Explainaway Limited Quartfed Limited Parastream Limited v Commissioners for Her Majesty's Revenue and Customs
Decision date: 24 June 2011
Neutral citation: [2011] UKFTT 414 (TC)
Overall AI summary confidence: high
Short overview
This short overview is intended to summarise the case, issues and outcome so far as they are supported by the judgment.
AI confidence in this short overview: high
This appeal concerned a pre-arranged series of derivative and financing steps undertaken by Explainaway and related companies to mitigate a chargeable gain on WRG shares, and HMRC’s disallowance of the resulting losses and interest debits. The Tribunal held that the derivative contracts entered in 2001 and 2002 gave rise to real chargeable gains or allowable losses for TCGA purposes, but the loss on the artificial disposal of Quoform shares was not an allowable capital loss and interest debits on the loan relationships were disallowed under para 13, Sch 9 FA 1996. Appeals were allowed in part and otherwise dismissed.
Ratio decidendi
This summary is intended to identify the ratio decidendi, meaning the legal reasons for deciding and the binding part of the decision.
AI confidence in this ratio decidendi summary: medium
Where a pre‑arranged scheme involves separate legally effective derivative transactions that themselves produce gains or losses, and there is no constituent step within the scheme that operates to eliminate the corresponding gain, the individual derivative transactions should be recognised for tax purposes rather than the whole composite arrangement being disregarded under the Ramsay principle.
Obiter dicta
This summary is intended to identify obiter dicta, meaning observations made by the way that were not necessary to deciding the case and are not binding.
AI confidence in this obiter dicta summary: medium
The Tribunal commented that reliance on predictable movements in an underlying market index (here the FTSE) to generate a loss in a pre‑arranged scheme does not amount to a normal commercial risk, and discussed at length the application of Ramsay jurisprudence and the distinction between schemes where statutory provisions permit purposive commercial construction and those that do not.