This issue highlights a common modern dilemma in tax jurisprudence (if any such actually exist, which is not admitted). Its interpretation often now demands an excursion into metaphysics. There is too much involvement of intention, purpose and motive and the flight from the golden literal rule to the purposive construction of tax law.
While the state of a person’s mind is a question of fact akin to the state of their digestion, it falls to be evinced by reference to their own statements, actions and conduct. It is tough to bear the burden of proof that, for example, no consideration was intended. The legislation of course does not demand that intent, merely that it was furnished as a matter of law; but advisers nowadays must factor in pragmatically the approach of HMRC, and their unilaterally arrogated function as the Thought Police, as a key canon of statutory interpretation.
This is exacerbated by HMG’s facilitating vague, poorly thought out, tax legislation sometimes specifically trailed in advance as potentially disastrous by people like me with 50 years’ bitter experience of advising hapless taxpayers; and often (disgracefully) requiring litigation at taxpayers’ expense in order to determine its meaning. As a lifelong conspiracy theorist, I suspect this to be deliberate Government policy.
My main purpose in this post (especially for non-tax specialists) is to enjoin all those who would essay upon advice about, or active formulation of, action which relies on critically clear operation of tax statutes to be aware that the attitude of HMRC (even if plainly wrong or constitutionally quite improper) is a vital ingredient of your evaluation. Also, every communication of theirs, however apparently banal, is potentially and sometimes actually a step in prospective litigation, for which they have an insatiable appetite and a blank cheque.
Whatever the law seems to say, a clever tax plan is unlikely to survive the impertinent HMRC sniff test unless your client is prepared to accept the cost (and often, much worse, the publicity and hassle) of visiting the Supreme Court if need be. Some of my clients love this challenge but others think it is not worth even a trip to the First Tier Tribunal, only to win but face an immediate appeal.
Do not be misled by the internal review machinery or the published Litigation and Settlement Strategy (LSS): HMRC virtually never acknowledge that a policy position they have internally adopted is wrong until one or more judges so determine without possibility of further appeal. So in practical terms where that adopted position is published e.g in a Manual or definitively advanced in correspondence they will defend it beyond rationality, unlike most commercial litigants represented by rational lawyers.
The LSS is compulsory reading (know your enemy) though largely misinformation. Its most blatantly untrue statement is: “HMRC does not have a monopoly on understanding how tax law applies to a particular set of facts”. Self-evidently, and quotidianally in practice, the facts demonstrate that the megalomaniacs clearly do believe that.