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The Collector Of Stamp Revenue v Arrowtown Assets Ltd

Judgment Cited authorities 17 Cited in Precedent Map Related
Vincent
Judgment Date04 December 2003
Year2003
Citation[2004] 1 HKLRD 77; (2003) 6 HKCFAR 517
Judgement NumberFACV4/2003
Subject MatterFinal Appeal (Civil)
CourtCourt of Final Appeal (Hong Kong)
FACV000004/2003 THE COLLECTOR OF STAMP REVENUE v. ARROWTOWN ASSETS LTD

FACV No. 4 of 2003

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 4 of 2003 (CIVIL)

(ON APPEAL FROM CACV NO. 118 OF 2002)

_____________________

Between :
THE COLLECTOR OF STAMP REVENUE Appellant
AND
ARROWTOWN ASSETS LIMITED Respondent

_____________________

Court: Chief Justice Li, Mr Justice Bokhary PJ, Mr Justice Chan PJ, Mr Justice Ribeiro PJ and Lord Millett NPJ

Dates of Hearing: 20 - 23 October 2003

Date of Judgment: 4 December 2003

_____________________

J U D G M E N T

_____________________

Chief Justice Li :

1. I have read the judgment of Mr Justice Ribeiro PJ and that of Lord Millett NPJ and agree with them.

2. The decision in Ramsay, drawing on the approach in United States cases particularly that of Judge Learned Hand, was a landmark decision. It has subsequently been applied and developed in a number of cases. There has been a tendency to treat judicial statements in some of the cases as laying down a rigid code-like approach. This has given rise to unnecessary confusion and complication.

3. It is important to return to the roots of the Ramsay approach. In essence, the approach applies the purposive approach of statutory interpretation to tax statutes, particularly relief and exemption provisions therein. And it involves a realistic analysis and assessment of the facts and the transactions in question. These are the fundamentals which must be borne in mind when considering the application of the Ramsay approach to tax avoidance schemes.

Mr Justice Bokhary PJ :

4. In this case the Collector of Stamp Revenue advances three discrete grounds in support of his claim to stamp duty. For the reasons given by Lord Millett NPJ, I reject the first two grounds. The third ground is the one based on the approach that takes its name from the decision of the House of Lords in WT Ramsay Ltd v. IRC [1982] AC 300. I respectfully and entirely agree with Lord Millett NPJ's masterly elucidation of the true nature and scope of that approach and also with Mr Justice Ribeiro PJ's valuable analysis of the cases. In common with all the other members of the Court, I take the view that the Collector's third ground is well-founded so that his claim to stamp duty succeeds upon a correct application of the Ramsay approach to the circumstances of this case. Accordingly I too would allow the appeal to uphold that claim with costs here and below.

Mr Justice Chan PJ :

5. I agree with the judgments of Lord Millett NPJ and Mr Justice Ribeiro PJ. I would like to add a few observations on the effect which the House of Lords decision in MacNiven (HM Inspector of Taxes) v. Westmoreland Investments Ltd [2003] 1 AC 311 is said to have on the principle developed in WT Ramsay Ltd v. Inland Revenue Commissioners [1982] AC 300.

6. The principle enunciated in Ramsay is "both a rule of statutory construction applicable to revenue statutes and an approach to the analysis of the facts": Sir Anthony Mason NPJ in Shiu Wing Ltd & others v. Commissioner of Estate Duty (2000) 3 HKCFAR 215 at 239I. What this principle entails, as elaborated and developed in subsequent cases, is this: when faced with a tax avoidance scheme, the court's task is to ascertain the nature of the transaction or composite transactions in question and the true meaning of the relevant statutory provision having regard to the purpose and intention of the legislation and then apply it to the facts of the case, not taking into account any steps in the transactions which have no commercial purpose other than to avoid tax. The court adopts a purposive construction on the tax legislation and applies it to the end result of the transactions.

7. I do not think Lord Nicholls of Birkenhead in MacNiven had said anything which is inconsistent with this principle. He took the view that it is an "approach to ascertaining the legal nature of transactions and to interpreting taxing statutes"; "an exemplification of the established purposive approach to the interpretation of statutes. (See p.319F) Nor had Lord Hope, Lord Hutton and Lord Hobhouse said anything which affect the Ramsay principle or its application.

8. However, Lord Hoffmann's judgment in MacNiven (with which the other members of the House agreed) is said to have given rise to the suggestion that it has limited the scope and hence the use of the Ramsay principle - see particularly paragraphs 32, 35, 49 and 58 of his judgment.

9. In my view, the above passages, read in the context of the whole judgment, form part of Lord Hoffmann's wider discussion on statutory construction. He was explaining the earlier decisions and commenting on the approach to be adopted in ascertaining the true meaning of the relevant statutory provisions, particularly of tax legislation, and the intention of the legislature. He was emphasizing the point that while there are many statutes which upon their true construction are intended to have a commercial meaning or content, in which case, the Ramsay principle would be useful, there are some statutes which do not permit such a construction, in which case, the Ramsay principle would not be applicable. With this, I would respectfully agree.

10. It is said that what Lord Hoffmann said was intended to limit the application of the Ramsay principle by setting a prerequisite to its application according to a supposed dichotomy of legal and commercial concepts to be gathered from the relevant provisions. I doubt if that was his Lordship's intention. But if that were the effect of what he said, I would respectfully think that this would create uncertainty as the distinction between legal and commercial concepts is very often difficult to draw. While the Ramsay principle had been held not to apply in some previous cases, a limitation based on such dichotomy is not justified or supported by the earlier decisions. I also do not think that the rules of construction of tax legislation should be restricted to a categorization of the meaning of the relevant statutory provisions into different concepts.

Mr Justice Ribeiro PJ :

11. I have had the advantage of reading in draft the judgment of Lord Millett NPJ and respectfully agree with its reasoning and conclusion. I would only wish to add some observations regarding the principle developed in W T Ramsay Ltd v Inland Revenue Commissioners [1982] AC 300, in the light of recent controversies as to its scope.

12. As Sir Anthony Mason NPJ noted in Shiu Wing Ltd v Commissioner of Estate Duty (2000) 3 HKCFAR 215 at 239, the Ramsay principle is both a rule of statutory construction and an approach to the analysis of the facts.

13. The aim of the tax-avoidance scheme in Ramsay was to create an allowable loss for the taxpayer as part of a wider plan which involved the cancelling out of that loss by a non-taxable gain. Lord Wilberforce, giving the principal speech, focussed primarily on the proper factual approach to such transactions :-

"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 transaction 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." ([1982] AC 300 at 323-4)

As to the particular self-cancelling schemes with which the House of Lords was faced, his Lordship stated :-

"On these facts it would be quite wrong, and a faulty analysis, to pick out, and stop at, the one step in the combination which produced the loss, that being entirely dependent upon, and merely, a reflection of the gain. The true view, regarding the scheme as a whole, is to find that there was neither gain nor loss, and I so conclude." (at 328)

14. Treating such a loss and such a gain as "self-cancelling," necessarily involved an exercise in statutory interpretation, indeed, an exercise of purposive statutory interpretation. If the loss-producing transaction in the scheme were taken alone, it would, falling within the literal words of the statute, attract the tax consequence of being an allowable loss. It would not be "cancelled out" fiscally by the scheme gain since that gain, again if taken alone was, on a literal interpretation, non-taxable. Therefore, when in Ramsay, the House of Lords regarded the loss and gain as "self-cancelling," viewing them as part of a larger, composite transaction, this necessarily implied that as a matter of statutory construction, the provisions which would otherwise confer the desired tax consequences on the individual transactions were not intended to apply to them in the context of the overall scheme.

15. Lord Wilberforce acknowledged the need for such purposive interpretation, stating :-

"A subject is only to be taxed upon clear words, not upon 'intendment' or upon the 'equity' of an Act. Any taxing Act of Parliament is to be construed in accordance with this principle. What are 'clear words' is to be ascertained upon normal principles: these do not confine the courts to literal interpretation. There may, indeed should, be considered the context and scheme of the relevant Act as a whole, and its purpose may, indeed should, be regarded: see Inland Revenue Commissioners v Wesleyan and General Assurance Society (1946) 30 TC11, 16 per Lord Greene MR and Mangin v Inland Revenue Commissioner [1971] AC 739, 746, per Lord Donovan." (at 323)

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