McNamee v The Revenue Commissioners

• Jurisdiction: Ireland
• Judge: Mr. Justice Brian J. McGovern
• Judgment Date: 27 November 2012
• Neutral Citation: [2012] IEHC 500
• Court: High Court
• Date: 27 November 2012

[2012] IEHC 500

THE HIGH COURT

[No. 51 J.R./2012]

McNamee v Revenue Cmrs

JUDICIAL REVIEW

COMMERICAL

BETWEEN

RONAN MCNAMEE

APPLICANT

AND

THE REVENUE COMMISSIONERS

RESPONDENT

TAXES CONSOLIDATION ACT 1997 S811(A)

REVENUE CMRS v O'FLYNN CONSTRUCTION LTD UNREP SUPREME FENNELLY 14.12.2011 2011/41/11739 2011 IESC 47

TAXES CONSOLIDATION ACT 1997 S811(12)

TAXES CONSOLIDATION ACT 1997 S811(6)

TAXES CONSOLIDATION ACT 1997 S607

TAXES CONSOLIDATION ACT 1997 S811(6)(A)

FINANCE ACT 2010 S59

FINANCE ACT 2010 S60

TAXES CONSOLIDATION ACT 1997 S811(5)(C)

DELLWAY INVESTMENTS LTD & ORS v NATIONAL ASSET MANAGEMENT AGENCY & ORS 2011 4 IR 1

TREASURY HOLDINGS v NATIONAL ASSET MANAGEMENT AGENCY UNREP FINLAY GEOGHEGAN 7.12.2012 2012 IEHC 518

GAMELL v DUBLIN CO COUNCIL 1983 ILRM 413 1983/2/490

TAXES CONSOLIDATION ACT 1997 S811(7)

TAXES CONSOLIDATION ACT 1997 S811(3)(I)(1)

DE SMITHS JUDICIAL REVIEW 6ED 2007

TAXES CONSOLIDATION ACT 1997 S811(5)(E)(I)

REVENUE LAW

Judicial review

Application for certiorari quashing notice of opinion - Challenge to tax avoidance transaction - Nature of inquiry - Whether notice of opinion given immediately - Whether decision made long before notice given - Whether opinion tainted by pre-judgment and apparent bias - Whether breach of natural or constitutional justice - Alleged lack of opportunity to make representations - Delay - Failure to exhaust alternative remedies - Revenue Commissioners v O'Flynn Construction Ltd [2011] IESC 47, (Unrep, SC, 14/12/2011); Dellway Investment v NAMA [2011] IESC 14, (Unrep, SC, 12/4/2011); Treasury Holdings v NAMA [2010] IEHC 237, (Unrep, Finlay Geoghegan J, 12/6/2012) and Gammel v Dublin County Council [1983] ILRM 413 considered - Taxes Consolidation Act 1997 (No 39), s 811 - Relief refused (2012/51JR - McGovern J - 27/11/2012) [2012] IEHC 500

McNamee v Revenue Commissioners

Facts: These proceedings concerned the applicant's judicial review application regarding an opinion made by the respondent's pursuant to s. 811 of Taxes Consolidation Act 1997 which outlines powers available to the respondent in relation to tax avoidance schemes or transactions. Before the powers can be used, the respondent must decide whether there has been a tax advantage, whether the primary purpose of the transaction is gain a tax advantage and whether the transaction would result in a misuse of the provisions of the Taxes Acts whether it is directly or indirectly. In the present case, the applicant was notified by the respondent that an opinion had been formed that a tax avoidance transaction had been conducted by him when he and his wife had applied for a disallowance of capital gain losses which gave a tax advantage of €6,242,115.26. It was this opinion that the applicant sought to challenge.

It was the applicant's case that under s. 811(6) of the Act, the respondent was obliged to inform him of the notice of opinion as soon as it was formed. It was the applicant's contention that the opinion had been formed long before the notice of opinion was served and that the contents of the opinion were therefore tainted by pre-judgment. This was because the applicant's transaction had been part of group of 26 cases involving 26 different parties carrying out the same transaction, with a number of the opinions being served previously. It was also contended that there a breach of constitutional fairness and natural justice as the respondent refused to serve the applicant with a copy of the report that used in forming the opinion.

Held by McGovern J that in deciding whether the opinion on the applicant's transaction had been served long before the date when the notice of opinion of served, the group of 26 cases were examined and it was deemed they were similar but not identical. It was found that the report which the opinion was based on had been served on the respondent two days before the notice of opinion was served on the applicant. On that basis, it was found that the opinion notification was served at the same time the opinion was formed and that s. 811(6) of the Act was complied with.

On the contention that there had been a breach of natural or constitutional justice, it was held that the applicant had at all times an effective alternative remedy available to him but he had chosen not to pursue it other than initiating an appeal which was subsequently abandoned in favour of these judicial review proceedings. The opinion of the respondent was at all times challengeable until the appeal process was exhausted. Until this was done, the applicant could not hope to rely on this ground.

Application for relief refused.

1 JUDGMENT of Mr. Justice Brian J. McGovern delivered on the 27th day of November 2012

2 1. In these proceedings, the applicant seeks an order of certiorari quashing a notice of opinion dated 24 ^th August, 2011, and the opinion therein referred to which was issued by the respondent to the applicant pursuant to s. 811 of Taxes Consolidation Act 1997 (as amended) ("the Act"). The applicant also seeks further ancillary relief.

3 2. Section 811 of the Act bears the title "Transactions to Avoid Liability to Tax". As the title suggests, the section gives the Revenue Commissioners certain powers in relation to tax avoidance schemes or transactions. The section, which is to be construed with s. 811A, enables the respondent (subject to appeal) to reverse, or set at nought, the effect of certain tax arrangements.

4 3. Before s. 811 can be considered for a particular transaction, the Revenue Commissioners must be satisfied that a challenge does not arise under any other provisions of the Taxes Acts. This has been confirmed by the Supreme Court in Revenue Commissioners v. O'Flynn Construction Ltd. [2011] IESC 47. To come within the ambit of s. 811, the following tests should be applied:

5 (i) Is there a tax advantage?

6 (ii) Is the primary purpose of the transaction to obtain a tax advantage?

7 (iii) Is the avoidance transaction one which would result directly or indirectly in a misuse of the provisions of the Taxes Acts, having regard to the purposes for which those were provided?

8 4. In applying the criteria set out in s. 811, the Revenue is obliged to have regard not only to the form and substance of the transaction, but also the substance of any other transaction which could reasonably be considered to be directly or indirectly related thereto, and the final outcome and result of that transaction and any combination of those transactions.

9 5. Before getting to the point of issuing a notice of opinion under s. 811, it is necessary to identify a transaction as one which may be in nature one of avoidance. Apart from s. 811, there are other provisions within the tax code that the Revenue can rely on to challenge tax avoidance transactions. Section 811 comes into play where the Revenue's investigation reveals a transaction that may constitute a tax avoidance scheme which is not susceptible to challenge under specific legislation. In that event, the Revenue may carry out an investigation and an Inspector of Taxes will prepare a detailed report for the purpose of making a recommendation to a Nominated Officer who is then appointed pursuant to s. 811(12) to consider a particular transaction in the context of the section. The Nominated Officer is the only official within the Revenue that discharges its functions within section 811. He is not involved in the investigation of a transaction that may be sent for his consideration. Thus, he will only become aware of the specific details of a transaction when the investigation process is complete and the Revenue has obtained an understanding of the transaction through information and documentation. The report on the investigation of a transaction is sent to the Nominated Officer and not to the Revenue Commissioners.

10 6. Once the Nominated Officer receives a completed report, together with supporting documentation, he is obliged, in forming an opinion pursuant to s. 811, to consider the transaction in detail, the results of the transaction, its use as a means of achieving those results, any other means of achieving those results, any tax advantage, the primary purpose and the business purpose of the transaction, whether the transaction constitutes a misuse or abuse of a relief, together with the substance of the transaction and other issues. If the Nominated Officer forms an opinion that a transaction is a tax avoidance transaction within the meaning of s. 811, he is required to give notice to the relevant taxpayer that the Revenue has formed an opinion that the transaction is a tax avoidance transaction and set out specific details in any such notice.

11 7. On 24 ^th August, 2011, a s. 811 notice issued to the applicant in respect of a tax avoidance scheme, which will be referred to in greater detail later in this judgment. In the notice, the Nominated Officer informed the applicant that he had formed the opinion that a particular number of transactions entered into by the applicant and his wife, together constituted a "tax avoidance transaction" for the purposes of section 811. As a consequence, he had determined that the "tax advantage" to be withdrawn from the applicant amounted to €5,121,107.60 in 2007, together with a surcharge of €1,121,007.66 ,being 10% of the Capital Gains Tax payable in 2007 (€11,210,076.60), giving a total tax advantage of €6.242.115.26. This arose out of the disallowance of Capital Gains losses claimed by the applicant and his wife. The amount of relief from double taxation was calculated as nil.

12 8. Although the applicant lodged an appeal under the tax legislation against the notice of opinion under s. 811, he did not pursue the appeal because he claims that it only provided him with limited relief. He decided to pursue his grievance...