the courts adopted a more literal approach to the construction of legislation in the context of tax-sensitive transactions. Consequently, the courts often refused attempts by HMRC to reclassify arrangements and remove the advantageous tax effects of transactions structured to comply with a literal interpretation of the relevant tax legislation, (see for example IRC v Duke of Westminster ). However, Ramsay heralded the beginning of a new approach to how the courts deal with cases involving tax avoidance. Following Ramsay, the courts have seemed more prepared to consider Parliament’s intention when determining how tax legislation should be interpreted. This has enabled the judiciary both to reclassify transactions according to their real legal effect, for the purposes of applying the legislation to them, and to interpret statute law having regard to its intended purpose. This has led to what some commentators refer to as the judiciary’s ‘purposive approach’ to statutory interpretation. However, the approach taken by the courts is not always consistent, which makes tax planning for legitimate tax mitigation both complicated and uncertain.
In recent years there has been a trend for governments to enact emergency legislation to close down tax avoidance loopholes. This action has resulted in a raft of complicated and often ill-thought out anti-avoidance provisions in tax legislation. It is arguable that a GAAR could provide a simplified anti-avoidance mechanism, which would avoid the need for complicated emergency legislation. http://www.inhouselawyer.co.uk/index.php/corporate-tax/9655-tax-avoidance-the-current-uk-approach?oo=10000938
The courts play a basic and central role as interpreters of the basic tax code and the specific anti-tax avoidance elements within it. Their approach to this task may have a profouund influence on the scope of tax avoidance activity and the nature of the government’s response to avoidance....