The Gazette 1989

GAZETTE

SEPTEMBER

1989

Correspondence 26 June 1989 Mr. Brian A. Bohan, The Law Society, Blackhall Place, Dublin 7. Dear Brian I refer to your letter concerning the introduction of the general anti- avoidance legislation in this year's Finance Act. Following the Supreme Court decision in what has become known as the McGrath case, it was clear, as indicated by me in my Budget speech on 25 January, that the means to counter tax avoidance schemes had to be fundamentally reviewed. It was also clear that the practice of relying solely on specific anti-avoidance provisions, taken only after abuses came to light, was no longer an adequate response to the type of tax avoid- ance schemes which were being marketed and to the growing sophistication of the tax avoidance industry. The Government had no choice but to take action. The alternative was to allow tax avoid- ance to continue on an ever- increasing scale to the extent that it would have endangered the public finances and our economic recovery. The purpose of the general anti- avoidance section now enacted is to nullify 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 section makes clear that genuine business transactions, even if carried out in a tax efficient manner, will not be affected by the new legislation. There is no need for any uncertainty in the mind of the genuine businessman, whether foreign or domestic, or the person making legitimate use of a tax relief provided by the Oireachtas. Concern was expressed about the grounds for appeal under the provision and in particular that an impossible burden of proof was being placed on taxpayers. While that was not in fact the case, in the spirit of reassuring taxpayers and making it clear that the provision was aimed only at tax avoiders, the approach to appealing against the

Revenue opinion was changed from one of "reasonableness" to one of "correctness". This was done by way of. amendment to the Bill at Committee Stage. It is now beyond doubt that the Appeal Comm- issioners and the Courts will uphold an opinion of the Revenue Commissioners only if they consider it to be correct, and they can look at all the relevant facts in arriving at their decision. Your attention is also drawn to the procedures which must be followed before a benefit can be disallowed under the new pro- vision. The Revenue Commission- ers must first form an opinion that a transaction is a tax avoidance transaction. Having formed such an opinion, they must then notify the taxpayer concerned who has 30 days in which to contest it by appealing to the Appeal Com- missioners. There is provision too for the rehearing of an appeal by the Circuit Court and the stating of a case for the High Court on a point of law. There is, therefore, no question of giving an unfettered general power to the Revenue Commissi- oners. At the end of the day, an appeal to the Courts is available and, in the case of dispute, it will be the judgment of the Courts and not the opinion of tax officials which will finally determine the outcome. Under existing arrangements the Revenue Commissioners are pre- pared in certain circumstances involving incentive reliefs to give an opinion in advance on the possible tax consequences of a proposed activity. In addition, the Revenue Commissioners will give, within the limits of their resources, opinions on the tax position of actions which have already taken place. These procedures will not be affected by the new provision. The Revenue Commissioners will con- tinue to assist to the maximum extent possible in dealing with approaches from business or other interests about genuine trans- actions. What they understandably must be wary about is a request for an advance opinion on a hypo- thetical or artificial proposition which is aimed at constructing a tax avoidance scheme. The new provision applies basic- ally to transactions carried out on or after Budget day. Transactions

carried out before Budget day are affected only where the tax which it is sought to avoid arises as a result of activities which take place after that day. To make this clear, I introduced an amendment to the provision at the Committee Stage. In conclusion, I want to stress again that the new legislation does not make tax efficiency illegal - whether for business or family purposes. The target of the pro- vision is, rather, those types of artificial transactions that are undertaken primarily for tax avoidance purposes.

Yours sincerely ALBERT REYNOLDS Minister for Finance.

The Editor, Law Society Gazette, Blackhall Place, Dublin 7. Dear Editor,

The article by Timothy Dalton, Solicitor, on the Civil Legal Aid Scheme, its scope and operation was helpful to Practitioners in their understanding of the theory of the scheme. The reality of the operation of the scheme however is very different from that outlined in the article. The last annual report of the Civil Legal Aid Board was published in 1986 so that the official statistics are now completely out of date. The embargo on recruiting new solicitors has meant that no solicitors who have left the scheme in the past few years have been replaced. If a Centre reaches a staffing crisis a solicitor from another Centre is redeployed. The Centre at Ormond Quay now has five operating solicitors, whereas 18 months ago it had eight. The situation is often exacerbated by holidays, sick leave or maternity leave. More and more frequently the Centres are closed to new clients. Mr. Dalton in his article accepts this but says that there is always a service for emergency cases. Every family case is an emergency case to the spouses and children involved. Contd. on page 294.

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