Upper Tribunal Tax and Chancery Chamber

UT (Tax & Chancery) UT-2023-000031 - [2024] UKUT 00168 (TCC)

Fecha: 13-Mar-2024

The principle is twofold; and it applies to the interpretation of any statutory provision

(ii)

The principle is twofold; and it applies to the interpretation of any statutory provision:

(a)

To decide on a purposive construction exactly what transaction will answer to the statutory description; and

(b)

To decide whether the transaction in question does so (Barclays Mercantile Business Finance Ltd v Mawson (Inspector of Taxes) [2005] STC 1 at [36], [2005] 1 AC 684 at [36]).”

79.

In Berry at [43], Lewison J concluded in relation to Campbell (approving Malcolm Gammie QC’s submissions) that:

“The ground of the [Campbell] decision, as I read it, is that: ‘There is no room for the purpose of the holder of the relevant discounted security to inform the construction of the term “loss”.’ In other words Mr Campbell’s motivation did not automatically deny him his tax relief. They were not saying that the fact-finding tribunal should ignore the reality of the transactions that in fact took place. …

… The relevant point about Campbell is that the provisions of Schedule 13 [FA 1996] were too closely articulated in relation to the reality of the taxpayer’s transactions in that case. It is not that the provisions of Schedule 13 are too closely articulated to exclude the application of the Ramsay principle and to prevent one deciding in any other case what is the tax reality of the taxpayer’s transactions.”

80.

In Andrew Judge Greenbank expressed the position as follows (at [93]):

“…a purposive interpretation of paragraph 14A [of Schedule 13 FA 1996] should, as identified by Lewison J in Berry, seek to give relief to a person who sustains a loss from a discount on a strip where that loss reflects a real commercial outcome. This will normally involve a taxpayer suffering some real economic detriment. In practical terms, in the context of a transaction (such as in Campbell) which is not self-cancelling, the way in which this is achieved is by ensuring that the inputs into the formula in paragraph 14A(3) reflect the reality of the transaction (as described in the extract from Malcom Gammie QC's submissions to which Lewison J refers in Berry at [43]).”

81.

The FTT decision in Pitt concerned paragraph 2 of Schedule 13 rather than paragraph 14A of Schedule 13, the former being the statutory predecessor to the latter. In Pitt the FTT considered that the two provisions were in material respects identical (Pitt at [118]-[119]; see also Andrew at [67]). In Pitt Judge Beare, in the course of setting out principles derived from Astall and Berry, stated (at [120]):

“… (4) the ratio of Campbell was that there was no room for the purpose of the taxpayer in entering into the transactions to inform the construction of the term "loss". The ratio was not that, in applying paragraph 2 of Schedule 13, the relevant court or tribunal should ignore the reality of the transactions which had in fact taken place.

…

(6)

the purpose of paragraph 23 of Schedule 13 [FA 1996] is to provide relief for genuine commercial losses (or “real commercial outcomes” as Lewison J put it). This is not an example of a provision … which operates algebraically without reference to economic reality (see Berry at paragraph [52]).”

82.

In the present case, the FTT was alive to the necessity of ensuring that the “inputs into the formula in paragraph 14A(3) reflect the reality of the transaction” (to use the language of the FTT in Andrew (above), itself referring back to the language of the UT in Berry (above)). As the FTT concluded at [171]:

“…even if it is accepted that the concept of ‘loss’ for para 14A purposes takes on a legal meaning as conferred by the statute, the so-called ‘A-B calculation’ central to Ms Nathan KC’s submissions is not ‘invulnerable’ to Ramsay application.”

83.

There was no material error of law in the FTT’s approach.

84.

Overlapping with the above analysis, the argument also involves the almost contradictory contention that the FTT “missed the significance of Campbell” (Appellant’s Skeleton at [22]), and, accordingly, where legislation “identifies a loss by prescribing a formula to determine the amount of loss or gain, it is not appropriate to import into the analysis or computation of such a loss or gain a ‘real’ world concept of gain or loss” (Appellant’s FTT Skeleton at [68], citing Campbell).

85.

Again, we do not accept this criticism. The short point is that the FTT did not miss the significance of Campbell. It addressed the authority at length, for example at [113]-[116] and 119 at [162]-[163] and [168]-[171], concluding with the passage at [170]-[171] set out above.

86.

The Appellant’s difficulty with the Decision is not so much that the FTT overemphasised or missed the significance of Campbell, but, rather, that it reached the view that the particular fact pattern and particular outcome in Campbell did not provide the answer to the case before it.

87.

Part of the focus of this ground is also the case of UBS. Ms Nathan KC submits that the FTT misunderstood the Appellant’s case. She argues that the Appellant put the UBS approach to statutory construction at the forefront of his case.

88.

However, it is clear from the Decision that the FTT well understood that UBS was at the forefront of the Appellant’s case. Indeed, UBS is expressly referred to in the FTT’s careful summary of the Appellant’s submissions ( [77]):

“77.

..(2) The correct approach to the interpretation of para 14A is as stated in UBS, which requires the Tribunal to start with the statutory language to determine to which facts that statute should be applied. ...”

89.

The FTT does not simply refer to UBS ([77(2)]), without more, but expressly records that the Supreme Court in UBS requires that courts and tribunals “start with the statutory language to determine to which facts that statute should be applied”. In so articulating the position, the FTT was closely echoing the Appellant’s own FTT Skeleton which referred to Lord Reed in UBS “highlight[ing] the dangers of the use of ‘reality’ in statutory interpretation which is not rooted in the language of the statute”.

90.

Having done so, the FTT then went on (Decision at [96]) to quote directly from the very passage of UBS at [67]-[68] upon which the Appellant places reliance.

91.

In short, the FTT demonstrably understood the Appellant’s case, and the role that both Campbell and UBS played within it. It considered and applied all the relevant authorities without material error.

92.

Ms Nathan KC also submits that the FTT erred in concluding that the dispute between the parties in their construction of the meaning of “loss from the discount on a strip” under sub-paragraph 14A(1) of Schedule 13 to FA 1996 exemplified the commercial/legal dichotomy in Campbell - see [157] of the Decision.

93.

For the reasons we have already set out above in relation to Ground 3, we do not accept there was any material error in the FTT’s approach to the ‘commercial / legal dichotomy’. Perhaps it would have been preferable not to refer to ‘loss’ or ‘amounts payable on the transfer’ as being legal or commercial concepts (it may have been better to refer to having regard to economic / commercial outcomes or economic / commercial reality). Nonetheless, the FTT was entitled to examine the economic reality of the transaction in interpreting what was the ‘amount payable on the transfer’, in applying this interpretation to its factual findings and in inputting this figure into the formula for the calculation of loss contained in paragraph 14A(3)(b).

94.

We dismiss Ground 1. There was no material error of law in the FTT’s Decision.