… The artificiality caveat proposed by Lord Walker has since been criticised by academics and treated sceptically by judges, in both England and elsewhere, with suggestions that it may not form a meaningful part of the test at all. The reception has been particularly frosty in offshore jurisdictions: in one Isle of Man case, Lord Walker was criticised for ‘having flown this UK policy kite’ in respect of tax avoidance. It must be recognised that the way in which the caveat is presented by Lord Walker left something to be desired in terms of certainty. But my aim here is to defend the artificiality caveat as a factor in the exercise of the court’s discretion: understanding it from this perspective enables greater transparency with respect to the reasoning of the court in such cases. It is clear that the tax context has a bearing on the exercise of the discretion, and so Lord Walker’s explicit recognition that in some cases artificiality would be a reason to decline to set a transaction aside is, I argue, pragmatic. This is all the more so given that the approach in Pitt is otherwise very broad and potentially uncertain, with his Lordship’s insistence that ‘the court cannot decide the issue of what is unconscionable by an elaborate set of rules’. By drawing upon Lord Walker’s dicta, we can instead at least highlight factors which bear on the court’s discretion, and the artificiality caveat is one such factor. After an analysis of the recent case law in this area, in England and offshore jurisdictions, I conclude by considering the broader implications for judging in these cases.
James Lee, ‘Tax, equity and artificiality’ (2018) 31 Trust Law International (4) 219.