I move amendment No. 123a:
In page 160, before section 130, to insert the following new section:
130.—(1) Section 811A of the Principal Act is amended—
(a) by inserting the following after subsection (1)—
"(1A) Without prejudice to the generality of any provision of this section or section 811, sections 955(2)(a) and 956(1)(c), as construed together with section 950(2), shall not be construed as preventing an officer of the Revenue Commissioners from—
(a) making any enquiry, or
(b) taking any action
at any time in connection with this section or section 811.
(1B) Where the Revenue Commissioners have received from, or on behalf of, a person, on or before the relevant date (within the meaning of subsection (3)(c)) a notification (referred to in subsection (3) and (6) as a ’protective notification’) of full details of a transaction, then the Revenue Commissioners shall not form the opinion that the transaction is a tax avoidance transaction pursuant to subsections (2) and (4) of that section after the expiry of the period of 2 years commencing at—
(a) the relevant date, or
(b) if earlier, the date on which the notification was received by the Revenue Commissioners,
but this subsection shall not be construed as preventing an officer of the Revenue Commissioners from making any enquiry at any time in connection with this section or section 811.
(1C) Where the Revenue Commissioners have not received from, or on behalf of, a person, on or before the relevant date (within the meaning of subsection (3)(c)) a notification (referred to in subsection (3) and (6) as a ’protective notification’) of full details of the transaction, then section 811 shall apply as respects that transaction, if it is a transaction specified or described in a notice of opinion given by the Revenue Commissioners, as if the following clauses were substituted for clauses (I) and (II) of subsection (9)(a)(i):
‘(I) consider that there are grounds on which the transaction specified or described in the notice of opinion or any part of that transaction could reasonably be considered to be a tax avoidance transaction, that the opinion or the opinion in so far as it relates to that part is to stand,
(II) consider that, subject to such amendment or addition thereto as the Appeal Commissioners or the majority of them deem necessary and as they shall specify or describe, there are grounds on which the transaction, or any part of it, specified or described in the notice of opinion, could reasonably be considered to be a tax avoidance transaction, that the transaction or that part of it be so amended or added to and that, subject to the amendment or addition, the opinion or the opinion in so far as it relates to that part is to stand, or',
and the provisions of section 811 shall be construed accordingly.",
(b) in subsection (2)(a) by substituting “20 per cent” for “10 per cent”,
(c) in subsection (3)—
(i) in subparagraph (b)(i) by inserting “the application of subsection (1C) to the transaction concerned or” after “solely to prevent any possibility of ”, and
(ii) in subparagraph (c) by substituting—
(I) "19 February 2008" for "2 February 2006", and
(II) "19 May 2008" for "2 May 2006",
in each place where they occur,
(d) in subsection (6)(b) by substituting “the purposes of subsections (1B) and (3)” for “the purposes of subsection (3)”, and
(e) in subsection (7) by substituting “19 February 2008” for “2 February 2006” in each place where it occurs.
(2) This section applies—
(a) as respects any transaction where the whole or any part of the transaction is undertaken or arranged on or after 19 February 2008, and
(b) as respects any transaction, the whole of which was undertaken or arranged before that date, in so far as it gives rise to, or would but for section 811 of the Principal Act give rise to—
(i) a reduction, avoidance, or deferral of any charge or assessment to tax, or part thereof, where the charge or assessment arises only by virtue of another transaction or other transactions carried out wholly on or after 19 February 2008, or
(ii) a refund or a payment of an amount, or of an increase in an amount of tax, or part thereof, refundable or otherwise payable to a person where, but for section 811 of the Principal Act, that amount or increase in the amount would become first so refundable or otherwise payable to the person on or after 19 February 2008, but where as respects any transaction the Revenue Commissioners have before 19 February 2008 received from, or on behalf of, a person a notification (referred to in subsection (3) and (6) of section 811A of the Principal Act as a "protective notification" and made on or before the relevant date, within the meaning of subsection (3)(c) of that section prior to any amendment made by this section) of full details of the transaction, then the said section 811A shall apply to that transaction as if this section had not been enacted.”.
This amendment proposes changes to section 811A of the Taxes Consolidation Act 1997. Section 811A was introduced by the Finance Act 2006 and is essentially a companion section to section 811, the general anti-avoidance provision. It provides that where Revenue successfully challenges a tax avoidance transaction under section 811, the taxpayer concerned suffers a 10% surcharge on any tax found to be payable and must also pay interest back to the date on which the tax would have first become payable, if there had been no attempt at avoidance. However, the section also gives taxpayers the benefit of a safe haven for any transactions they are contemplating, without exposure to the surcharge and interest. They can avail of this safe haven by making, on a wholly without prejudice basis, a protective notification to Revenue, setting out the full details of the transaction, within 90 days of their first undertaking the transaction.
The primary intention behind section 811A was to encourage taxpayers and their advisers to be open with Revenue with their tax planning. Unfortunately, the response to the protective notification provisions to date has been very disappointing with only eight notifications received by Revenue. The proposed amendments are aimed at increasing the incentive for taxpayers to use the protective notification regime. First, where Revenue's opinion that a transaction is a tax avoidance transaction is either not appealed by the taxpayer or, if appealed, has been upheld by the appeal commissioners and-or the courts, the existing 10% surcharge that applies to the tax the taxpayer was seeking to avoid is being increased to 20%. Second, by way of a positive incentive to taxpayers to make protective notifications, the period within which Revenue must form an opinion that a transaction is a tax avoidance transaction under section 811 which is open-ended at present will be limited, where a full protective notification is made, to a period of two years from the date of notification.
In the case of an appeal against a Revenue opinion that a transaction is a tax avoidance transaction, the appeal commissioners and, in turn, the courts will be required to determine the appeal on the basis of whether there were grounds on which the transaction specified in the Revenue notice of opinion could reasonably have been considered to be a tax avoidance transaction. This contrasts with the present provision where the appeal commissioners and each court are required to base their decision on the existing proof of correctness. They are required, at each level of the appeal process, to form their own opinion as to whether the transaction is a tax avoidance transaction in accordance with the provisions of the legislation. They can, therefore, agree or disagree with the initial Revenue opinion, or with the view taken at a preceding appeal hearing.
In placing a two-year time limit on Revenue forming an opinion that a transaction is a tax avoidance transaction where a protective notification has been made, the amendments restate in more emphatic terms the current position that a notice of opinion under section 811 can, otherwise, be made at any time. As before, a taxpayer can get full protection from the surcharge, the interest charge and the change to the burden of proof on appeal and obtain the certainty and finality of a two-year time limit on Revenue forming an opinion that a transaction is a tax avoidance transaction by the simple expedient of making a protective notification. In such cases the only exposure facing the taxpayer will be to pay the tax which would have been due had the tax avoidance transaction not taken place.
I am making these changes to the protective notification regime with a view to increasing the incentive for taxpayers to disclose their tax planning arrangements to Revenue. If it transpires that taxpayers and their advisers do not use this opportunity to be open with Revenue, I will have no hesitation in revisiting the issue again and proposing such further changes as may be necessary to ensure the provision's effectiveness. In other jurisdictions mandatory protective notification is considered in some cases. I am attempting to bring about co-operation and an open relationship of trust in this arrangement. If there is a finding against an individual in using the protective notification procedure, he or she will pay the taxes due. For those who decide on aggressive tax planning and do not make protective notification, there will be an increase in the surcharge contemplated from 10% to 20%.
Rather than Revenue have an open-ended option to return to an individual's tax affairs who has made a protective notification and claim it was a tax avoidance mechanism, it must come to that conclusion in two years. It is a carrot and stick approach to ensure taxpayers have protections and will not be subject to surcharges if they comply with the protective notification provision. At the same time Revenue is being required to come to conclusions in a reasonable period. This will lead to more co-operation, given that advisers would have to take responsibility for explaining to clients why a protective notification was not made to protect against subsequent surcharges and interest. It is a little more stick but there is a carrot with the two-year provision.