Furniss v. Dawson | |
Court: | House of Lords |
Full Name: | Furniss (Inspector of Taxes) v. Dawson D.E.R., Furniss (Inspector of Taxes) v. Dawson G.E., Murdoch (Inspector of Taxes) v. Dawson R.S. |
Citations: | [1983] UKHL 4, [1984] 1 All ER 530, [1984] AC 474, [1984] STC 153, [1984] 2 W.L.R. 226 |
Judges: | Lord Fraser of Tullybelton, Lord Scarman, Lord Roskill, Lord Bridge of Harwich and Lord Brightman |
Furniss v Dawson [1983] UKHL 4 is an important House of Lords case in the field of UK tax that extended the applicability of The Ramsay Principle.[1] This came from W. T. Ramsay Ltd. v. Inland Revenue Commissioners [1982] AC 300 where a company had made a substantial capital gain and entered into a complex and self-cancelling series of transactions that generated an artificial capital loss. The House of Lords held that where a transaction has pre-arranged artificial steps which serve no commercial purpose other than to save tax, then the proper approach is to tax the of the transaction as a whole.
The three respondents, the Dawsons, were a father and his two sons. They owned two successful clothing companies called Fordham and Burton Ltd. and Kirkby Garments Ltd. (which are together called "the operating companies" throughout the case).
The Dawsons argued:
The tax authorities argued:
The Court of Appeal had given a judgement agreeing with the Dawsons on these points.
The judgement of the court was given by Lord Brightman. The other four judges (Lord Fraser of Tullybelton, Lord Scarman, Lord Roskill and Lord Bridge of Harwich) gave shorter judgements agreeing with Lord Brightman's more detailed judgement.
The court decided in favour of the Inland Revenue (as it then was: it is now HM Revenue and Customs).
The judgement can be viewed as a battle between:
two conflicting ideas which could, at their extremes, be expressed as:
Lord Brightman came down firmly in favour of an extension of the Ramsay Principle. He said that the appeal court judge (Oliver L. J.), by finding for the Dawsons and favouring the Westminster rule, had wrongly limited the Ramsay Principle (as it had been expressed by Lord Diplock in a case called IRC v. Burmah Oil Co. Ltd.). Lord Brightman said:
Oliver L. J. had given considerable weight to the fact that the existence of Greenjacket Investments Ltd. was real and had enduring consequences. At the end of the transaction, the Dawsons did not own the money which had been paid by Wood Bastow Ltd.: instead, Greenjacket Investments Ltd. owned that money and the Dawsons owned Greenjacket Investments Limited. Legally speaking, those are two very different situations. However Lord Brightman saw this as irrelevant. In any case where a predetermined series of transactions contains steps which are only there for the purpose of avoiding tax, the tax is to be calculated on the effect of the composite transaction as a whole.
Furniss v. Dawson has had far-reaching consequences. It applies not only to capital gains tax but to all forms of direct taxation. It also applies in some of the jurisdictions where decisions of the English courts have precedential value.