resumed and M Ltd, an Isle of Man company, was incorporated. However, talks then started up again with J Ltd, and the taxpayers exchanged their shares in Q Ltd for shares in M Ltd. Following further negotiation, J Ltd purchased the shares in Q Ltd from M Ltd. The House considered what would amount to a pre-ordained series of transactions when considering their tax effect.
Held: (Lord Templeman and Lord Goff of Chieveley dissenting) in determining whether a number of transactions of which at least one (the intermediate transaction) had no purpose other than tax avoidance should be treated for fiscal purposes not as independent but as forming part of one composite linear transaction from which tax consequences flowed within the Ramsay principle, as extended by Furniss v Dawson, it had to be shown, for the principle to be applicable, that:
(1) the series of transactions in question was, at the time when the intermediate transaction was entered into, pre-ordained in order to produce a given result;
(2) the series of transactions had no purpose other than tax mitigation;
(3) there was at that time no practical likelihood that the pre-ordained events would not take place in the order ordained, so that the intermediate transaction was not even contemplated practically as having an independent life; and
(4) the pre-ordained events did in fact take place. On this basis, the majority held that the share exchange in Craven v White could not be disregarded and that the Crown’s appeal was dismissed.
Lord Oliver said: ‘Another identifying feature is that all the stages of what is claimed as the composite transaction are pre-ordained to take place in an orchestrated sequence and, in my opinion, that must mean more than simply ‘planned or thought out in advance’. It involves to my mind a degree of certainty and control over the end result at the time when the intermediate steps are taken. That does not, I think, mean absolute certainty in the sense that every single term of the transaction which ultimately takes place must then be finally settled and agreed. But it does seem to me to be essential at least that the principal terms should be agreed to the point at which it can be said that there is no practical likelihood that the transaction which actually takes place will not take place. Nor is it sufficient, in my opinion, that the ultimate transaction which finally takes place, though not envisaged at the intermediate stage as a concrete reality, is simply a transaction of the kind that is then envisaged, for the underlying basis of the Ramsay doctrine is that it must, on the facts, be possible to analyse the sequence as one single identifiable transaction and if, at the completion of the intermediate disposition, it is not even known to whom or upon what terms any ultimate disposition will be made, I simply do not see how such an analysis is intellectually possible. It is an essential part of the analysis that there is but one disposal and not two and that the transfer to the intermediate company is not a ‘disposal’ within the meaning of the statute.’


Lord Keith of Kinkel, Lord Jauncey of Tullichettle, Lord Oliver of Aylmerton, Lord Templeman and Lord Goff of Chieveley


[1989] AC 398, [1988] 3 All ER 495, [1988] 3 WLR 423


England and Wales


CitedW T Ramsay Ltd v Inland Revenue Commissioners HL 12-Mar-1981
The taxpayers used schemes to create allowable losses, and now appealed assessment to tax. The schemes involved a series of transactions none of which were a sham, but which had the effect of cancelling each other out.
Held: If the true nature . .

Cited by:

AppliedEnsign Tankers (Leasing) Ltd v Stokes (Inspector of Taxes) HL 6-May-1992
The appellants entered into partnerships with a film production company. By doing so they intended to make available to themselves first year allowances on the capital expenditure incurred. Loan agreements protected them from any eventual loss.
Lists of cited by and citing cases may be incomplete.

Corporation Tax

Updated: 12 May 2022; Ref: scu.186341