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									Gráinne Duggan |


The likely impact of the Finance Act 2008 amendments to section 811/811A TCA 1997
The general anti-avoidance rules set out in sections 811 and 811A of the Taxes Consolidation Act 1997 (TCA 1997) have been significantly amended by the Finance Act 2008 (FA08), in a measure described by the then Minister for Finance, Brian Cowen, as a “carrot and stick approach” . The changes introduced are wide-ranging and may ultimately prove to be more of a stick than a carrot to the discerning taxpayer.

FA08 introduces four main amendments to the existing anti-avoidance rules:

1. Revenue can now make any enquiry and take any action in relation to a tax avoidance transaction at any time ;
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2. Where a full protection notice is made in relation to a specific transaction, Revenue only have two years to form an opinion on whether or not that transaction is a tax avoidance transaction ;

3. The test to be applied on the appeal of a Revenue opinion that a transaction is a tax avoidance transaction now differs depending on whether a taxpayer issued a protective notification or not. If they did, the appeal will be determined by whether or not a transaction is a tax avoidance transaction. But if not, a broader test of reasonableness will be applied ; and
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4. An increase in the surcharge from 10% to 20% . The New Rules – The Carrot

The amendments significantly enhance the incentive for taxpayers to submit a protective notification to Revenue. Where a taxpayer has any doubt about whether or not a proposed transaction will come within the ambit of sections 811/811A, he or she may be best advised to submit a notice to Revenue. The effect of a protective notification is to provide a safe haven for taxpayers; not only will an interest charge or a surcharge not apply but it will ensure a time limit of two years within which Revenue can investigate a

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In his address to the Select Committee on Finance and The Public Service, 20 February 2008 S811A(1A) 3 A protective notification is provided for under s811A of the TCA 1997, the purpose of which is to protect the taxpayer from having to pay a surcharge and interest in the event of the transaction being found to be a tax avoidance transaction. 4 S811A(1B) 5 S811A(1C) 6 S811(1)(b)

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suspected tax avoidance transaction. This is particularly advantageous when viewed against the Revenue’s new power to make any enquiry or take any action at any time, under sections 811 and 811A.

Submitting a valid protective notification to Revenue may also give a taxpayer a more beneficial treatment on appeal. The new amendments provide that where a taxpayer has submitted a protective notification, the determination of their appeal will be based on whether or not a transaction is a tax avoidance transaction. However, where there is no protection notice, the Appeal Commissioners, or the Courts on appeal, must apply a test of reasonableness and decide whether or not the transaction could reasonably be considered to be a tax avoidance transaction. It is difficult to see how such a difference in treatment in a taxpayer’s appellate rights could be legally sustained. However, so long as it remains unchallenged, it will have a practical effect on the outcome of a taxpayer’s appeal and clearly favour the taxpayer with a protective notification in his or her pocket. The New Rules – The Stick

The disadvantages to the taxpayer of the new amendments may far outweigh any advantages. Where a taxpayer elects not to submit a protective notification to Revenue, he or she may find him- or herself disproportionately punished. Failure to submit a valid protective notification leaves a taxpayer open to any action or any enquiry by Revenue of a suspected tax avoidance transaction. This gives Revenue extremely wide and far-reaching powers in investigating suspected tax avoidance transaction, with absolutely no time limit within which to do so. Given that interest on a deemed tax avoidance transaction can accrue by reference to the date on which the tax avoided would have been payable had the transaction not been entered into, this could result in a significant cost penalty for the taxpayer.

In addition to this increased risk of an interest penalty, the new amendments increase the surcharge payable from 10% to 20%. Aside from the obvious increased financial penalty, it seems likely that this increase has an extra sting it its tale. Section 1086 of the TCA 1997 provides that where a taxpayer settles a tax liability with Revenue and incurs a penalty in excess of 15% of the underpaid tax, Revenue has the power to include his or her name in its list of tax defaulters. It is likely that this increase in surcharge could bring a taxpayer within the remit of s1086 and ultimately provide the greatest stick of all in preventing taxpayers from entering into transactions that could be considered to be tax avoidance transactions. An Incentive to Disclose – Revenue’s Perspective Our general anti-avoidance rules are designed to “defeat the effects of transactions which have little or no commercial reality [and] are intended primarily to avoid or reduce a tax charge or to artificially create a tax

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deduction or a tax refund”. The new amendments to our anti-avoidance rules clearly favour taxpayers who submit protective notifications to Revenue. But why is this so? It seems clear that the system of protective notification as initiated under the Finance Act 2006 was simply not working as Revenue had hoped. Submissions of protective notifications by taxpayers to Revenue provide Revenue with invaluable technical information as to the manner in which taxpayers are seeking to minimise their tax liabilities. Prior to FA08, Revenue had only received 8 protective notifications and has now received 53 new notifications since its enactment. From a Revenue perspective, the benefits of change are already apparent.

The Practical Effect

The effect of these changes is tantamount to introducing a mandatory notification system as the disadvantages of not submitting a protective notification far outweigh the advantages. A taxpayer, together with his or her advisor, will be required to carry out a comprehensive risk assessment in considering whether to engage in a transaction that may be viewed as tax avoidance and whether or not to inform Revenue via its protective notification procedure. For the taxpayer, it will mean increased compliance costs and for the tax advisor, an additional professional responsibility to ensure that a taxpayer is fully informed of the consequences of not submitting a protective notice to Revenue.



Notes for Guidance - TCA 1997 – 2007 Edition, Section 811. Statement of Minister for Finance Brian Lenihan, 10 June 2008, Dáil Debates Vol. 656 No. 2

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