811D Transactions to avoid liability to tax: surcharge, interest and protective notification

Summary

This section ensures that, where a transaction is a tax avoidance transaction, a 30% surcharge will be payable on the tax that the taxpayer unsuccessfully attempted to avoid paying. This surcharge is reduced if, having entered into a tax avoidance transaction, the taxpayer subsequently makes a full disclosure in relation to the transaction and pays the tax and any interest due at any point before an appeal is heard by the Appeal Commissioners in relation to the withdrawal or denial of the tax advantage sought. The section also provides that, by making a protective notification to Revenue in respect of a transaction within 90 days of beginning a transaction, the taxpayer can, on a wholly nonprejudicial basis, obtain protection from interest, up to the point that Revenue determines a transaction was a tax avoidance transaction, and from a surcharge. In addition, where a protective notification has been made, the time period within which Revenue can challenge a transaction on the basis that it is a tax avoidance transaction under section 811C is limited to the standard period for enquiries and assessments for that tax. A tax advantage can, absent a protective notification, be withdrawn or denied under section 811C at any time.

Details

Definitions and construction

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

“disclosable transaction” is defined as having the meaning assigned to it by the Mandatory Disclosure regime (in Chapter 3 of Part 33), except where certain provisions of that regime have not been complied with by a promoter of a scheme. Essentially, where a taxpayer entered into a transaction without realising it was a disclosable transaction and then co-operates fully with Revenue by giving full details of the scheme and such other information about the promotion of the scheme as Revenue may reasonably require in order to pursue the promoter for penalties, then the transaction will not be treated as a disclosable transaction for the purposes of this section.

(1) & (2) “protective notification” is defined as a notification in the form prescribed for that purpose sent by a taxpayer, or an agent on their behalf, to Revenue providing certain information about a transaction within 90 days of commencing the transaction. The information relates to how the transaction works and why the taxpayer believes section 811C does not apply. In addition, any documentation relating to the transaction must be provided. If the documentation cannot be provided because it is not yet executed, then it must be provided within 30 days of execution.

An expression of doubt is specifically not treated as the making a protective notification and will afford a taxpayer no protection.

A protective notification cannot be made in respect of a disclosable transaction.

(1) “qualifying avoidance disclosure” is a disclosure of complete information in relation to a transaction that would be challenged under section 811C or one of the Specific Anti-Avoidance (SAAR) provisions listed in Schedule 33. A qualifying avoidance disclosure must be in writing, must contain full details of the transaction and must be signed. It must be accompanied by full payment of the tax and any interest due.

“specific anti-avoidance provision” means:

Section 381B

Section 381C

Section 546A

Section 590

Section 806

Section 807A

Section 811B

Section 812

Section 813

Section 814

Section 815

Section 816

Section 817

Section 817A

Section 817B

Section 817C

The surcharge

(3)(a) Where a person submits a tax return and claims the benefit of a tax advantage which would have arisen but for section 811C or one of the SAARs listed in Schedule 33, then that person is liable to a surcharge of 30% of the amount of the tax advantage. The surcharge is not a penalty, and does not result in publication, but it is collected using all of the mechanics of the penalty regime as set out in Chapter 3A of Part 47.

(3)(b) A surcharge will not arise where the taxpayer had either carelessly or deliberately filed an incorrect return in such a way as to give rise to a penalty for filing an incorrect return.

Making a protective notification

(4)(a) This subsection sets out the benefits of filing a protective notification. If a taxpayer has filed a protective notification, or if one is filed on that taxpayer’s behalf, then:

• the provisions of section 811C that allow Revenue carry out enquiries or make assessments outside of the normal time limits for so doing are dis-applied,
• if the transaction is found to be a tax avoidance transaction, the surcharge does not apply, and
• if the transaction is found to be a tax avoidance transaction, the tax is due one month after the date of the assessment in which Revenue withdraws or denies the tax advantage. This mirrors the timeframe for payment of tax in cases where a valid expression of doubt is made.

(4)(b) If Revenue carries out enquiries or makes or amends an assessment outside of the normal time frames, and the taxpayer believes that Revenue is precluded from so doing because a valid protective notification was made, then the taxpayer may ask the Appeal Commissioners to determine whether or not Revenue was so precluded.

Reduction in surcharge

(5) A taxpayer who makes a qualifying disclosure can avail of a reduced surcharge. The extent to which the surcharge is reduced depends on a number of factors.

(a) Where the transaction is not a disclosable transaction, the possible stages at which a qualifying avoidance disclosure is made and the associated surcharge are:

• Prior to Revenue commencing any inquiry and within 24 months of the end of the chargeable period in which the transaction commenced: No surcharge.
• Prior to Revenue withdrawing a tax advantage under section 811C or a SAAR: 3%
• Where the taxpayer agrees with Revenue’s assessment which withdraws or denies the tax advantage: 5%.
• Where the case is settled before an appeal is heard: 10%.

(b) Where the transaction is a disclosable transaction, the possible stages at which a qualifying avoidance disclosure is made and the associated surcharge are:

• Prior to Revenue commencing any inquiry and within 24 months of the end of the chargeable period in which the transaction commenced: 3%.
• Prior to Revenue withdrawing a tax advantage under section 811C or a SAAR: 6%
• Where the taxpayer agrees with Revenue’s assessment which withdraws or denies the tax advantage: 10%.
• Where the case is settled before an appeal is heard: 20%.

In all other cases the surcharge will be 30%.

(6) Where a “protective notification” has been received it will be treated as being made —

1. solely to prevent the imposition of the surcharge and to reduce the interest applicable, and
2. without prejudice to whether the transaction is a tax avoidance transaction or not.

Commencement

(7) This section only applies to transactions which were commenced after 23 October 2014.

Relevant Date: Finance Act 2021