811 Transactions to avoid liability to tax

Summary

This is a general anti-avoidance measure that applies to transactions which were commenced on or before 23 October 2014. It is intended to defeat the effects of transactions which have little or no commercial reality but are intended primarily to avoid or reduce a tax charge or to artificially create a tax deduction or tax refund. The taxes covered by section 811 are income tax, corporation tax, capital gains tax, value-added tax, capital acquisitions tax, stamp duty and universal social charge.

The Revenue Commissioners (or a nominated officer) can form an opinion that a transaction is a tax avoidance transaction and give notice to that effect to each person affected by the opinion. The notice describes the transaction, the tax which is intended to be avoided or the refund which is intended to be generated by the transaction and the steps which the Revenue Commissioners propose to take in order to ensure that the tax is not avoided or refunded. The person receiving a notice has 30 days after the date of the notice to contest the Revenue Commissioners’ opinion through the tax appeal procedures.

If their opinion is not appealed, or is upheld on appeal, the Revenue Commissioners are empowered to take the steps described by them in the notice in order to defeat the tax avoidance scheme. If their opinion is not upheld on appeal, they are not entitled to take any further action.

Genuine business transactions, even if carried out in a manner intended to attract the minimum amount of tax, are not to be regarded as tax avoidance transactions. Neither is the legitimate use of a tax relief to be regarded as a tax avoidance transaction. In determining that a transaction is a genuine commercial transaction or the legitimate use of a tax relief, the Revenue Commissioners (and, on appeal, the Appeal Commissioners and the High Court) can have regard to the substance of a transaction, and of related transactions, so as to get behind the mere form of the transaction.

The section applies to all transactions carried out wholly or partly on or after 25 January, 1989 and to transactions carried out before that date which affect tax liabilities arising after that date.

Details

Definitions and construction

(1)(a) Various expressions are defined; some of these are self-explanatory.

“the Acts” applies the section to income tax, corporation tax, capital gains tax, value-added tax, capital acquisitions tax, stamp duty and universal social charge.

“notice of opinion” is the notice given by the Revenue Commissioners to the persons concerned, where they consider a transaction is a tax avoidance transaction.

“tax”, as defined, covers not only the avoidance of the taxes imposed by the Acts but also the avoidance of any interest or penalties payable under the Acts.

“tax advantage” is, essentially, the effect which the would-be tax avoider is trying to achieve through a tax avoidance scheme. It includes reducing the amount of tax payable, avoiding the payment altogether, deferring the payment, generating a refund or payment of tax to the tax avoider and increasing the amount of a refund or other amount payable to the tax avoider.

The reference to “potential or prospective” amounts is to deal with situations where the tax avoidance transaction is carried out now but the benefit of the transaction will not arise until a future date. An example of this would be the artificial creation of a loss which will be used to reduce future gains. The reference to “a transaction where another transaction would not have been undertaken, etc” is intended to defeat arguments to the effect that there is no tax loss (and, accordingly, no tax avoidance) because if the avoidance transaction had not been undertaken, an alternative transaction would not have been undertaken.

“tax consequences” are, in effect, the things which must be done to set the purported effects of the tax avoidance scheme aside and ensure that the “correct” tax is paid. Where the Revenue Commissioners’ opinion that a transaction is a tax avoidance transaction is not contested or is upheld on appeal, they are entitled to make the necessary adjustments to ensure that tax is not avoided.

“transaction” describes the actions and activities which can be considered to be transactions for the purposes of identifying a tax avoidance transaction. The definition is cast in very broad terms in an attempt to cover all types of tax avoidance schemes and devices, including schemes involving collusion between different parties, schemes which involve the use of foreign tax havens and transactions which take place as part of a larger transaction in order to avoid the tax arising on that larger transaction (for example, where a genuine sale of a property takes place but a scheme is inserted as part of the sale transactions in order to avoid capital gains tax on the sale proceeds).

(1)(b) In order to tackle the problem of artificial tax avoidance schemes, the section contains a number of directions to the Revenue Commissioners requiring them to have regard to matters which traditionally have not been taken into account by the Courts in construing tax statutes. These include looking at the substance of a transaction and not just its form and having regard to the intention of a tax statute. This provision secures that the Appeal Commissioners and the High Court are also required to have regard to these matters in determining an appeal.

(1)(c) For the purposes of this section or section 811A any appeal by a taxpayer against a notice of opinion by the Revenue Commissioners under section 811(7) will be deemed to be finally determined when —

1. there is written agreement between the taxpayer and Revenue that the opinion is either to stand or be amended in a particular way,
2. 1. where the agreement was not in writing, a confirmation in writing is made as to the terms of the agreement either by the taxpayer to Revenue or vice versa, as appropriate, and
   2. 21 days have elapsed since the confirmation without challenge by the recipient, or
3. the taxpayer gives notice in writing to Revenue that they do not intend to proceed with an appeal against the Revenue opinion.

Tax avoidance transactions

(2) The term “tax avoidance transaction” is defined. Essentially, the Revenue Commissioners are allowed to look at a transaction by reference to what it brought about and how it went about doing so. If necessary, they can also look at alternative ways of achieving the outcome of the transaction. If having done this, they consider that the transaction effectively had little or no commercial purpose and was entered into primarily for tax avoidance purposes, they can form the opinion that the transaction is a tax avoidance transaction.

(3) The measure does, however, contain an element of comfort and reassurance for business people and for persons claiming tax reliefs. Carrying out genuine business transactions in a manner which attracts the minimum tax charge does not constitute tax avoidance. The test is that the transaction must be a genuine business transaction carried out with a view to the realisation of profit and not primarily for tax avoidance. Likewise, claiming a tax relief in such manner as not to constitute an abuse of the relief is not tax avoidance. In determining whether the transaction is a genuine business transaction or is not an abuse of the tax relief, the Revenue Commissioners must have regard to the substance of the transaction and any related transactions, and not just to the form of the transaction. This is necessary so as to get behind the facade of transactions and see their true purpose.

Revenue opinion that a transaction is a tax avoidance transaction

(4) The Revenue Commissioners may, at any time, form the opinion that a transaction is a tax avoidance transaction, calculate the tax being avoided by the transaction, determine what they consider would be necessary to be done to undo the transaction and give whatever relief they feel might be necessary as a result of their actions in undoing the tax avoidance.

(5)(a) The Revenue Commissioners are empowered to do such acts and make such adjustments as are necessary to undo a tax avoidance scheme. However, these acts and adjustments cannot be carried out until the opinion of the Revenue Commissioners that the transaction is a tax avoidance transaction becomes final and conclusive (that is, the opinion is not contested or is upheld on appeal). In addition, the acts and adjustments must have been specified or described in a notice of opinion or must have formed part of the determination of an appeal.

(5)(b) In taking action to undo a tax avoidance scheme the Revenue Commissioners are empowered to —

• allow or disallow a tax deduction,
• allocate reliefs, income, etc among taxpayers, and
• recharacterise the nature of payments, etc made.

This is to ensure that tax is paid by reference to the real nature of events and that artificially contrived situations are dismantled.

(5)(c) The Revenue Commissioners must give relief where their actions could result in double taxation.

(5)(d) The terms of this anti-avoidance measure require the Revenue Commissioners to outline their proposed actions in a notice to the taxpayer. The taxpayer can then appeal against the actions described in the notice. At the time of the hearing of the appeal, however, the actions will not have taken place. Where the actions described by the Revenue Commissioners in the notice of opinion are upheld on appeal, a second right of appeal will not arise when the actions, which have already been sanctioned under the appeal process, take place.

(5)(e) The opinion of the Revenue Commissioners that a transaction is a tax avoidance transaction becomes final and conclusive if —

• the notice of opinion is not appealed (or none of the notices of opinion, if more than one was issued, is appealed) within the time specified (30 days from the date of the notice), or
• when all appeals against a notice or notices of opinion have been finally determined without it, or them, being determined to the effect that that the Revenue Commissioners were not justified in considering the transaction to be a tax avoidance transaction.

(5A) Provision is made to ensure that once a notice of opinion becomes final and conclusive, then the normal 4 year time-limits which apply to the raising of assessments under various tax heads will not apply.

(5A)(a) The following terms, used in this subsection, are defined:

“assessment” includes a first assessment, an additional assessment, an additional first assessment and an estimate or estimation. These various references are to recognise the different words used to describe what is essentially an assessment under all of the Acts to which section 811 applies.

“amendment”, in relation to an assessment, includes an adjustment, an alteration or a correction of assessment and is included for the same reason as that pertaining to the definition of “assessment”.

(5A)(b) Where an opinion of the Revenue Commissioners, that a transaction is a tax avoidance transaction, has become final and conclusive under section 811, then in order to give effect to that section, any time limit provided for in Part 41 or Part 41A of the TCA 1997 or in any other provision of the Acts on the making or amendment of an assessment or on the requirement etc. on a person to pay the tax

1. shall not apply, and
2. shall not affect the recovery or collection of that tax.

The normal 4 year time limit which might otherwise apply to such assessments and collection procedures will not, therefore, apply. This subsection applies to any assessment or amendment of an assessment which is made on or after 28 February 2012, in respect of any notice of opinion which has become final and conclusive.

(6) Each person affected by an opinion of the Revenue Commissioners that a transaction is a tax avoidance transaction will get a notice describing —

• the transaction which the Revenue Commissioners consider is a tax avoidance transaction,
• the amount of tax which the person is attempting to avoid or the repayment of tax the person is attempting to obtain through the transaction,
• the steps which the Revenue Commissioners propose to take to prevent the avoidance, etc, and
• any relief from double taxation which the Revenue Commissioners propose to give.

Appeals

(7) There is a right of appeal against the Revenue Commissioners’ opinion that a transaction is a tax avoidance transaction. Essentially, a taxpayer can appeal against —

• the opinion itself on the grounds that the transaction is not a tax avoidance transaction,
• the amount of tax which the Revenue Commissioners say the taxpayer is attempting to avoid or the repayment the taxpayer is attempting to obtain,
• the actions which the Revenue Commissioners propose to take to counter the tax avoidance, or
• the amount of the relief from double taxation which it is proposed to give.

The appeal must be made by notice in writing to the Appeal Commissioners within 30 days after the date of the notice of opinion. The taxpayer can appeal on the basis of facts not known to the Revenue Commissioners when they formed their opinion.

The appellant may appeal on more than one of the grounds set out above but may not cite any grounds other than those.

(8) The normal appeal processes apply to an appeal made against the Revenue Commissioners’ opinion. On appeal, the Appeal Commissioners are entitled to review all the facts and obtain whatever information or evidence they require. However, in the course of the appeal, arguments are confined to the grounds of appeal listed previously.

(9) As the nature of the notice of opinion is concerned with things which it is proposed to do, the conduct of the appeal will be somewhat unusual and will not conform to normal procedures where a person is appealing against something already done by the Revenue Commissioners. Accordingly, guidelines are set out as to how the appeals against notices of opinion are to be determined. An appeal against the Revenue Commissioners’ opinion is to be determined by the Appeal Commissioners by them—

• agreeing wholly with the opinion and determining that all of the transaction is a tax avoidance transaction,
• agreeing with part of the opinion and determining that only a part of the transaction is a tax avoidance transaction,
• agreeing wholly or partly with the opinion and determining that some or all of the transaction is or are a tax avoidance transaction subject to such adjustments as they think necessary, or
• rejecting the opinion altogether so that the transaction cannot be regarded as a tax avoidance transaction.

The same guidelines apply to the extent necessary, to the deciding of a point of law by the High Court.

Amendments to notice of opinion

(10) The Revenue Commissioners may amend, add to or withdraw anything contained in a notice of opinion by giving notice of the amendment, etc to each person affected by it. However, the Revenue Commissioners may not set aside a determination of the Appeal Commissioners or the courts which has become final and conclusive.

Secrecy and confidentiality

(11) Provision is included to enable the Revenue Commissioners to deal with tax avoidance schemes involving 2 or more persons. The normal rules on secrecy and confidentiality are relaxed to the extent necessary to enable the Revenue Commissioners to give notices to each person, make the appropriate adjustments in their tax affairs to undo the tax avoidance, deal with appeals involving more than one person and do any other necessary acts.

Delegation

(12) The Revenue Commissioners may nominate any of their officers to carry out their functions under the section.

Application

(13) The section applies to transactions carried out wholly or partly on or after 25 January, 1989. It also applies to a transaction carried out wholly before that date where the transaction is used to reduce a tax charge first arising by reason of activities carried out or events taking place on or after that date or to create a repayment which could only arise on or after that date. For example, if a transaction is used before the date to create an artificial loss which is carried forward to reduce a gain arising after the date, the section will apply to the transaction.

(14) This section does not apply to a transaction which was commenced after 23 October 2014. The section does not need to apply to transactions after that date because it is being replaced in its entirety by section 811C.

Relevant Date: Finance Act 2021