The World Tax Advisor (Part Two - Continued)

In January 2005, a second case involving the Ramsay principle was decided in a Hong Kong court, this time in favor of the taxpayer. The case at issue, Graceful Mark Limited v. The Commissioner of Estate Duty (Graceful Mark), involved estate duty and the taxpayer successfully convinced the court that the deceased had a commercial purpose to dispose of the property (thus making Ramsay inapplicable).

The Ramsay principle is a common law tax principle that allows the tax authorities to look at the intent of a transaction and ignore the transaction for tax purposes if it had no commercial reason other than the avoidance of tax. The first successful application of this principle against a taxpayer in Hong Kong took place in December 2003, in the Court of Final Appeal’s decision in The Collector of Stamp Revenue v. Arrowtown Assets Limited.