The cases concerned with the meaning of trade have usually
considered whether the transactions in question had the outward
characteristics of trade. There is, however, another line of cases
starting with Lupton v FA & AB Ltd 47TC580 and running through
to Ensign Tankers (Leasing) Ltd v Stokes 64TC617 that establishes a
parallel and equally important principle. This is that transactions
undertaken solely for fiscal purposes (to get a tax advantage) are
not trading transactions, even if the outward characteristics of
trading are present. Thus, for example, in Overseas Containers
(Finance) Ltd v Stoker [1989] 61TC473 at page 536, the Vice
Chancellor said:
“The meaning of ‘trade’ is not defined by
statute but has been explained as meaning ‘operations of a
commercial character by which the trader provides to customers for
reward some kind of goods or services’: Ransom v Higgs [1974]
1 WLR (50TC1) at p1600 per Lord Reid. The commercial character of a
transaction is normally determined objectively by the nature of the
transaction itself, i.e. is it a transaction of a kind similar to
transactions of the same nature in the commercial world and carried
out in a similar way?: Livingston v. Commissioners of Inland
Revenue 11TC538 per Lord Clyde at p542. However, it is established
by authority that, in addition to such outward badges of trade, the
transactions must have a commercial purpose: F.A. and A.B. Ltd. v
Lupton [1972] AC 634 (47TC580); Coates v Arndale Properties Ltd.
[1984] 1 WLR 1328 (59TC516)."
Although the Vice Chancellor also held that, when considering
purposes in a group context it is legitimate to look at the
purposes of the group as a whole, this was rejected by Parker LJ in
the case of New Angel Court v Adam [2004] 76TC9. When considering
the purpose for which a transaction was undertaken, one should look
at the transaction as a whole from the perspective of the company
in question. Even in a group context, the transaction should be
viewed from the perspective of the individual company.
