811C Transactions to avoid liability to tax

Summary

This is a general anti-avoidance measure that applies to transactions that are commenced after 23 October 2014. This section supersedes section 811 from that date and 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 this section are income tax, corporation tax, capital gains tax, value-added tax, capital acquisitions tax, stamp duty and the universal social charge.

The section denies any person the benefit of a tax advantage created through the use of a tax avoidance transaction. If a person claims that benefit, contrary to the section, then a Revenue officer can withdraw or deny that tax advantage and that can be done through the making or amending of an assessment. The normal appeal and collection rules apply to an assessment made or amended pursuant to this section.

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.

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, valueadded tax, capital acquisitions tax, stamp duty and the universal social charge.

“assessment” includes any assessment, including any amended assessment, correcting assessment and any 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.

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

“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) This subsection provides that section 811C and section 811D apply, notwithstanding any other provision of the Acts.

Tax avoidance transactions

(2)(a) The term “tax avoidance transaction” is defined. Essentially, one must first consider the substance of the transaction and any related transactions, and not just the form of the transaction. This is necessary so as to get behind the facade of transactions and see their true purpose. One must also consider a transaction by reference to what it brought about and how it went about doing so and to alternative ways of achieving the outcome of the transaction. If having done this, it would be reasonable to consider that the transaction effectively had little or no commercial purpose and was entered into primarily for tax avoidance purposes, then the transaction is a tax avoidance transaction.

(2)(b) The measure does, however, contain 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.

Withdrawing or denying the tax advantage

(3) This subsection provides that a person is not entitled to claim the benefit of any tax advantage that arises from a tax avoidance transaction.

Revenue withdrawing or denying a tax advantage claimed, contrary to subsection (3)

(4)(a) Where, notwithstanding subsection (3), a person has by filing a tax return or in some way sought to claim the benefit of a tax advantage, then a Revenue officer may at any time withdraw or deny that tax advantage.

(4)(b) &(c) In order to withdraw or deny that tax advantage, the Revenue officer

• may make or amend an assessment,
• allow or disallow in whole or in part any credit, deduction or other amount which is relevant in computing tax payable,
• allocate or deny any credit, deduction, loss, abatement, relief, allowance, exemption, income or other amount, or any part thereof, or
• recharacterise, for tax purposes, the nature of any payment or other amount.

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

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

Alternative assessments

(5)(a) An alternative assessment is an assessment made pursuant to a provision of the Acts other than section 811C and which challenges the tax avoidance under that other provision of the Acts.

(5)(b) A Revenue officer who is withdrawing or denying a tax advantage pursuant to section 811C(4), can also raise alternative assessments. This specifically allows Revenue to challenge a transaction under section 811C(4) and other provisions of the Acts at the same time.

(5)(c) A taxpayer may not use the fact that an assessment was made pursuant to section 811C as grounds for appeal against an assessment made pursuant to another provision of the Acts. Equally, a taxpayer may not use the fact that an assessment has made pursuant to another provision of the Acts as grounds for an appeal against an assessment made pursuant to section 811C.

(5)(d) Where Revenue is challenging a transaction under both section 811C and other provisions of the Acts simultaneously, then only one assessment will ultimately become final and conclusive.

Time limits

(6) Except in cases where a protective notification is made under section 811D, nothing in the Acts prevents a Revenue officer from, in relation to this section and section 811D at any time,

• making any enquiry,
• taking any action,
• making or amending an assessment, or
• collecting or recovering any amount of tax relating to a tax advantage.

Secrecy and confidentiality

(7) 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 perform any duties required under this section, 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.

Application

(8) This section applies to a transaction which is commenced after 23 October 2014.

Relevant Date: Finance Act 2019