|[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]|
England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Astall & Anor v Revenue & Customs  EWHC 1471 (Ch) (27 June 2008)
Cite as:  EWHC 1471 (Ch),  BTC 713,  STC 2920,  STI 1646
[New search] [Context] [View without highlighting] [Printable RTF version] [Help]
Strand, London, WC2A 2LL
B e f o r e :
| (1) Mr John Astall
(2) Mr Graham Edwards
|- and -
|Commissioners of Her Majesty's Revenue & Customs
Mr David Ewart QC & Mr Michael Gibbon (instructed by Solicitor for HM Revenue & Customs) for the Respondents
Hearing dates: 12th June 2008
Crown Copyright ©
Peter Smith J:
RELEVANT FACTS – MR EDWARDS
TERMS OF THE SECURITY
1) If the midpoint value of the US Dollar/Sterling exchange rate at 3pm on 28th February 2002 as quoted on Reuters was within a defined range ("a Market Change") and
2) If following a Market Change the note holder proposed to transfer the note and gave the Issuer a Transfer Notice identifying a Third Party (defined as an unconnected person) as the proposed Transferee.
ACTIONS AFTER ISSUE DATE
MR ASTALL'S POSITION
"The statutory provisions relevant to this appeal in Schedule 13 to the Finance Act 1996 as they were in 2001-02 are:"
Charge to tax on realised profit comprised in discount
1—(1) Where a person realises the profit from the discount on a relevant discounted security, he shall be charged to income tax on that profit under Case III of Schedule D or, where the profit arises from a security out of the United Kingdom, under Case IV of that Schedule.
(2) For the purposes of this Schedule a person realises the profit from the discount on a relevant discounted security where—
(a) he transfers such a security or becomes entitled, as the person holding the security, to any payment on its redemption; and
(b) the amount payable on the transfer or redemption exceeds the amount paid by that person in respect of his acquisition of the security.
(3) For the purposes of this Schedule the profit shall be taken—
(a) to be equal to the amount of the excess reduced by the amount of any relevant costs; and
(b) to arise, for the purposes of income tax, in the year of assessment in which the transfer or redemption takes place.
(4) In this paragraph "relevant costs", in relation to a security that is transferred or redeemed, are all the following costs—
(a) the costs incurred in connection with the acquisition of the security by the person making the transfer or, as the case may be, the person entitled to a payment on the redemption; and
(b) the costs incurred by that person, in connection with the transfer or redemption of the security;
and for the purposes of this Schedule costs falling within paragraph (a) above shall not be regarded as amounts paid in respect of the acquisition of a security.
Realised losses on discounted securities
2—(1) Subject to the following provisions of this Schedule, where—
(a) a person sustains a loss in any year of assessment from the discount on a relevant discounted security, and
(b) makes a claim for the purposes of this paragraph before the end of twelve months from the 31st January next following that year of assessment,
that person shall be entitled to relief from income tax on an amount of the claimant's income for that year equal to the amount of the loss.
(2) For the purposes of this Schedule a person sustains a loss from the discount on a relevant discounted security where—
(a) he transfers such a security or becomes entitled, as the person holding the security, to any payment on its redemption; and
(b) the amount paid by that person in respect of his acquisition of the security exceeds the amount payable on the transfer or redemption.
(3) For the purposes of this Schedule the loss shall be taken—
(a) to be equal to the amount of the excess increased by the amount of any relevant costs; and
(b) to be sustained for the purposes of this Schedule in the year of assessment in which the transfer or redemption takes place.
(4) Sub-paragraph (4) of paragraph 1 above applies for the purposes of this paragraph as it applies for the purposes of that paragraph.
Meaning of "relevant discounted security"
3—(1) Subject to the following provisions of this paragraph and paragraph 14(1) below, in this Schedule "relevant discounted security" means any security which (whenever issued) is such that, taking the security as at the time of its issue, the amount payable on redemption—
(a) on maturity, or
(b) in the case of a security of which there may be a redemption before maturity, on at least one of the occasions on which it may be redeemed,
is or would be an amount involving a deep gain, or might be an amount which would involve a deep gain.
(1A) The occasions that are to be taken into account for the purpose of determining whether a security is a relevant discounted security by virtue of sub-paragraph (1)(b) above shall not include any of the following occasions on which it may be redeemed, that is to say—
(a) any occasion not falling within sub-paragraph (1C) below on which there may be a redemption otherwise than at the option of the person who holds the security;
(b) in a case where a redemption may occur as a result of the exercise of an option that is exercisable—
(i) only on the occurrence of an event adversely affecting the holder, or
(ii) only on the occurrence of a default by any person,
any occasion on which that option is unlikely (judged as at the time of the security's issue) to be exercisable;
but nothing in this sub-paragraph shall require an occasion on which a security may be redeemed to be disregarded by reason only that it is or may be an occasion that coincides with an occasion mentioned in this sub-paragraph.
(1B) In sub-paragraph (1A) above "event adversely affecting the holder", in relation to a security, means an event which (judged as at the time of the security's issue) is such that, if it occurred and there were no provision for redemption, the interests of the person holding the security at the time of the event would be likely to be adversely affected.
(1C) An occasion on which there may be a redemption of a security falls within this sub-paragraph if—
(a) the security is a security issued to a person connected with the issuer; or
(b) the obtaining of a tax advantage by any person is the main benefit, or one of the main benefits, that might have been expected to accrue from the provision in accordance with which it may be redeemed on that occasion.
(1D) In sub-paragraph (1C) above "tax advantage" has the meaning given by section 709(1) of the Taxes Act 1988.
(3) For the purposes of this Schedule the amount payable on redemption of a security involves a deep gain if—
(a) the issue price is less than the amount so payable; and
(b) the amount by which it is less represents more than the relevant percentage of the amount so payable.
(4) In this paragraph "the relevant percentage", in relation to the amount payable on redemption of a security, means—
(a) the percentage figure equal, in a case where the period between the date of issue and the date of redemption is less than thirty years, to one half of the number of years between those dates; and
(b) in any other case, 15 per cent.;
and for the purposes of this paragraph the fraction of a year to be used for the purposes of paragraph (a) above in a case where the period mentioned in that paragraph is not a number of complete years shall be calculated by treating each complete month, and any remaining part of a month, in that period as one twelfth of a year".
NATURE OF APPEAL
THE SPECIAL COMMISSIONER'S DECISION
DETAILS OF DECISION
"In my view, the Ramsay approach as explained in Barclays Mercantile entitles and requires me to construe legislation aimed at considering all possibilities in such a way as to limit those possibilities to real ones. A purposive construction of the definition of relevant discounted security must have regard to real possibilities of redemption, not ones written into the document creating the Security that the parties know, and any reasonable person having the knowledge available to the parties knows, will never occur. Mr Prosser's argument that a purchaser of a security must be able to determine from its terms whether it is a relevant discounted security carries no weight in these circumstances. There will only ever be one purchaser of it who is fully aware of the scheme, who will redeem it within seven days so that the Security will be outstanding for a maximum of two months. The purpose of the legislation is to tax gains on securities that are issued at a deep discount and conversely to relieve losses on such securities. The difference between the issue price and the redemption price must give rise to a possibility of making a gain that can be objectively seen to exist. This Security never had this possibility; it is a practical certainty that there will be a loss of 94. To decide otherwise would be to return "tax law [to] being 'some island of literal interpretation'"
"Applying these principles, the Court must identify the purpose of the RDS definition in the context of the statutory RDS provisions as a whole, and construe the definition accordingly. It was clearly intended that a deep gain on a security should fall within the charge to income tax, and losses should be allowable where the security fails to make the taxable deep gain but instead makes a loss. Put differently, there is no discernable intention in the legislation that a taxpayer should be enabled to manufacture allowable losses by the expedient of inserting mechanisms giving the theoretical possibility of deep gains (but in circumstances where the parties intended that instead far deeper losses should be made).
It would be artificial and incorrect on the above principles to limit the investigation to a consideration of whether there is a bare possibility on the face of the security that there "is or would or might be" a deep gain. Importantly, para 3(1) of Sch 13 says "taking the security as at the time of its issue". That must mean taking the security (i.e. the bundle of rights and obligations as created by the taxpayers as part of the scheme, and evidenced in the security document) as a whole, not single provisions out of context".
DETAILED ANALYSIS OF DETERMINATION
"6. I find the following further facts in relation to the actions for finding a purchaser for the Securities:
(1) KPMG deliberately did not seek a purchaser for the Security until after it was issued. It was originally intended that they would not do so until two months after the issue of the Security with the result of the Market Change condition being known one month after issue, but because of the shortness of time KPMG approached banks after the issue of the Securities.
(2) The decision of KPMG not to obtain a purchaser for the securities until after their issue was (as is conceded) purely an intended anti-Ramsay device: ie the only purpose of inserting it was in the hope of repelling an anticipated argument by the Revenue based on WT Ramsay v IRC  STC 300. The Appellants relied on KPMG for this decision and understood that it had been inserted by KPMG as part of the scheme, were duly warned about the risk which the two-part fee arrangement (see paragraph (…) below) takes into account, and they did not ask for this uncertainty to be reduced or avoided by approaching prospective purchasers at an early stage. They were content to rely on KPMG in finding a purchaser.
(3) Mr Stuart Gower of Hambros was first approached by telephone on 30 or 31 January 2002 by Mr Mark Patterson of KPMG not giving any details of the scheme and requesting that he brought a lawyer to a meeting on the following Monday 4 February 2002. (There had been a previous approach to Mr Gower by Mr Kilshaw of KPMG trying to interest Hambros' clients in the scheme, also without giving any details, on 10 September 2001 which Mr Gower referred to his London office but no further action was taken. No mention of a possible involvement of Hambros as purchaser of the Securities was made then.) Mr Gower duly attended the meeting accompanied by a lawyer from Simmons & Simmons. He signed a confidentiality letter and was told that by 4 February 2002 10 clients had Securities where the Market Change condition was satisfied, and for the remainder of the 64 cases it would be determined whether it was satisfied by mid to late February 2002. He was sent a confidential information memorandum of 7 February 2002 with sample documentation. Mr Gower expressed interest and was asked to quote his level of fees. In a telephone conversation with Mr Patterson on 13 February 2002 he was informed about the other banks' quotes (see paragraph 6(11) below) and asked if he could reduce his quote. Mr Gower suggested £220,000 to £250,000. On 19 February 2002 he finally quoted a discount of £235,066 (2.85%) based on a total principal amount of the 64 securities of £164,958,530, 5% of which is £8,247,927. (The discount figures quoted below for other banks are all based on an issue price of £129m, so that the redemption price would be £152,220,000 and on that basis Hambros' discount would be £216,914.) Further documentation was provided to Hambros on 11, 18 and 20 February 2002.
(4) Hambros relied on KPMG for "know your client" money laundering checks. They performed their due diligence on the documents in a data room at KPMG's offices from 26 February 2002.
(5) Hambros made an offer subject to due diligence for the first batch of 37 cases, which did not include the Appellants, on 25 February 2002, stating that a number of formalities, including due diligence, needed to be completed and so they reserved the right not to proceed at any time before the contract was completed. Due diligence of these cases was completed on 28 February 2002.
(6) Hambros emailed their banking division in Jersey and London for approval of the first 37 transactions on 26 February 2002 saying that one transaction was over their unsecured lending limit (the purchase of the Securities being treated as a loan for internal risk purposes) and was being referred to their head office in Paris. The credit application included the following:
The underlying assets supporting the loan note consist entirely of cash in the same currency. As such there is no exposure to market movements of any nature. The cash is held with Lloyds and as such there is a risk upon this institution however this is considered entirely acceptable. The cash balances held will be directly confirmed by the trustees. Furthermore as the Bank will only be entitled to claim 5% of the principal value of the Loan Note there will be 20 times cover held by the Trust in respect of the loan note. The client is presently borrowing against the cash deposit the sum of [£3,278,276 for Mr Edwards; £1,477,000 for Mr Astall] and our margin cover is therefore reduced to a level of [13 times for Mr Edwards; 14 times for Mr Astall] as opposed to 20 times.
We rely upon KBTL [Kleinwort Benson Trustees Limited] in their capacity as the directors of the corporate trustees to meet their obligations under the terms of the loan note. KBTL are liable under the terms of the loan notes and hence have a corresponding right over the funds held by the trust. In view of the fact that KBTL control the funds (they are the sole signatories of the Bank account and the quality of them as the Trust arm of a major international bank, we have no concerns as to their fulfilling their obligations."
The 20 times cover (before taking the borrowings into account) is slightly exaggerated because the 5% is of the redemption value, which is 118% of the issue price, and not of the issue price as suggested here, but they were still well covered. I suspect that the reduction to 13 and 14 times covered should have been a reduction by these figures. Hambros could rely on KBTL being in control of the funds because a trustee could under the terms of the trust be removed only on 14 days notice, which the Appellants warranted in the contract for the sale of the Security had not occurred. The Appellants signed a statement to KBTL that they would not object to the application of the trust funds to meet the redemption, and that they would authorise the payment as co-signatory of the bank account (the signatories were KBTL and either the settlor or his wife). The credit application also said there were no problems in relation to documentation and structural risks, tax risk, or reputational risks.
(7) Hambros first approached their head office in Paris on 28 February 2002 explaining that they did not have all the facts available until 26 February 2002. Further information was provided on 1 March and verbal approval was obtained on 5 March 2002 with written confirmation of this approval being provided on 7 March 2002. Mr Gower said (and I accept) that if that case has been turned down by his head office he would not have gone ahead with any of the others. The approach to the head office was not known to KPMG, who were not told of the delays in obtaining approval.
(8) Hambros received details of the second batch of 22 cases, including the Appellants, on 7 March 2002 and on the same day made a non-binding offer in principle to purchase them. I notice from paragraph (…) above that Mr Astall was told on 4 March 2002 that Hambros had expressed an interest in buying the Security, which was before they had made the offer, and he was asked to sign a transfer notice and let KPMG have it by noon on 7 March 2002.
(9) Hambros were given details of the identities of the clients in the third tranche on 14 March 2002 and made an offer in principle to purchase them on 15 March 2002.
(10) In all cases Hambros elected to redeem the Security at 5% of the redemption value instead of relying on the condition enabling this to be at market value (see condition 3.13 in paragraph above).
(11) KPMG also approached a number of other banks (none being UK High Street banks) on 5 February 2002 by telephone to see if they were interested in purchasing the securities. This was followed by a confidentiality letter which the bank was to sign and return by fax. A Confidential Information Memorandum was then sent and the bank was asked to make an indicative offer by 11 February 2002 (extended to 12 February 2002). If the offer was satisfactory KPMG said they would send a set of documents for approval by the bank's advisers. The reactions of the six banks approached, which I have anonymised to protect their confidentiality since they did not take part in the transaction, were:
(a) Bank A (UK: the country stated is the office dealt with, not necessarily the head office or parent company) were not interested.
(b) Bank B (Guernsey) quoted a total purchase price of £6,375,000 on 12 February 2002 which a note of a telephone conversation on 11 February 2002 shows was mistakenly based on 5% of the issue price and on that basis represents a discount of 1.2%. They also quoted 5 to 10 days to obtain credit committee approval. Mr Patterson said in evidence that he thought that the discount was too low and suspected that they had not understood the proposal properly, which is borne out by their miscalculation. He turned them down on 13 February 2002 on the basis that the 5 to 10 days was too long. They replied saying that such transactions needed head office approval and they should talk about mechanics if a future opportunity arose, which demonstrates that they were interested in such business in principle.
(c) Bank C (not clear which office) said it was outside the scope of their normal activities.
(d) Bank D (Isle of Man) quoted a discount of £370,000 (4.8%) based on an issue price of £130m on 11 February 2002 which they reduced to £300,000 (3.9%) on 12 February. KPMG must have tried for a further reduction as they declined to match the price quoted by KPMG and pulled out of the transaction on 13 February 2002. Mr Patterson suspected that they would have needed a lot of approvals and would have not managed to satisfy the time limit.
(e) Bank E (Jersey) quoted a discount of £115,050 (1.5%) based on an issue price of on 12 February 2002 but wanted a secured instrument, saying in a telephone conversation on 13 February 2002 that if it was unsecured the timescale was too challenging.
(f) Bank F (UK) quoted a discount of £967,500 (15%) on 11 February 2002 which KPMG turned down as being too high.
(g) I also record that Mr Astall said (and I accept) that Coutts, who were advising him, told him, without being prompted, that they would not be interested in purchasing the securities. They were never approached by KPMG.
(12) In summary, KPMG treated Hambros as the favoured purchaser by inviting Mr Gower to a meeting, which they did not do for the other banks. Four of the other banks were interested but were turned down by about 13 February 2002, one on the basis of their quoted time scale but this was the excuse rather than the reason. Hambros were not definite about purchasing until after obtaining their head office approval on 7 March 2002 and even then their offer was not legally binding.
(13) The question for me is the likelihood at the date of issue of the Security (25 January 2002 for Mr Astall; and 31 January 2002 for Mr Edwards) of a purchaser being found for the Security within the time limit which was ideally before budget day and by 5 April 2002 at the latest. Budget day was originally expected to be in the second week in March but it was announced on 28 January 2002 that it would be on 17 April 2002; accordingly by 25 January 2002 the time limit was then known to be 5 April 2002. The two expert witnesses gave evidence about the likelihood, based on different instructions. Mr Milligan was asked for an opinion as at the time of issue; and Mr Cunnell on the assumption that the Market Change condition had been satisfied. Mr Milligan concluded that it would be very challenging within the proposed timescale, and Mr Cunnell concluded that Hambros would have been a willing buyer. They met with a view to agreeing a joint statement but despite extensive discussions there was too much difference in the questions put to each of them to be able to agree a joint statement. I am grateful to them for trying but it seems to me that as Mr Milligan could not make the assumption that the Market Change condition had been satisfied before any sale was to take place his approach was more complicated than it need have been. For example, he considered that a purchaser would want to include an analysis of the pricing of the security before satisfaction of the condition, which he described as "non-trivial" which I can well understand. Mr Cunnell, who had, in my view, more realistic instructions to consider the likelihood of a purchaser being found on the assumption that the Market Change condition had been satisfied, had less relevant experience as he had worked almost entirely with Midland Bank and its successor HSBC, which were not the type of banks that would have considered purchasing the Securities. He was essentially commenting that he did not find the actual dealings by Hambros surprising, which Mr Milligan criticised as being based on hindsight.
(14) I am left on my own to draw a conclusion from the facts found. My view is considerably influenced by (a) Hambros' credit application from which I have quoted, in effect taking a realistic view that there were no risks, (b) that four out of the six banks came up with a price at which they would have been prepared in principle to buy the securities, three of which represented a discount of well under 10%, and (c) Hambros obtained approval from their Head Office in Paris in 7 days, which is within the 5 to 10 days quoted by Bank B. Hambros' view about the risk is what I would have expected of a bank prepared to do this type of business, which I accept would not have included a High Street Bank. They are paying a discount based on a price of 5 when 85 was sitting in a bank account controlled by KBTL as sole director of a newly-formed trustee company (although in the case of both the Appellants the Security was charged to secure some borrowings that ranked ahead of Hambros), in circumstances where all parties were knowingly involved in a tax-avoidance scheme and were not likely to take actions that would prejudice its success. They were essentially buying cash at a discount. KPMG had given figures to the Appellants based on a discount of 10% on the basis of which they went ahead with the scheme and so a discount of this amount was acceptable to them. Even if Hambros had been refused permission by their head office on 7 March, KPMG still had until 5 April to find another purchaser. It had taken Hambros from 4 February to 7 March, which does not suggest that it would be impossible to do so within just under a month.
(15) My conclusion is that while the risk of not finding a purchaser existed and the Appellants were warned about it, it was so small as to be a practical certainty that at the time of issue of the securities (and assuming that the Market Change condition had been satisfied when the purchaser was considering the purchase) KPMG would succeed in finding purchasers willing and able to purchase the securities within the time scale at a discount of not more than about 10%, and that this was known to KPMG".
THE MARKET CHANGE CONDITION
DECISION NOT TO SEEK PURCHASERS
TERMS FOR REDEMPTION
"Accordingly I turn to viewing the facts of the transaction realistically. My appreciation of the facts is as follows:
The scheme is entirely artificial and the Appellants had no commercial purposes in entering into it other than generating an artificial loss to set against taxable income.
The terms of the Security were, in the words of the KPMG memorandum given to clients interested in the scheme, "structured so that it falls within the definition of a relevant discounted security for tax purposes." The premiums of 0.1% under the early redemption option, and 18% on final redemption after either 15 or 65 years, and in particular the same premium for both periods, do not reflect a market return for a zero-coupon security being the last two being about 1.1% and 0.25% respectively compounded annually. The three alternatives given to the Appellants after the Market Change condition had been satisfied that is set out in paragraph (…) above amounted to a choice between (a) redeeming the Security at 100.1 of the issue price (the 0.1 necessarily being paid out of the initial capital of the trust) and accordingly losing the benefit of the fee of 1% plus VAT that had been paid; (b) selling the Security with the hope of a tax loss of 94; and (c) holding the zero-coupon Security for 15 years with an effective annual yield of about 1.1%. Apart from Mr Astall's particular circumstances which I consider below, it was a practical certainty that nobody was going to choose (a) or (c). (This choice reminded me of what in the 1970s became known as the "X sham option." Mr X was a highly respected member of the tax bar who had very reasonably advised the promoter of a tax scheme that it would stand a better chance of success if the taxpayer had a choice of action so that it was not clear that one result was preordained. The promoter took the advice somewhat too literally and wrote an option into the scheme that when one analysed the figures nobody would choose, the name being coined by counsel for the Revenue to pull Mr X's leg about it.)
The choice offered to the purchaser of the Securities was between redeeming them on 7 days notice and realising the discount as a profit, or holding the zero-coupon Securities for 65 years with an effective annual yield of about 4.76% (assuming annual compounding) which Mr Patterson said (and I accept) was about the market rate. It was also a practical certainty that any purchaser would immediately redeem them at 5% of their redemption price, and this was known to KPMG. No purchaser would have considered holding the Securities for 65 years.
The Trustees would not have wished to have the Securities remaining in issue for 65 years. This would have seriously inhibited the investment of the trust funds and might have involved personal liability of the trustees for the whole of this period. They regarded it as a practical certainty that this would not happen, and a reasonable person with the knowledge available to the parties would conclude that the Securities would be immediately redeemed by the purchaser.
It was a practical certainty that the securities would cease to exist within two months of their issue: either (a) the Market Change condition would be satisfied and the securities would be sold and redeemed by the purchaser as above; or (b) in the event of the Market Change condition not being satisfied (the possibility of which I have decided should be ignored, except in relation to Mr Astall), the Appellants would redeem their securities.
Ignoring the existence of the Market Change condition and the possibility of a purchaser not being found, and the consequences of their not being satisfied, as I have already decided, the essence of the scheme is that each of the Appellants subscribes 100 for a Security the terms of which on giving notice to sell it suddenly change so that it is now worth only about 6 (5% of 118). It is then sold to a bank for 6 less a turn for the bank, which redeems it for 6 a week later. The remaining 94 remain in a trust for the benefit of the Appellant (matched by an equivalent tax-free gain in the trust which has had its liability to repay the Security removed)".
"the essence of the scheme is that each of the Appellants subscribes 100 for a Security the terms of which on giving notice to sell it suddenly change so it is now worth only about 6 (5% of 118). It is then sold to a bank for 6 less a turn for the bank which redeems it for 6 a week later. The remaining 94 remain in a trust for the benefit of the Appellants (matched by an equivalent tax free gain in the Trust which had had its liability to repay the Security removed".
UNCERTAINTY RELATING TO MR ASTALL'S INCOME
CRITICISMS OF THE DECISION
"that [i.e. only the relevant facts in the term of the Security] presupposes that the possibility of redemption written into the Security are within the facts when viewed realistically.
A BRIEF EXAMINATION OF THE AUTHORITIES
"THE QUESTION OF CONSTRUCTION"
SPI is entitled to treat the loss suffered on the exercise of the Citibank option as an income loss if the option was a 'qualifying contract' within the meaning of s 147(1) of the Finance Act 1994. Section 147A(1) (inserted by the Finance Act 1996) provides that a 'debt contract' is a qualifying contract if the company becomes subject to duties under the contract at any time on or after 1 April 1996. By s 150A(1) (also inserted by the 1996 Act) a 'debt contract' is a contract under which a qualifying company (which means, with irrelevant exceptions, any company: see s 154(1)) 'has any entitlement … to become a party to a loan relationship'. A 'loan relationship' includes a government security. So the short question is whether the Citibank option gave it an entitlement to gilts.
That depends upon what the statute means by 'entitlement'. If one confines one's attention to the Citibank option, it certainly gave Citibank an entitlement, by exercise of the option, to the delivery of gilts. On the other hand, if the option formed part of a larger scheme by which Citibank's right to the gilts was bound to be cancelled by SPI's right to the same gilts, then it could be said that in a practical sense Citibank had no entitlement to gilts. Since the decision of this House in WT Ramsay Ltd v IRC, Eilbeck (Inspector of Taxes) v Rawling  1 All ER 865,  AC 300 it has been accepted that the language of a taxing statute will often have to be given a wide practical meaning of this sort which allows (and indeed requires) the court to have regard to the whole of a series of transactions which were intended to have a commercial unity. Indeed, it is conceded by SPI that the court is not confined to looking at the Citibank option in isolation. If the scheme amounted in practice to a single transaction, the court should look at the scheme as a whole. Mr Aaronson QC, who appeared for SPI, accepted before the Special Commissioners that if there was 'no genuine commercial possibility' of the two options not being exercised together, then the scheme must fail".
Thus there was an uncertainty [in Craven v White] about whether the alleged composite transaction would proceed to completion which arose, not from the terms of the alleged composite transaction itself, but from the fact that, at the relevant date, no composite transaction had yet been put together. Here, the uncertainty arises from the fact that the parties have carefully chosen to fix the strike price for the SPI option at a level which gives rise to an outside chance that the option will not be exercised. There was no commercial reason for choosing a strike price of 90. From the point of view of the money passing (or rather, not passing), the scheme could just as well have fixed it at 80 and achieved the same tax saving by reducing the Citibank strike price to 60. It would all have come out in the wash. Thus the contingency upon which SPI rely for saying that there was no composite transaction was a part of that composite transaction; chosen not for any commercial reason but solely to enable SPI to claim that there was no composite transaction. It is true that it created a real commercial risk, but the odds were favourable enough to make it a risk which the parties were willing to accept in the interests of the scheme.
We think that it would destroy the value of the Ramsay principle of construing provisions such as s 150A(1) of the 1994 Act as referring to the effect of composite transactions if their composite effect had to be disregarded simply because the parties had deliberately included a commercially irrelevant contingency, creating an acceptable risk that the scheme might not work as planned. We would be back in the world of artificial tax schemes, now equipped with anti-Ramsay devices. The composite effect of such a scheme should be considered as it was intended to operate and without regard to the possibility that, contrary to the intention and expectations of the parties, it might not work as planned".