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ACCA Applied Skills · Taxation (UK) · Principal sources of revenue law and practice

In the case of Ramsay, the courts developed a principle for dealing with tax avoidance schemes. Which statement best describes how the courts apply case law on avoidance?

Under the Ramsay approach the courts can treat a series of pre-ordained, artificial steps with no commercial purpose as one transaction and apply the statute to the real substance. Tax reduction alone does not make an arrangement void.

  1. AArtificial pre-ordered transactions with no commercial purpose can be looked at as a whole, so that the tax result follows the real substanceCorrect
  2. BAny arrangement that reduces tax is automatically void
  3. CStatute is ignored if the taxpayer's scheme is complex
  4. DOnly HMRC may decide whether a scheme is effective, not the courts

Explanation

Ramsay allows courts to view a series of pre-planned steps with no commercial purpose as a single composite transaction and apply the statute to its real effect. Reducing tax is not automatically void, since legitimate planning is allowed. Statute is never ignored. The courts, not HMRC alone, decide.

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