Carreras Group Ltd v Stamp Commissioner

JurisdictionJamaica
Judge FORTE. P: , PANTON, J.A. , CLARKE, JA,(Ag.) , FORTE, P:
Judgment Date31 July 2002
Judgment citation (vLex)[2002] 7 JJC 3106
CourtCourt of Appeal (Jamaica)
Date31 July 2002
IN THE COURT OF APPEAL
BEFORE:
THE HON. MR. JUSTICE FORTE, P THE HON. MR. JUSTICE PANTON, J.A THE HON. MR. JUSTICE CLARKE, J.A. (AG.)
SUPREME COURT CIVIL APPEAL NO. 153/200
REVENUE COURT APPEAL NO: 3/1999
BETWEEN
THE STAMP COMMISSIONER
APPELLANT
AND
CARRERAS GROUP LIMITED
RESPONDENT
B. St. Michael Hylton Q.C. Garfield Haisley The Director of State Proceedings
Richard Mahfood, Q.C. Miss Yolande Whitely Dunn Cox

REVENUE LAW - Transfer Tax - Transfer of respondent's shares to another company - Whether respondent exempt from payment of Transfer Tax - Transfeer Tax Act

FORTE. P
1

I have read in draft, the judgment of Clarke, J.A. (Ag.) and agree with the conclusion therein. Nevertheless, I add a few words of my own.

2

The real question in the appeal is whether the respondent is exempt from the payment of transfer tax, as a result of the transfer of all its shares in Jamaica Biscuit Company to Caribbean Brands Ltd, a subsidiary of General Holdings Limited. The respondent maintains as the learned trial judge found, that the shares having been exchanged for a debenture by virtue of paragraphs 4(1)(2) and (3) and 6 of the First Schedule to the Transfer Tax Act, no tax is payable on the transfer of the shares. These enactments have already been set out in the judgment of Clarke, J.A. (Ag.) and consequently there is no necessity to record them here. It is sufficient to say that paragraph 6, by virtue of its provisions provides that where a company issues shares or debentures to a person in exchange for shares in or debentures of another company, the provisions of paragraph 4 as to the reorganization of one company shall apply "as if the two companies were the same company, and the exchange was a reorganization of its share capital." In effect, any exchange of shares for shares or for debentures made during the amalgamation of the two companies does not give rise to gains or losses for capital gains tax.

3

I agree with the contention of the appellant that the principle to be derived from, the cases of W.I. Ramsay v. IRC , [1981] 1 All ER 865 I.R.C. v. Burmah Oil Co., [1982] STC 30 Furniss v. Dawson [1984] 1 All ER 530, and Craven & White , [1988] 3 All E.R. 495 is that where there has been a pre-ordained series of transactions to achieve a commercial result, and steps have been inserted which has no commercial purpose apart from the avoidance of a liability to tax, the inserted steps are to be disregarded for fiscal purposes.

4

The following words of Lord Wilberforce at page 871 of the Ramsay case (supra) gives support to the contention of the appellants and in particular, shows the correct approach to the principle set down in the case of Inland Revenue Commissioners v. Duke of Westminster [1936] AC 1:

"Given that a document or transaction is genuine, the court cannot go behind it to some supposed underlying substance. This is the well-known principle of Inland Revenue Comrs v. Duke of Westminster [1936] AC1, [1935] All ER Rep 259, 19 Tax Cas 490. This is a cardinal principle but it must not be overstated or over-extended. While obliging the court to accept documents or transactions, found to be genuine, as such, it does not compel the court to look at a document or a transaction in blinkers, isolated from any context to which it properly belongs. If it can be seen that a document or transaction was intended to have effect as part of a nexus or series of transactions, or as an ingredient of a wider transaction intended as a whole, there is nothing in the doctrine to prevent it being so regarded; to do so is not to prefer form to substance, or substance to form. It is the task of the court to ascertain the legal nature of any transactions 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 that series or combination which may be regarded."

5

In MacNiven (Inspector of Taxes) v Westmoreland Investments Ltd [2001] 1 All E.R. 865 at 868 Lord Nicholls was of the view that the Ramsay case established three points in particular. He said:

"First, when it is sought to attach a tax consequence to a transaction, the task of the courts is to ascertain the legal nature of the transaction. If that emerges from a series or combination of transaction, ... it is that series or combination which may be regarded. Courts are entitled to look at a pre-arranged tax avoidance scheme as a whole. It matters not whether the parties' intention to proceed with a scheme through all its stages takes the form of a contractual obligation or is expressed only as an expectation without contractual force. ...

Second, this is not to treat a transaction, or any step in a transaction, as though it were a 'sham', ... Third, having identified the legal nature of the transaction, the courts must then relate this to the language of the statute."

6

Indeed, Lord Diplock in Commissioner of Inland Revenue v. Burmah Oil [1982] STC 200, had already sounded the warning when he said (page 214):

"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 transactions ... into which there are inserted steps that have no commercial purpose apart from the avoidance of a liability to tax which in the absence of those particular steps would have been payable. The difference is in approach. It does not necessitate the over-ruling of any earlier decisions of this House; but it does involve recognising that Lord Tomlin's oft-quoted dictum in Commissioner of Inland Revenue v. Duke of Westminster [1936] AC 1 at page 19, 'Every man is entitled if he can to order his affairs so as that the tax attaching under the appropriate Acts is less than otherwise it would be', tells us little or nothing as to what methods of ordering one's affairs will be recognised by the courts as effective to lessen the tax that would attach to them...".

7

Then in Furniss (Inspector of Taxes) v. Dawson [1984] 1 All E.R. 530 Lord Brightman in following the path of the Ramsay Case, alluded to Lord Diplock's statement in the Burmah case in language which clearly indicates the correct approach to these cases. He said at page 543:

"The formulation by Lord Diplock in Burmah expresses the limitations of the Ramsay principle. First, there must be a preordained series of transactions, or, if one likes, one single composite transaction. This composite transaction may or may not include the achievement of a legitimate commercial (ie business) end. ... Second, there must be steps inserted which have no commercial (business) purpose apart from the avoidance of a liability to tax, ... If those two ingredients exist, the 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."

8

In the same case Lord Bridge of Harwich expressed similar views at page 535:

"When one moves, however, from a single transaction to a series of interdependent transactions designed to produce a given result, it is, in my opinion, perfectly legitimate to draw a distinction between the substance and the form of the composite transaction without in any way suggesting that any of the single transactions which make up the whole are other than genuine. ... But I do suggest that the distinction between form and substance is one which can usefully be drawn in determining the tax consequences of composite transactions and one which will help to free the courts from the shackles which have for so long been thought to be imposed on them by the Westminster case."

9

Lord Keith in Craven v. White [1988] 3 All E.R. 495, conveniently summarizes what is in his opinion the nature of the principles to be derived from the Ramsay, Furniss and Burmah cases as follows:

"...the court must first construe the relevant enactment in order to ascertain its meaning; it must then analyse the series of transactions in question, regarded as a whole, so as to ascertain its true effect in law; and finally it must apply the enactment as construed to the true effect of the series of transactions and so decide whether or not the enactment was intended to cover it. The most important feature of the principle is that the series of transactions is to be regarded as a whole. In ascertaining the true legal effect of the series it is relevant to take into account, if it be the case, that all the steps in it were contractually agreed in advance or had been determined on in advance by a guiding will which was in a position, for all practical purposes, to secure that all of them were carried through to completion. It is also relevant to take into account, if it be the case, that one or more of the steps was introduced into the series with no business purpose other than the avoidance of tax."

10

All these cases are consistent in the fact that, where there has been a preordained series of transaction to achieve a commercial result, and an intermediary step has been inserted which has no business purpose other than the avoidance of tax, then the transaction would not be free from tax liability.

11

How do these principles apply to the facts of this appeal? Was the exchange of shares for debentures an intermediary step which had no business purpose other than the avoidance of tax under the Act? Was the transaction looked at as a whole, preordained?

12

These questions are answered by an examination of the Agreement which is entitled "Agreement of Exchange of Securities Pursuant to a Scheme of Reconstruction/Reorganization of Jamaica Biscuit Company Limited."

13

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