McNamee v The Revenue Commissioners

• Jurisdiction: Ireland
• Judge: Mr Justice Peter Charleton,Ms. Justice Laffoy
• Judgment Date: 22 June 2016
• Neutral Citation: [2016] IESC 33
• Date: 22 June 2016
• Court: Supreme Court
• Docket Number: Record number 2012/51/JR [2016] IESC

Clarke J

MacMenamin J

Laffoy J

Dunne J

Charleton J

Between

Ronan McNamee

Applicant/Appellant

and

The Revenue Commissioners

Respondent/Respondent

[2016] IESC 33

Charleton J.

Laffoy J.

Record number 2012/51/JR

Appeal number 084/2013

[2016] IESC

An Chuirt Uachtarach

The Supreme Court

Capital Gains Tax ? Constitutional justice ? Statutory duty ? Appellant seeking an order of?certiorari?quashing a notice of opinion ? Whether there was a breach of constitutional justice

Facts: The appellant Mr McNamee?s taxation advisers Kennelly & Twomey Ltd, subsequently from around August 2010 practising under the name or title of Twomey Moran (the Agent), on 21st November, 2008 submitted to the respondent, the Revenue Commissioners, a notice of assessment to Capital Gains Tax for the year 2007, which disclosed that the appellant and his wife had discharged the tax stated to be due as at 31st October, 2007 in the amount of ?6,088,968. By letter dated 25th March, 2009 the appellant was informed that the Revenue Commissioners were engaged in carrying out a review of a number of Capital Gains Tax returns lodged for 2007 and that the review might give rise to the issue of an audit letter. By letter dated 27th June, 2011 from the Revenue Commissioners the Agent was informed that it was intended to prepare a report for submission to the Nominated Officer under s. 811 of the Taxes Consolidation Act 1997. On 22nd August, 2011 Ms Cunniffe, then Principal Officer in the High Wealth Individuals & Professionals Business Unit of the Large Cases Division, submitted a report to the Nominated Officer for consideration by him under s. 811. Two days later, the Nominated Officer sent to the appellant a notice of opinion pursuant to s. 811 in which it was stated that the Nominated Officer had formed the opinion that the ?Transaction?, which was described in the Notice by reference to twenty four actions outlined in paragraphs (i) to (xxiv) which followed, ?is a tax avoidance transaction within the meaning of [s. 811]?. The Notice further stated that the Nominated Officer had determined that the tax advantage which would be withdrawn from the Taxpayer was ?5,121,107.60 in 2007 and the imposition of a surcharge of 10%. Further, the Notice disclosed that the Nominated Officer had determined that the tax consequences of the opinion becoming final and conclusive as being liability to interest in accordance with s. 811A from 31st October, 2007. In the High Court judicial review proceedings initiated in 2012 on foot of a Statement of Grounds dated 19th December, 2011 the appellant sought: (a) an order of?certiorari?quashing the Notice and/or the opinion therein referred to (and the consequent calculations and determinations); (b) a declaration that the Notice and/or the opinion therein referred to is invalid; (c) an injunction restraining the Revenue Commissioners from relying upon or enforcing the Notice and/or the opinion therein referred to; and (d) a declaration that a s. 811 notice of opinion given at a time other than immediately after the forming of the relevant s. 811 opinion is invalid. On 13th December, 2012, the High Court ordered that the appellant?s motion be refused and that the appellant pay the Revenue Commissioners? costs of the motion, including reserved costs and costs of discovery, when taxed and ascertained. The appellant appealed to the Supreme Court against that order. He identified the issues raised on the appeal as the following: (a) whether the trial judge?s acceptance of the proposition that the Revenue Commissioners did not form an opinion that the transaction in question was a tax avoidance transaction prior to 24th August, 2011 is sustainable in the light of the evidence; (b) whether the involvement of a Mr O?Grady and/or the Nominated Officer in the assessment of the transaction within the Revenue Commissioners from 2009 to 2011 was such that the formation of the opinion is tainted by objective bias and/or pre-judgment; and (c) whether the refusal of the Revenue Commissioners to furnish to the Agent a copy of the Report which was submitted by Ms Cunniffe to the Nominated Officer (including the expert reports) for the purpose of persuading him to form an opinion that the transaction in question was a tax avoidance transaction constitutes a breach of natural and constitutional justice such that the resulting step of the purported formation of the relevant opinion by the Nominated Officer is void.

Held by Laffoy J that: (a) the trial judge?s acceptance of the proposition that the Revenue Commissioners did not form an opinion that the transaction in question was a tax avoidance transaction prior to 24th August, 2011 is sustainable in the light of the evidence; (b) the involvement of Mr O?Grady and/or the Nominated Officer in the assessment of the transaction within the Revenue Commissioners from 2009 to 2011 was not such that the formation of the opinion is tainted by objective bias and/or pre-judgment; and (c) the refusal of the Revenue Commissioners to furnish to the Agent a copy of the Report which was submitted by Ms Cunniffe to the Nominated Officer (including the expert reports) for the purposes of persuading them to form an opinion that the transaction in question was a tax avoidance transaction does not constitute a breach of natural or constitutional justice.

Laffoy J held that the appeal must be dismissed.

Appeal dismissed.

Judgment of Mr Justice Peter Charleton delivered on Wednesday, June 22nd 2016

1 This appeal concerns the proper interpretation and application of s. 811(6)(a) of the Taxes Consolidation Act 1997. This is designed to limit the efficacy of what otherwise would be lawful schemes of tax avoidance. Like its predecessor, s. 86 of the Finance Act 1989, this section reduces the room which taxpayers have to manoeuvre out of paying tax through schemes which ostensibly meet the conditions for an exemption or allowance but which are in nature so artificial as to be contrary to the apparent purpose in reducing tax for which the legislation provides. Under the system of government inherited by the State, all forms of taxation result from legislation in parliament. One of the guiding maxims of revenue law is that it does not carry any overriding equitable principles: an activity either does or does not come within the statute imposing a charge to tax. Hence, this is a matter of definition and circumstance and not one of fairness. Thus, it is proper for taxpayers to seek to structure their dealings so as to minimise their exposure to liability. Prior to the enactment of anti tax avoidance measures, apart from a technical challenge to the application of legislation or the reality of the circumstance alleged by the taxpayer, the Revenue Commissioners had no means to overrule schemes which minimised tax liability. Section 811, however, now allows tax avoidance to be analysed on a basis akin to conformity with the underlying purpose of the taxation code. Tax avoidance, nonetheless, remains lawful. Where tax is evaded, that is a criminal offence. The result of unsuccessful tax avoidance sounds only in liability to pay and, possibly interest and surcharges.

2 The taxpayer, Ronan McNamee, is a distinguished businessman. As appellant, he seeks to quash a notice of opinion issued by the respondent Revenue Commissioners on 24th August 2011 pursuant to s. 811 of the Act of 1997. This notice of opinion related to a series of transactions which minimised the taxpayer's and his wife's liability to capital gains tax. This liability came from substantial profits on transactions in 2007 and amounted to about ?57.87 million. The transactions which are now under question were with Schroders, a global asset management firm in London, and seem to have resulted in a loss of ?25.60m. This is said to represent 44% of the capital gains in 2007. Under s. 811 of the Act of 1997, the Revenue Commissioners, or an officer nominated by them, in this case the late Frank Mullen (his familiar name, but he was also called on some correspondence by the name of Peter, or Peter F Mullen), may disallow an avoidance measure. While it is necessary in this judgment to reference elements of the transactions presented to the Court, neither on this appeal nor in the High Court, is this process of judicial review concerned with the facts of the transactions impugned by the Revenue Commissioners. Rather than any issue as to whether the tax planning measure came within the scope of the powers of the Revenue Commissioners to disallow it, it is the process leading to the decision by the nominated officer of the Revenue Commissioners that is in issue. In addition to initiating a judicial review, the taxpayer has appealed the factual decision to the Appeal Commissioners. Since they will be concerned with the facts of the transactions and will be deciding liability to taxation, any reference herein to those circumstances is in no way binding or even suggestive.

3 On this appeal, three issues are raised by the taxpayer arising from the High Court judgment of McGovern J [2012] IEHC 500.

(1) Whether the High Court judge's acceptance that none of the Revenue Commissioners nor the nominated officer on behalf of the Revenue Commissioners formed an opinion that the transaction in question involving Ronan McNamee and his wife was a tax avoidance transaction at any time prior to the 24th August 2011 is sustainable in light of the evidence. Once an opinion is formed by the Revenue Commissioners, or as in this case by the nominated officer, under the legislation the taxpayer should be informed immediately. Thus it is argued delay has undermined the validity of the notification;

(2) Whether the involvement of Commissioner Michael O'Grady or Peter Mullen the nominated officer in...