Has anyone any experience of Section 811 anti-avoidance legislation?

This has come up a few times on Askaboutmoney where what appears to be reasonable tax planning is questioned on the grounds that Revenue has wide powers under Section 811 to express an opinion that the transaction is artificial.

This example triggered this post.

I can't find much online about it.

There are some examples here from the Tax Appeals Commission but they seem to relate to huge transactions where individuals have sought to exploit some loophole.

They are complex cases. The taxpayer did some convoluted transaction to create a CGT loss and the Tax Appeals Commission upheld Revenue's view as follows:

158.Therefore, the purchase and disposal of the Bond by the Appellant could have had no commercial purpose other than to crystallise an artificial tax loss. As such, in structuring the Transaction to avail of the connected party provisions in TCA, section 549, I am satisfied that the Appellant procured a significant “tax advantage” of €531,471 and that the purchase and sale of the Bond “was …. arranged primarily …. to give rise to a tax advantage” thereby constituting a “tax avoidance transaction”.

159.Contrary to the positive obligation to demonstrate that there was no “misuse …. or an abuse of” TCA, section 31 “having regard to the purposes for which it was provided”, the Appellant asserted that no purpose could be discerned. Therefore, it is not clear how
the Appellant can succeed when there was no articulation of the purpose of TCA, section 31.

But if an ordinary tax payer transfers his assets to his wife to avail of the ordinary washing out of capital gains on death, how likely is it that Revenue would invoke Section 811?

Yes it's certainly possible. Section 811 is very wide-ranging.

But I presume it's very time-consuming for Revenue and it's mainly targeted at the crazy and widespread artificial schemes that tax advisers were coming up with to exploit loopholes.

Yes, an accountant or tax advisor should alert the client to the possibility that Section 811 might be invoked.

But if a fear of Section 811 stops people from ordinary enough tax planning arrangements, then there is a bigger risk that the tax payer may pay too much tax which they could have avoided.

My questions

1) Is there a good guide to Section 811 in practice anywhere online?

2) Are there any statistics about how often Revenue uses it?

3) Has anyone any experience of it which they could share?

Let's say I transfer all my assets to my wife who has a terminal illness so that the capital gains disappear on death.

Let's say that the Capital Gains thus washed away were €600k so I avoided a potential CGT liability of €200k.

And I am unlucky enough that some Tax Inspector to go after the grieving widower and issue a Section 811 notice claiming the transaction was totally artificial.

What are the penalties for this?

No expertise on the section but spouses transfer assets all the time.

I don’t know how a Revenue staff member would or could ever know about a terminal illness either before or after death.

I’ve experience of it. It’s used by Revenue where seemingly basic tax provisions are misused by clever tax advisers to drive a coach and four through them.

Examples would include the Schroders bond scheme where large capital losses were created on synthetic and leveraged governent bond transactions. Taxpayers ended up with, say, a €10m tax-free gain on a government bond, and a corresponding €10m loss which they could then use against other gains.

Another example was a series of cases where investors claimed large income tax deductions for investing in a contrived trade/business and borrowing in Mexican pesos and Turkish lira where the rates were 15-25% and the currency exposure was then hedged away.

It’s certainly not used for mundane playing within the rules like parking assets with gains in a dying spouse’s name or me funding my wife’s AVCs.

The hurdle is very high for something to be targeted under Section 811. An Inspector has to form a view that something is a tax avoidance transaction and there are detailed steps that lead to that. It doesn’t just have to be undertaken to avoid tax (otherwise everything would fall foul of it). There is also an overarching principle that people are entitled to be structure their affairs efficiently. The planning has to be a misuse or abuse of the relief or abatement and there’s case law on the hurdle for that. Essentially it’s nonsense to cite Section 811 in relation to basic kindergarten stuff.

This is the contrary view.

Copied from another thread as it summarises the position well - Brendan

@Gordon Gekko is 100% correct here - this is all about the distinction between tax planning and tax avoidance; the first entails taking steps to secure the benefit of reliefs / exemptions as they're intended to apply, and the other involves artificial, highly contrived series of steps / transactions to obtain the benefits of reliefs/exemptions in a way that constitutes a misuse or abuse of the relief, having regard to the purpose of the relief.

What was being described here is simply tax planning - there's nothing artificial or abusive about transferring an asset to a spouse to secure a more favourable tax treatment.

Brendan Burgess said:

My questions

1) Is there a good guide to Section 811 in practice anywhere online?

2) Are there any statistics about how often Revenue uses it?

3) Has anyone any experience of it which they could share?

Click to expand...

1) Not really because this is a very niche / high end area of tax practice - as soon as section 811/811C is invoked both sides tend to get lawyered all the way up - senior counsel all round, usually.

2) Yes - there is a PQ from 2021 - I'll share the detail of it below. The rarity of use of the General AA provision under section 811/811C should not be mistaken as indicating that Revenue aren't active in tackling avoidance schemes - it is just that there are specific anti avoidance provisions in various bits of the tax code, under which most avoidance transactions get tackled. Section 811/811C is the fall-back, for when something is sufficiently novel that it isn't caught by anything else.

3) Very few people do, as the stats will make fairly evident.

https://www.oireachtas.ie/en/debate...811&highlight[2]=section&highlight[3]=section

Question:
301. Deputy Róisín Shortall asked the Minister for Finance further to Parliamentary Question No. 82 of 30 June 2021, the percentage of notice of opinion and notice of assessments issued under the general anti-avoidance rules which result in an additional tax yield; and if he will make a statement on the matter. [39253/21]

Answer:
I am advised by Revenue that, of the 517 Notices of Opinion issued by Revenue under section 811 of the Taxes Consolidation Act 1997, 72 are still under enquiry. Of the 445 Notices finalised, 12.4% (55 Notices), resulted in a settlement with Revenue which included additional tax.

I understand that of the 445 notices finalised, 85.2% (379 notices), were withdrawn resulting in a nil yield following the Supreme Court’s decision in the Hans Droog case. As advised to the Deputy in Parliamentary Question No. 82 of 30 June 2021, it was successfully argued by the appellant in that case that time limits set out in legislation relating to the self-assessment system applied also to the general anti-avoidance legislation.

Also as previously advised to the Deputy, I understand from Revenue that no assessments have issued to-date under section 811C of the Taxes Consolidation Act 1997 which applies to tax avoidance transactions commenced after 23 October 2014 and requires the issue by Revenue of a Notice of Assessment instead of a Notice of Opinion. I understand it has been possible for Revenue to challenge tax avoidance transactions identified that took place after 23 October 2014 using specific legislative provisions, therefore to-date it has not been necessary for Revenue to issue assessments under section 811C.

@torbeldnam

That is brilliant. Thanks

For anyone interested in this topic, here is a link to a High Court decision in relation to a judicial review of how Revenue operate section 811 - TAC determinations tend to be so highly redacted that they're challenging to read, so I think this is a better read - this decision sets out the process and extent of the work that is involved when Revenue seek to invoke section 811 (or since 2014 section 811C). It involves multiple layers of management and isn't something that is undertaken lightly.


The decision of the High Court was later confirmed by the Supreme Court in 2016.