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Judgment
Title: | McNamee -v- The Revenue Commissioners |
Neutral Citation: | [2016] IESC 33 |
Supreme Court Record Number: | 84, 85, 86 & 87/13 |
High Court Record Number: | 2012 51 JR |
Date of Delivery: | 22/06/2016 |
Court: | Supreme Court |
Composition of Court: | Clarke J., MacMenamin J., Laffoy J., Dunne J., Charleton J |
Judgment by: | Laffoy J. |
Status: | Approved |
Result: | Appeal dismissed |
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| Judgments by | Link to Judgment | Concurring | Laffoy J. | | Clarke J., MacMenamin J. Dunne J. | Charleton J. | | Clarke J., MacMenamin J. Dunne J. | |
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THE SUPREME COURT
[Appeal No. 84/2013]
Clarke J.
MacMenamin J.
Laffoy J.
Dunne J.
Charleton J.
BETWEEN
RONAN McNAMEE
APPLICANT/APPELLANT AND
THE REVENUE COMMISSIONERS RESPONDENT/RESPONDENT
Judgment of Ms. Justice Laffoy delivered the 22nd day of June, 2016
I. Background
1. At the core of the judicial review proceedings in the High Court against which this appeal is taken is the issue of the liability of the applicant/appellant (the Taxpayer) to Capital Gains Tax in relation to gains on disposals effected by the Taxpayer and his wife in the year 2007. The Taxpayer’s taxation advisers, Kennelly & Twomey Limited, 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 (that is to say, a self assessment) to Capital Gains Tax for the year 2007, which disclosed that the Taxpayer and his wife had discharged the tax stated to be due as at 31st October, 2007 in the amount of €6,088,968. That assessment was based on tax calculated at the rate of 20% on net chargeable gains stated to amount to €30,444,845, following a deduction of €2,540 for exemptions for both. By letter dated 25th March, 2009 the Taxpayer 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. The purpose of the letter was to require the Taxpayer to forward to the Revenue Commissioners “a detailed Capital Gains Tax computation in respect of 2007 together with full supporting documentation”. A copy of that letter had also issued to the Agent. Over the following two years and three months there was a considerable volume of correspondence between the Agent and the Revenue Commissioners in relation to the Taxpayer’s liability to Capital Gains Tax in the year 2007. The correspondence culminated in a letter dated 27th June, 2011 from the Revenue Commissioners to the Agent in which 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 (the Act of 1997).
2. The role and function of a nominated officer is prescribed in subs. (12) of s. 811 of the Act of 1997, which provides that the Revenue Commissioners -
“. . . may nominate any of their officers to perform any acts and discharge any functions, including the forming of an opinion, authorised by this section to be performed or discharged by the Revenue Commissioners and references in this section to the Revenue Commissioners shall with any necessary modification be construed as including references to an officer so nominated.”
In 2008 Peter F. Mullen (the Nominated Officer), the Assistant Secretary in the Large Cases Division of the Revenue Commissioners, had been nominated to perform the function of forming an opinion authorised by s. 811. On 22nd August, 2011 Danielle Cunniffe (Ms. Cunniffe), then Principal Officer in the High Wealth Individuals & Professionals Business Unit of the Large Cases Division, submitted a report (the Report) to the Nominated Officer for consideration by him under s. 811. Two days later, on 24th August, 2011, the Nominated Officer sent to the Taxpayer a notice of opinion (the Notice) pursuant to s. 811 of the Act of 1997 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 of the Act of 1997]”. 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%, the details of the calculation of the tax advantage and surcharge then being set out. Further, the Notice disclosed that the Nominated Officer had determined that the tax consequences of the opinion becoming final and conclusive as being, in summary, in addition to the withdrawal of the tax advantage and the imposition of the surcharge of 10%, liability to interest in accordance with s. 811A of the Act of 1997 from 31st October, 2007.
3. The “Transaction” in respect of which the opinion had been formed that it was a tax avoidance transaction as set out in the Notice comprised the twenty four components outlined, which were, or were related to, actions by the Taxpayer and third parties and which had also been outlined in the Report submitted by Ms. Cunniffe. In order to put those components into context it is useful to consider the Report as submitted by Ms. Cunniffe in some detail.
4. There were some general observations included in the Introduction in the Report (at para. 1.3), where it was stated that the Taxpayer’s case was one of “twenty six similar cases” which had been identified by the Revenue Commissioners. The observations which followed, put the Taxpayer’s case into the broader perspective which overshadows this appeal and stated:
“Six involved the use of straddles and each had the same tax agent as the [Taxpayer]. The other 20 cases achieved similar results using Gilt Forwards and Contracts for Difference. . . . The contracts, in all cases, are with Schroders & Co. Ltd. (Schroders), a U.K global asset management company that provides, among other services, private banking services. The total losses generated in the 26 cases are in the region of €550m with a potential reduction in Capital Gains Tax liabilities of approximately €110m.” (Emphasis in original).
The “twenty six similar cases” have become to be known, and will be referred to, as the “Schroders Ready-Made 26”.
5. While at the commencement of the Report (in para. 1.1) it was disclosed that in the tax year 2007 the Taxpayer and his spouse made a number of disposals that gave rise to gains of €57,872,636, which, as will appear later, arose principally out of the sale of a commercial property in London, the calculations in the Report were subsequently made on the basis of the total gains assessable on the Taxpayer “as the assessable spouse”. That being the case, it simplifies matters to outline the position by reference to the aggregate gains and losses of the Taxpayer and his spouse. In para. 1.1 it was explained that the Taxpayer and his spouse, in the year 2007, jointly entered into “a Foreign Exchange Straddle contract and a Gilt Forward (sic) contract”. A total loss of €25,684,955.41 was incurred by them on the Foreign Exchange Straddle transaction. However, that loss was available for offset against other chargeable gains by virtue of s. 31 of the Act of 1997, that is to say, the gains on the disposals referred to above amounting to €57,872,636. There was a total gain of €25,434,973.65 made on the “Gilt Straddle transaction”. That gain on Irish Government gilts was not chargeable to Capital Gains Tax because of the provisions of s. 607 of the Act of 1997. It was also explained that, when the results of the two contracts, referring to the gilt straddle and the foreign exchange straddle, were taken together, the Taxpayer and his spouse incurred a total monetary loss of €249,981.76. It was recommended to the Nominated Officer in the Report that the transaction (meaning, in essence, the combined effect of the straddle transactions composed of the foreign exchange and the gilt elements and hereafter collectively referred to as the “straddle transactions”) be considered in the context of s. 811, because it was thought that it was entered into primarily to give rise to a tax advantage, in that it resulted in an allowable Capital Gains Tax loss of €25,684,955.41, when there was a monetary loss of only €249,981.76.
6. Following the Introduction, the Report set out the factual situation in relation to the involvement of the Taxpayer and his spouse with Schroders. The twenty four components of the “Transaction” for the purposes of s. 811, which are replicated in the Notice, were set out in Clause 6.2, having been outlined earlier under the heading “Facts” in Clause 2. They commenced with the issue of a signed engagement letter by Schroders to the Taxpayer and his spouse on 24th July, 2007 and then encompassed, in chronological order, the complex formalities of their involvement, and the very complex arrangements entered into, with Schroders, for example, the following:
(a) the countersigning by the Taxpayer and his spouse on 25th July, 2007 of the ISDA Master Agreement signed by Schroders on the previous day;
(b) the granting by the Taxpayer and his spouse of a power of attorney to a third party;
(c) the issuing, the signing by the Taxpayer and his spouse, and the countersigning by Schroders of various documentation in relation to the Gilt Straddle and the Foreign Exchange Straddle contracts in early August 2007; and
(d) the lodgement of €250,000 by the Taxpayer and his spouse to a Schroders Euro bank account on 3rd August, 2007.
7. The implementation, in accordance with the contracts entered into earlier, of the Gilt Straddle and the Foreign Exchange Straddle was outlined in the components at paragraphs (xviii) to (xxiv) in Clause 6.2 of the Report. What follows is a truncated version of the outline of those two elements which made up the straddle transactions. As regards the Gilt Straddle, it is stated that the Taxpayer and his spouse purchased a nominal amount of €25.5m Irish treasury stock through Schroders acting as their agent for €25,539,148.77 on 26th September, 2007 and sold the same to Schroders for €50,974,122.42 on the same day, thus giving rise to a tax exempt gain of €25,434,973.65. As regards the Foreign Exchange Straddle, the Taxpayer and his spouse acquired US$28,991,321.56 on 27th September, 2007 for a combination of Japanese Yen and the payment of a premium in Euro, that is to say, for JPY 3,307,616,424 and a premium of €25,750,000, thus giving rise to a loss of €25,684,955.41 on the Foreign Exchange Straddle.
8. The results of the implementation of the straddle transactions, which was the culmination of all of the actions making up the “Transaction” as referred to in the Notice, were summarised in para. 6.3.1 of the Report as follows:
“The results of the transaction are that the CGT paid by the [Taxpayer and his spouse] on the gains arising in 2007 of €57,872,636 was substantially reduced. This was achieved by entering into a transaction that gave rise to allowable losses of €25,684,955.41 and tax exempt gains of €25,434,973.65. The loss of €25,684,955.41 was set off against the gains of the [Taxpayer and his spouse] in 2007. However the . . . actual monetary loss is only €249,981.76.”
At para. 6.3.4 of the Report it was stated that for a transaction to be a tax avoidance transaction, it must give rise to a tax advantage. It was then stated:
“The tax advantage of this transaction is that [the Taxpayer] avoided paying capital gains tax of €5,121,107.60 in 2007.”
In broad terms, that figure was arrived at on the basis of a calculation that the Taxpayer and his spouse, having been given credit for other Capital Gains Tax losses and the exemption to which each was entitled (€1,270), were liable for Capital Gains Tax at the rate of 20% on €56,050,383, that is to say, in the sum of €11,210,076.60. The sum of €5,121,107.60 was arrived at by giving credit for the sum of €6,088,969 actually paid by the Taxpayer in 2007.
9. The primary focus of the foregoing summary of the Report of Ms. Cunniffe has been to demonstrate the nature of the “Transaction” in respect of which the Nominated Officer formed the opinion that it was a tax avoidance transaction and how the tax advantage, which was found to have been created in 2007, was quantified at €5,121,107.60. There was further analysis in the Report of the application of the provisions of s. 811. On the hearing of the appeal counsel for the Taxpayer was critical of the approach adopted in the Report in relation to the application of s. 811(2), suggesting that there was no analysis of its application. To counter that suggestion, on the other hand, counsel for the Revenue Commissioners laid particular emphasis on the aspects of the analysis relating to the form and substance of the transaction contained in para. 6.5 of the Report. One example pointed to by counsel for the Revenue Commissioners was the basis on which it was suggested that the price paid by Schroders to the Taxpayer and his spouse for the Government Gilts bore no relation to the market price as set out in Clause 6.5.5, wherein the contrast between the price at which the Taxpayer acquired the gilts and the price at which they were immediately thereafter sold to Schroders under the Gilt Straddle is highlighted. While those submissions are adverted to for completeness, for the reasons which will become obvious when the nature of the High Court proceedings the subject of this appeal is considered, on this appeal this Court is not concerned with whether the application of s. 811 to the Taxpayer, as recommended in the Report of Ms. Cunniffe, is correct. Nor is the Court concerned with whether the tax consequences as set out in the Notice issued by the Nominated Officer on 24th August, 2011 are correct. However, before considering the nature of the High Court proceedings, it is appropriate to outline the relevant provisions of s. 811.
II. Relevant provisions of section 811
10. The provision of s. 811 under which the Nominated Officer gave the Taxpayer the Notice is subs. (6)(a). That provision expressly relates back to subs. (2), which defines the expression “tax avoidance transaction” for the purposes of s. 811, and to subs. (4). Sub-section (4), which confers on the Revenue Commissioners the power to form an opinion of the type reflected in the Notice, provides as follows:
“(4) Subject to this section, the Revenue Commissioners as respects any transaction may at any time -
(a) form the opinion that the transaction is a tax avoidance transaction,
(b) calculate the tax advantage which they consider arises, or which but for this section would arise, from the transaction,
(c) determine the tax consequences which they consider would arise in respect of the transaction if their opinion were to become final and conclusive in accordance with subsection (5)(e), and
(d) calculate the amount of any relief from double taxation which they would propose to give to any person in accordance with subsection (5)(c).”
11. The obligation imposed by subs. (6)(a) and the manner of its implementation reflects the provisions of subs. (4), in that it provides as follows:
“Where pursuant to subsections (2) and (4) the Revenue Commissioners form the opinion that a transaction is a tax avoidance transaction, they shall immediately on forming such an opinion give notice in writing of the opinion to any person from whom a tax advantage would be withdrawn or to whom a tax advantage would be denied or to whom relief from double taxation would be given if the opinion became final and conclusive, and the notice shall specify or describe -
(i) the transaction which in the opinion of the Revenue Commissioners is a tax avoidance transaction,
(ii) the tax advantage or part of the tax advantage, calculated by the Revenue Commissioners which would be withdrawn from or denied to the person to whom the notice is given,
(iii) the tax consequences of the transaction determined by the Revenue Commissioners in so far as they would refer to the person, and
(iv) the amount of any relief from double taxation calculated by the Revenue Commissioners which they would propose to give to the person in accordance with subsection (5)(c).”
Prima facie the Notice issued by the Nominated Officer on 24th August, 2011, as the outline of its terms set out above demonstrates, addressed the requirements of sub-paragraphs (i), (ii) and (iii) in subs. (6)(a) and it also addressed the requirement of sub-paragraph (iv), because it stated that the amount of relief from double taxation was calculated at nil. For present purposes, the feature of subs. (6) to which most significance is attached by the Taxpayer is the requirement that the notice in writing of the opinion has to be given “immediately on forming such an opinion”. However, given what the notice is required to specify, reflecting as it does what the Nominated Officer is empowered to do under subs. (4), it must be assumed that those calculations and determinations would have a bearing on the formation of the opinion. Ex facie, one would be entitled to surmise that they are complex tasks. On the facts disclosed by the Report in the Taxpayer’s case, they are undoubtedly complex.
12. Turning to the interpretative provisions in s. 811, it is provided in subs. (1) that the expression “tax avoidance transaction” has the meaning assigned to it in subs. (2), which provides as follows:
“For the purposes of this section and subject to subsection (3), a transaction shall be a ‘tax avoidance transaction’ if having regard to any one or more of the following -
(a) the results of the transaction,
(b) its use as a means of achieving those results, and
(c) any other means by which the results or any part of the results could have been achieved,
the Revenue Commissioners form the opinion that -
(i) the transaction gives rise to, or but for this section would give rise to, a tax advantage, and
(ii) the transaction was not undertaken or arranged primarily for purposes other than to give rise to a tax advantage,
and references in this section to the Revenue Commissioners forming an opinion that a transaction is a tax avoidance transaction shall be construed as references to the Revenue Commissioners forming an opinion with regard to the transaction in accordance with this subsection.”
In relation to subs. (2), it is important to emphasise that it is expressly subject to subs. (3) and that it must be read in conjunction with that subsection. The expression “tax advantage” is given a broad meaning in subs. (1) which covers, inter alia, a reduction, avoidance or deferral of any charge or assessment to tax arising out of or by reason of a transaction. The expression “transaction” is also given a very broad meaning in subs. (1) and includes any series or combination of the circumstances identified, which are, inter alia, any transaction, action, scheme, plan, arrangement, understanding, promise and suchlike, whether entered into by one person or two or more persons.
13. Sub-section (3) elaborates on the approach to be adopted by the Revenue Commissioners in forming an opinion in accordance with subss. (2) and (4) as to whether or not a transaction is a tax avoidance transaction.
14. Paragraph (a) of subs. (3), on the one hand, mandates the circumstances in which the Revenue Commissioners “shall not regard the transaction as being a tax avoidance transaction”, that is to say, if they are satisfied that the requirements of one or other of the alternative criteria set out in sub-paragraphs (i) and (ii) thereof is met. Sub-section (3)(a)(i), which stipulates compliance with a requirement which has two components, provides as follows:
“(3)(a) Without prejudice to the generality of subsection (2), in forming an opinion in accordance with that subsection and subsection (4) as to whether or not a transaction is a tax avoidance transaction, the Revenue Commissioners shall not regard the transaction as being a tax avoidance transaction if they are satisfied that -
(i) notwithstanding that the purpose or purposes of the transaction could have been achieved by some other transaction which would have given rise to a greater amount of tax being payable by the person, the transaction -
The alternative criterion set out in subs. (3)(a) provides as follows:
“or
(ii) the transaction was undertaken or arranged for the purpose of obtaining the benefit of any relief, allowance or other abatement provided by any provision of the Acts and that the transaction would not result directly or indirectly in a misuse of the provision or an abuse of the provision having regard to the purposes for which it was provided.”
As counsel for the Taxpayer pointed out, as it is concerned with relief and suchlike, that sub-paragraph is not of relevance in relation to the assessment of the Taxpayer’s liability in relation to the “Transaction” referred to in the Notice.
15. Paragraph (b) of subs. (3), on the other hand, mandates what the Revenue Commissioners “shall have regard to” in forming such an opinion and provides as follows:
“In forming an opinion referred to in paragraph (a) in relation to any transaction, the Revenue Commissioners shall have regard to -
(i) the form of that transaction,
(ii) the substance of that transaction,
(iii) the substance of any other transaction or transactions which that transaction may reasonably be regarded as being directly or indirectly related to or connected with, and
(iv) the final outcome and result of that transaction and any combination of those other transactions which are so related or connected.”
16. The application of the predecessor of s. 811, s. 86 of the Finance Act 1989 (the Act of 1989), was considered by this Court in Revenue Commissioners v. O’Flynn Construction Company Limited [2013] 3 I.R. 533. While there are some differences between the provisions of s. 86 and the provisions of s. 811, subss. (2) and (3) in each are in substance the same, although subs. (3) of s. 811 in the Act of 1997 is somewhat different in drafting form to the analogous subsection in the Act of 1989. The following observations of O’Donnell J. in Revenue Commissioners v. O’Flynn Construction Company Limited as to the construction of s. 86 are pertinent to the construction of s. 811. O’Donnell J. stated (at para. 65):
“Prior to s. 86 the only question was whether or not the transaction came within the strict words of the statute sometimes literally and narrowly construed. In the case of a tax statute, if the component parts of the transaction did not come within the provision, then it was not possible to look at the substance of the transaction to contend that tax should be applied. Similarly in the case of a relief, if the transaction came within the words of the provision granting relief then the relief must be granted, no matter how contrived the scheme, nor how far removed it was from the activity sought to be encouraged by the relief. But under s. 86 the potential tax benefit to a tax payer may be disallowed if the Revenue Commissioners come to the conclusion that the transaction is one designed to confer a tax advantage and constitutes a tax avoidance transaction. As the Appeal Commissioners in this case observed, the essential starting point to the application of s. 86 is a determination that absent its provisions the taxation charge would not apply, or in the case of an exemption, that its benefit would be available to the tax payer, on a literal construction of the language of the relevant statute.”
17. The further observations of O’Donnell J. (at para. 66) are particularly enlightening. He continued:
“Looked at in this light, s. 86(2) and (3) appear to be directed towards making the difficult distinction between a commercial transaction which has been legitimately structured in such a way as to mitigate the tax view (sic) on the one hand, and a purely tax driven transaction designed to give rise to a tax advantage on the other. This is apparent from the provisions of s. 86(2)(ii) and its mirror image in s. 86(3)(a)(ii). The fact that any given transaction gives rise to a tax advantage is not in itself enough to disallow that benefit. Such a transaction only becomes a tax avoidance transaction if it satisfies the requirements of s. 86(2). That subsection directs the Revenue Commissioners to have regard to the results of the transaction, and its uses and means of achieving those results and any other means by which part of the results could have been achieved. In considering this issue the proviso to s. 86(3) requires that the Revenue Commissioners have regard both to the form and substance of the transaction. The transaction will be a tax avoidance transaction if the Revenue Commissioners (having considered the matters set out above, i.e. results, use, form and substance) form the opinion that the transaction gives rise to a tax advantage and that ‘the transaction was not undertaken or arranged primarily for purposes other than to give rise to a tax advantage’.”
By way of explanation, the proviso to s. 86(3) corresponds to para. (b) of subs. (3) of s. 811.
18. As a matter of construction of the foregoing provisions of s. 811, when one considers subss. (2), (3) and (4) together, while it is true that in subs. (4) the task of forming an opinion that a transaction is a tax avoidance transaction is separate and distinct from the tasks of, inter alia, calculating the tax advantage and determining the tax consequences, before forming an opinion in accordance with those provisions, the Revenue Commissioners must consider the matters outlined in subss. (2) and (3), which O’Donnell J. succinctly summarised as “results, use, form and substance”. Those matters must be considered by reference to a specific transaction which comes within the definition in subs. (1), not by reference to, say, some form of tax avoidance scheme of which the Revenue Commissioners have become aware. Moreover, the task of the Revenue Commissioners under subs. (6)(a), once the opinion that a transaction is a tax avoidance transaction has been formed, is to immediately give notice in writing of the opinion. That notice must specify the matters prescribed in sub-paras. (i) to (iv), including specifying the tax advantage as calculated and the “tax consequences” as determined. The expression “tax consequences” is defined in subs. (1) as meaning -
“. . . such adjustments and acts as may be made and done by the Revenue Commissioners pursuant to subsection (5) in order to withdraw or deny the tax advantage resulting from the tax avoidance transaction.”
Accordingly, when forming the opinion, the Nominated Officer must be in a position to calculate the tax advantage and determine the tax consequences. Otherwise he or she will not be in a position to comply with the requirements of subs. (6)(a).
19. Giving effect to the tax consequences is dealt with in subs. (5), which empowers the Revenue Commissioners, where the opinion that a transaction is a tax avoidance transaction becomes final and conclusive, to make all such adjustments and do all such acts as are just and reasonable in order that the tax advantage resulting from a tax avoidance transaction shall be withdrawn from or denied to any person concerned. Paragraph (e) of subs. (5) outlines when the opinion becomes final and conclusive and provides as follows:
20. Sub-section (7) provides for an appeal by any person aggrieved by an opinion formed under s. 811 to the Appeal Commissioners. However, it expressly limits the grounds on which the appeal may be brought to the following:
“. . . only on the grounds that, having regard to all of the circumstances, including any fact or matter which was not known to the Revenue Commissioners when they formed their opinion or made their calculation or determination, and to this section -
(a) the transaction specified or described in the notice is not a tax avoidance transaction,
(b) the amount of the tax advantage or the part of the tax advantage, specified or described in the notice which would be withdrawn from or denied to the person is incorrect,
(c) the tax consequences specified or described in the notice, or such part of those consequences as shall be specified or described by the appellant in the notice of appeal, would not be just and reasonable in order to withdraw or to deny the tax advantage or part of the tax advantage specified or described in the notice, or
(d) the amount of relief from double taxation which the Revenue Commissioners propose to give to the person is insufficient or incorrect.”
21. Some features of the application of s. 811 and related sections of the Act of 1997 to the Taxpayer emerged in the course of the hearing of the appeal in this Court. It was made clear that the Taxpayer has appealed against the Notice issued by the Nominated Officer on 24th August, 2011 by letter dated 20th September, 2011 and that the appeal has been admitted, albeit on the basis that two of the grounds relied on by the Taxpayer do not fall within the ambit of the grounds of appeal specified in subs. (7) of s. 811, one of those grounds being that s. 811 “is unconstitutional”. This Court was informed that the appeal to the Appeal Commissioners is still in being pending the outcome of this appeal. Further, while the Taxpayer could have availed, but did not avail, of the protective notification procedure provided for in s. 811A of the Act of 1997 with a view to avoiding liability for a surcharge and interest in the event of the appeal being unsuccessful, that feature is only of peripheral relevance to the issues on this appeal.
III. High Court proceedings
22. In the High Court judicial review proceedings initiated in 2012 on foot of a Statement of Grounds dated 19th December, 2011 the Taxpayer sought, inter alia, the following reliefs:
(a) an order of certiorari quashing the Notice of the Nominated Officer issued on 24th August, 2011, 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 (and the consequent calculations and determinations) is invalid;
(c) an injunction restraining the Revenue Commissioners from relying upon or enforcing the Notice and/or the opinion therein referred to (and the consequent calculations and determinations); 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.
The grounds ultimately relied on to support the relief sought in the High Court were the grounds set out in a Revised Statement of Grounds dated 5th March, 2012. In the judgment of the High Court delivered by McGovern J. (the trial judge) on 27th November, 2012 ([2012] IEHC 500) the grounds were considered under three headings and the approach adopted on behalf of the Taxpayer on the appeal has been to identify the issues on the appeal by reference to those three headings.
23. The first heading considered by the trial judge was whether the Notice of the Nominated Officer issued on 24th August, 2011 was given immediately, that is to say, “immediately on forming such an opinion”, in accordance with subs. (6) of s. 811. The related issue on the appeal is 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. In the Revised Statement of Grounds two grounds were relied on. First, it was asserted that the Revenue Commissioners had formed the opinion that the transactions entered into by the Taxpayer and his spouse between July and September 2007 were tax avoidance transactions for the purposes of s. 811 sufficiently far in advance of 24th August, 2011 that the Notice issued by the Nominated Officer on 24th August, 2011 failed to comply with the requirement under s. 811 that, on formation of such an opinion, notice of such opinion be given immediately to any person from whom a tax advantage would be withdrawn or denied and, accordingly, that the Notice and the determination that the claimed Capital Gains Tax losses be disallowed are in breach of statutory duty, are ultra vires and void. Secondly, it was asserted that the Taxpayer was a member of the so-called “Schroders Ready-Made 26” and, as such, when the Revenue Commissioners formed the relevant opinion in relation to any one or more of that group, the Revenue Commissioners were immediately under a statutory duty to notify all the other members that they had formed such an opinion, as each member was a person from whom a tax advantage would be withdrawn or denied if the opinion became final and conclusive. By failing to notify each of the members and, in particular, the Taxpayer each time the Revenue Commissioners formed the relevant opinion, they were in breach of their duty under s. 811. Alternatively, when the Revenue Commissioners first formed the relevant opinion in relation to any one or more of the members, they must be deemed to have formed the relevant opinion in relation to the Taxpayer.
24. The second heading identified by the trial judge was whether the opinion formed by the Nominated Officer was tainted by pre-judgment and apparent bias. In the Revised Statement of Grounds it was asserted that by 24th August, 2011 the Revenue Commissioners had long since pre-judged the issue as to whether the transactions in question were tax avoidance transactions within the meaning of s. 811, so that the Notice and the determination that the claimed Capital Gains Tax losses be disallowed are ultra vires and void. That ground was elaborated on in that it was asserted that one of the Revenue Commissioners, Michael O’Grady (Mr. O’Grady), was involved in the investigation of the Schroders Ready-Made 26 and subsequently in the formation of the relevant opinion. Depending on the extent of Mr. O’Grady’s role in the investigation, the Revenue Commissioners, when forming the relevant opinion, “were guilty of either actual or apparent (objective) bias” such that the Notice and the determination were ultra vires and void, it was asserted, but it being recorded that pending discovery the extent of Mr. O’Grady’s involvement was unknown to the Taxpayer.
25. The third heading identified by the trial judge was whether there was a breach of natural or constitutional justice. While it was emphasised by counsel for the Revenue Commissioners that that ground was not part of the original grounds, the reality is that the trial judge addressed it. On the procedural aspect of that point, it is to be observed that in his judgment the trial judge (at para. 49) extended the time for pursuing the reliefs sought in paras. 5(c) and (d) of the Revised Statement of Grounds. The basis on which this ground was advanced was that, although the Revenue Commissioners notified the Taxpayer by the letter of 27th June, 2011 referred to above that the review of the transactions had been completed and that a report was being prepared for submission to the Nominated Officer, the Revenue Commissioners, despite being requested by the Agent by letter of 1st July, 2011 to do so, declined to furnish a copy of the Report, nor did they furnish to the Taxpayer the grounds upon which and the reasons for which they were considering or proposing to form the opinion, nor the grounds, reasons or circumstances which they considered made it appropriate to invoke s. 811. Accordingly, is was asserted, the Revenue Commissioners failed to afford the Taxpayer any opportunity or any meaningful opportunity to make representations on the grounds or the reasons for the proposed decision, or as to why the Revenue Commissioners should not form the opinion in question and should not disallow the claimed Capital Gains Tax losses and, separately, as to why it was not an appropriate case in which to invoke s. 811.
26. There were some unusual features of the process in the High Court to which it is necessary to advert.
27. First, as is usual, the Taxpayer’s application was grounded on affidavits sworn by the Taxpayer as applicant. However, there was exhibited in the grounding affidavit internal Revenue Commissioners’ documents, which the Taxpayer, through the Agent, had obtained on foot of requests under the Freedom of Information Acts 1997 to 2003 prior to the initiation of the proceedings. Most of those documents were subsequently discovered by the Revenue Commissioners, pursuant to an order of discovery made in the High Court. Moreover, many of them were exhibited in the affidavits subsequently filed. The status of those documents, some of which were described by counsel for the Taxpayer as the “key documents”, was explained on the hearing of the appeal by counsel for the Taxpayer. He indicated that they were admitted into evidence by the High Court as being documents proven in their own right, but not as necessary proof of the truth of what was contained in them. Put another way, counsel acknowledged that the documents themselves were evidence of their creation, when they were created and the persons who created them and the persons to whom they were sent or copied. What was stated by counsel on the hearing of the appeal is consistent with what is disclosed as to their status in the transcript of the proceedings in the High Court. Counsel for the Revenue Commissioners did not dissent from that outline of the status of the documents as admitted in the High Court.
28. Secondly, subsequently to the filing of the Taxpayer’s grounding affidavits, contemporaneously with the filing of a Statement of Opposition on behalf of the Revenue Commissioners, four replying affidavits were sworn by officers of the Revenue Commissioners, namely -
(a) Mr. O’Grady, who, as indicated earlier was one of the Revenue Commissioners;
(b) the Nominated Officer;
(c) Breda Ruddle (Ms. Ruddle), an Assistant Secretary in the Revenue Commissioners, who had been an officer in the Large Cases Division; and
(d) Ms. Cunniffe.
While further affidavits were filed on behalf of each party, what is of particular relevance for present purposes is that, following receipt of discovery from the Revenue Commissioners, the Taxpayer applied to court for an order directing the attendance for cross-examination of each of the four deponents on behalf of the Revenue Commissioners named above at the hearing of the proceedings. By order of the High Court (Kelly J.) made on 30th July, 2012 it was ordered that each of the four deponents attend for the purpose of cross-examination at the hearing of the proceedings, it being made clear that it was a matter for the trial judge to decide the extent to which such cross-examination was necessary or the extent to which it should be permitted.
29. The judicial review proceedings came on for hearing in the High Court on 30th October, 2012 and were at hearing for four days. Each of the deponents directed by the order of 30th July, 2012 to attend was in attendance. However, counsel for the Taxpayer sought only to cross-examine Ms. Ruddle and the cross-examination was narrowly focused on the timing of when the Revenue Commissioners sought and obtained expert opinions from external experts in relation to underlying so-called Schroders Ready-Made 26 transactions. Following an objection by counsel for the Taxpayer to counsel for the Revenue Commissioners straying, in the course of re-examination of Ms. Ruddle, beyond what was raised in cross-examination, the trial judge ruled that he was not going to permit any further questioning outside the matters which were raised in cross-examination. Accordingly, apart from the very limited cross-examination of Ms. Ruddle, the evidence before the High Court was evidence on affidavit.
30. At the time he swore the replying affidavit on behalf of the Revenue Commissioners the Nominated Officer had just retired from his position as Assistant Secretary to the Revenue Commissioners with responsibility for the Large Cases Division, which function he had performed from February 2008 to 29th February, 2012 and from his position as Nominated Officer to which he had been appointed on 16th April, 2008. This Court has been informed that the Nominated Officer has since died. In his affidavit the Nominated Officer averred that the earliest date on which he had knowledge of the transaction entered into by the Taxpayer and his spouse was 22nd August, 2011, the date on which he obtained the Report from Ms. Cunniffe. He also averred that he did not get involved in any way whatsoever in the investigation of any transaction entered into by the Taxpayer and his spouse, nor did he have any discussion with any Inspector of Taxes in relation to the case. Referring specifically to an averment made by the Taxpayer in his grounding affidavit sworn on 19th December, 2011 that, as the Nominated Officer for the purposes of s. 811, he had formed an opinion under s. 811 in relation to “the so-called Schroders Ready-made 26 transactions (including the transactions undertaken by the [Taxpayer] and his wife)” long in advance of the opinion he made on 24th August, 2011, the Nominated Officer expressly rejected that claim. He reiterated that he did not form an opinion under s. 811 in relation to the transaction undertaken by the Taxpayer and his spouse until 24th August, 2011, after careful consideration of the submission made to him on 22nd August, 2011 by Ms. Cunniffe, that is to say, the Report.
IV. Judgment and order of the High Court
31. In his judgment, the trial judge outlined the nature of the inquiry which had been carried out by the Revenue Commissioners. While it is true that in so doing, as emphasised by counsel for the Taxpayer, the trial judge adopted the evidence on affidavit of Ms. Cunniffe, that was an understandable approach.
32. In addressing the first question for consideration which he had identified, that is to say, whether the Notice issued on 24th August, 2011 was given immediately following the formation of the opinion of the Nominated Officer, the trial judge stated (at para. 24) that the Taxpayer had drawn the Court’s attention to information obtained, partly from documents in the public domain and partly from documents obtained under Freedom of Information requests, and that it was argued on behalf of the Taxpayer, on the basis of that information, that it is clear that the Revenue Commissioners “had formed the opinion that the Schroders Ready-Made 26 Schemes were tax avoidance transactions long before the notice of opinion issue on 24th August, 2011”. The trial judge went on to summarise, in some cases, the content, and in other cases, the effect of, some of the documents, the ultimate source of which I think it is reasonable to assume was the discovery made by the Revenue Commissioners. The trial judge also outlined the affidavit evidence produced by the Revenue Commissioners as to the nature of the steps taken in examining the scheme operated by the Taxpayer and, once again, it is true that he relied largely on the affidavit evidence of Ms. Cunniffe. He set out his conclusion (at para. 35) as follows:
“I accept the evidence of the [Revenue Commissioners] that in relation to the [Taxpayer’s] tax avoidance scheme, the s. 811 notice of opinion was formed by the Nominated Officer on 24th August, 2011, having received a report two days earlier from Ms. Cunniffe. In issuing the notice of opinion under s. 811 on that date, the respondent complied with the provisions of s. 811(6)(a) of the Act.”
It was submitted on behalf of the Taxpayer that the foregoing conclusion contained no analysis and that it was not based on an adequate consideration of the documentation before the High Court.
33. The trial judge went on to address the second question identified by him, that it to say, whether the opinion formed by the Nominated Officer was tainted by pre-judgment and apparent bias later (at para. 36). He stated that he was satisfied that Mr. O’Grady did not have detailed knowledge of the transactions entered into by the Taxpayer and his spouse, although he was aware, in a general way, of the use of a capital loss scheme involving Irish Government gilts and foreign exchange finance instruments “which was under review within the Revenue”. The actual investigative work in relation to the Taxpayer’s case was carried out by two tax inspectors, who reported to Ms. Ruddle and later to Ms. Cunniffe. He concluded:
“There is no evidence that the Nominated Officer, Mr. Mullen, formed his opinion earlier that 24th August, 2011 and he is the only official within the Revenue who discharges the relevant functions under section 811. Further, there is no evidence that there was pre-judgment on the part of the Nominated Officer or that his notice of opinion was tainted by actual or apparent (objective) bias.”
It was submitted on behalf of the Taxpayer that the trial judge did not have sufficient regard to what Mr. O’Grady had to say about the scheme in the documents admitted in the High Court. It was also pointed out that the assumption of the trial judge that the Nominated Officer was the only official within the Revenue who discharged the relevant functions under s. 811 was incorrect, in that the function was vested in the Revenue Commissioners.
34. The trial judge then addressed the third question he had identified for consideration, that is to say, whether there was a breach of natural or constitutional justice. In summarising his conclusions at the end of the judgment, the trial judge stated (at para. 54) that, for the reasons set out earlier in the judgment, he held that there was no breach of natural or constitutional justice. The Taxpayer had at all times “an effective alternative remedy”, which he has not pursued other than by initiating an appeal. As has already been noted, the appeal under s. 811(7) is still pending. The trial judge had earlier emphasised (at paras. 45 and 46) that an important factor in determining whether a right to make representation exists at all is whether a person affected by a decision has a right of appeal. He stated that a key factor may be that a decision does not come into effect until the appeal has been heard or, if no appeal is taken, until the period of appeal has elapsed. He referred to the relevant provisions of s. 811 and, in particular, to subs. (7). The trial judge had also placed emphasis earlier (at para. 39) on the fact that the relevant material would have been known to the Taxpayer and his advisers. He stated:
“The information contained in the s. 811 report submitted to the Nominating Officer is predominantly gleaned from the [Taxpayer’s] tax returns and responses provided by the [Taxpayer’s] tax agent to queries raised by the Revenue. This includes relevant documents executed by the [Taxpayer] in the course of the Straddle Transaction. It must be assumed that the [Taxpayer] (or at least his advisers) understood the nature of the scheme of which the Straddle Transaction was an integral part. Section 811 set out a number of issues that had to be considered in detail by the Nominated Officer prior to forming the opinion that the Straddle Transaction was a tax avoidance transaction within the meaning of the section. Of particular relevance is s. 811(3)(i)(1), which features in the examination as to whether the transaction ‘was undertaken or arranged by a person with a view, directly or indirectly, to the realisation of profits in the course of the business activities of a business carried on by the person ...’. This involves an examination as to whether or not the transaction was a genuine commercial transaction or one which had been entered into purely to avoid tax. All of this is material which would have been known to the [Taxpayer] and his advisers.”
Noting that the reference in that quotation should be to s. 811(3)(a)(i)(I) quoted earlier, it is obvious that the foregoing is part of the reasoning on which the trial judge reached the conclusion that there was no breach of natural or constitutional justice.
35. The order of the High Court was dated 13th December, 2012. In it it was ordered that the Taxpayer’s motion be refused and that the Taxpayer pay the Revenue Commissioners’ costs of the motion, including reserved costs and costs of discovery, when taxed and ascertained.
V. The appeal process: identification and features of issues arising
36. A feature of this appeal which it is appropriate to record is that it is one of four appeals, all of which relate to the same issues and in all of which the appellant is represented by the same legal team. The other appeals are:
It has been agreed, however, that this appeal is to be the lead case for all four appeals. Counsel for the Taxpayer did attach some significance to the timeline in each of the other appeals in relation to, first, the respective dates of the furnishing of a report by Ms. Cunniffe to the Nominated Officer and, secondly, the respective dates on which the Nominated Officer issued notice of the forming of an opinion under s. 811(6), which were as follows:
(a) in the case of John Punch, 22nd July, 2011 and 27th July, 2011;
(b) in the case of Martin Punch, 25th July, 2011 and 27th July, 2011; and
(c) in the case of Derek Whelan, 16th August, 2011 and 17th August, 2011.
In this connection, counsel for the Taxpayer in their outline legal submissions record that John Punch and Martin Punch had availed of the protective notice procedure in s. 811A and that it was clearly imperative for the Revenue Commissioners to issue notice of opinion to them within the two year period from the date of receipt of the protective notice, which was about to expire in August 2011. The Taxpayer had not availed of that procedure, but, as noted earlier, that is of peripheral relevance to the issues this Court has to determine.
37. Counsel for the Taxpayer 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 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.
The issues as thus identified prompt a number of observations.
38. First, the issues which the Court is asked to address are fundamentally different to the grounds of appeal open to the Taxpayer on the pending appeal under subs. (7) of s. 811. What the Court has to assess in considering the first and second issues is whether the process engaged in by the Revenue Commissioners in the formation of the opinion and in the giving notice of it (i.e. the Notice) by the Nominated Officer to the Taxpayer on 24th August, 2011 was conducted in accordance with law. That process necessitated compliance with the requirements of subss. (2), (3) and (4) of s. 811, including the consideration by the person or persons forming the opinion, to use the words of O’Donnell J. quoted earlier, of “results, use, form and substance” en route to the formation of the opinion. However, neither the correctness or otherwise of the conclusions which gave rise to the opinion and the consequential calculations and determination nor of the contents of the Notice are matters for determination on this appeal. Rather they are matters which arise on the appeal under subs. (7) of s. 811. For that reason, caution must be exercised in expressing any view on the Report of Ms. Cunniffe and, in particular, on her analysis of the application of s. 811 in para. 6 of the Report, and on the contents of the Notice.
39. Secondly, the core determinations which this Court is being invited to make on the first and second issues relate to questions of fact and the Court is being invited to overrule the findings of fact made by the trial judge. Indeed, the Taxpayer’s formulation of the first issue is related directly to the finding of fact made by the trial judge in his judgment (at para. 35) quoted above, which, in essence, the Taxpayer is asking this Court to overturn. To recapitulate, the evidence before the High Court was the affidavit evidence adduced on behalf of the Taxpayer, the affidavit evidence adduced on behalf of the Revenue Commissioners, including Ms. Cunniffe’s affidavit, which the trial judge considered in his judgment (at paras. 31 to 33) and the affidavit of the Nominated Officer referred to earlier, and the oral evidence of Ms. Ruddle on cross-examination and re-examination. As explained earlier, apart from the documents recording the communications between the Inspectors of Taxes conducting the review of the Taxpayer’s liability for capital gains tax for 2007, which had been notified in the letter of 25th March, 2009, and the Agent, there was also admitted in evidence in the High Court what are characterised by counsel for the Taxpayer as “key documents”, which record the progress of the general inquiries and internal discussion within the Revenue Commissioners, and with other State institutions, generally with regard to capital loss schemes, including the so-called Schroders Ready-Made 26 transactions, in the period from 2009 to 2011, the status of which on the hearing in the High Court has been outlined above (at para. 27). Two large lever arch files containing the communications between the Revenue Commissioners and the Agent and also some of those so-called “key documents” were agreed between the parties for the purpose of the High Court hearing and for the appeal. Indeed, over the two days during which the appeal was heard, the vast majority of the time was taken up with submissions in relation to those documents. The nub of the Taxpayer’s case on the first and second issues is that the documents constitute an evidential documentary record which speaks for itself and utterly contradicts the Revenue Commissioners’ contention that neither the Nominated Officer nor the Revenue Commissioners had formed the requisite opinion under s. 811 before August 2011 and that, accordingly, the trial judge erred both in fact and in law in not reaching that conclusion.
40. The basis on which it is contended on behalf of the Taxpayer that this Court can overturn the findings of fact made by the trial judge is that the documentation, which counsel for the Taxpayer characterised as “the evidential documentary record” (which expression, although used hereafter, is not to be regarded as an acknowledgment by the Court that all of such documentation has evidential value) and which is relied on by the Taxpayer, is circumstantial evidence. In particular, reliance is placed on the third principle enunciated in the judgment in this Court delivered by McCarthy J. in Hay v. O’Grady [1992] 1 I.R. 210, where he stated (at p. 217):
“Inferences of fact are drawn in most trials; it is said that an appellate court is in as good a position as the trial judge to draw inferences of fact. . . . I do not accept that this is always necessarily so. It may be that the demeanour of a witness in giving evidence will, itself, lead to an appropriate inference which an appellate court would not draw. In my judgment, an appellate court should be slow to substitute its own inference of fact where such depends upon oral evidence or recollection of fact and a different inference has been drawn by the trial judge. In the drawing of inferences from circumstantial evidence, an appellate tribunal is in as good a position as the trial judge.”
Relying on the last sentence in that passage, it is submitted on behalf of the Taxpayer that this Court is in as good a position as the trial judge to read the documents admitted in evidence and to draw the necessary inferences on the balance of probabilities to answer the questions raised in the first and second issues.
41. While not accepting that the documents constitute “circumstantial evidence”, in response counsel for the Revenue Commissioners submit that, in any event, it is entirely contrary to basic principles of fundamental fairness that inferences which contradict the affidavit evidence should be drawn from the documents which the Taxpayer argues contradict the evidence on affidavit adduced on behalf of the Revenue Commissioners when, although each of the deponents was available for cross-examination, only one, Ms. Ruddle, was cross-examined and she was not cross-examined in relation to those documents. Counsel for the Revenue Commissioners relied on the decision of the House of Lords in Browne v. Dunn (1893) 6 R.67 and, in particular, the following statement of Lord Halsbury (at p. 76)
“To my mind nothing would be more absolutely unjust than not to cross-examine witnesses upon evidence which they have given, so as to give them notice, and to give them an opportunity of explanation, and an opportunity often to defend their own character, and not having given them such an opportunity, to ask the jury afterwards to disbelieve what they have said, although not one question has been directed either to their credit or to the accuracy of the facts they have deposed to.”
That passage is quoted in the helpful commentary on oral evidence and, in particular, on the requirement to put matters to a witness on cross-examination in McGrath on Evidence (2nd Ed.) (Dublin, 2014) at paras. 3 - 139 to 3 - 144, not only in relation to contradictory evidence, but also on the issue of credibility. It is convenient to observe at this juncture that the status of the evidential documentary record as outlined earlier (at para. 27), cannot be regarded as being equivalent to the status of documents admitted on what has become known as the Bula/Fyffes basis, which is explained in McGrath (op cit.) at para. 5 - 55 and at paras. 12 - 46 to 12 - 52.
42. Counsel for the Taxpayer in reply drew the Court’s attention to a passage from the speech of Lord Herschell, L.C. in Browne v. Dunn at p. 71. To put the passage in context, Lord Herschell stated (at p. 70) that, if you intend to impeach a witness, you are bound, whilst he is in the box, to give him an opportunity of making any explanation which is open to him and that is not only a rule of professional practice in the conduct of the case, but it is essential to fair play and fair dealing with witnesses. He went on to refer to the fact that sometimes reflections have been made upon excessive cross-examination of witnesses. He continued (at p. 71):
“. . . but it seems to me that a cross-examination of a witness which errs in the direction of excess may be far more fair to him than to leave him without cross-examination, and afterwards to suggest that he is not a witness of truth, I mean upon a point which is not otherwise perfectly clear that he has had full notice beforehand that there is an intention to impeach the credibility of the story which he is telling. Of course I do not deny for a moment that there are cases in which that notice has been so distinctly and unmistakably given, and the point upon which he is impeached, and is to be impeached, is so manifest, that it is not necessary to waste time in putting questions to him upon it. All I am saying is that it will not do to impeach the credibility of a witness upon a matter on which he has not had any opportunity to give an explanation by reason of there having been no suggestion whatever in the course of the case that his story is not accepted.”
As I understand it, what is suggested on behalf of the Taxpayer is that in the High Court his case was manifest in his grounding affidavit sworn on 19th December, 2011 and in the affidavit sworn by his solicitor, Ken Smyth, on 20th July, 2012 to ground the motion directing the attendance for cross-examination of the Revenue Commissioners’ deponents, including the Nominated Officer. The Taxpayer’s case was that, based on the evidential paper record, it was clearly established that the Revenue Commissioners had formed the relevant opinion by 2010. The task of the trial judge in the circumstances was to draw the proper inferences from the evidential paper record, but he had not done so.
43. For the High Court, on a judicial review application, to be faced, on the one hand, with an affidavit sworn by a person whose decision it was sought to have quashed, in this case, the Nominated Officer, in which he averred clearly and unambiguously that the earliest date on which he had knowledge of the relevant transaction was 22nd August, 2011 and, on the other hand, with reliance by the person seeking to have the decision quashed, in this case the Taxpayer, on a paper record obtained on discovery, which it was contended was at variance with that averment, is, and it was in this case, most unsatisfactory, particularly, when the deponent, the Nominated Officer, was present in Court and was available for cross-examination. Not only that, but it seems to me that there would have been a serious risk of inherent injustice to the Nominated Officer and to the other deponents whose evidence was adduced on behalf of the Revenue Commissioners, if inferences were to be drawn which were adverse to, or contradicted, the affidavit evidence, given the very limited evidential status of the documentary record and, in particular, that it was not admitted as proof of the contents thereof. That risk would have been compounded by the absence of cross-examination, particularly given the fact that each of the deponents was available for cross-examination, but none of them was given an opportunity to comment on or explain the contents of the documents. Notwithstanding that, I propose considering some of the elements of the evidential paper record to which the Taxpayer attached most weight in the context of the questions raised on the first and second issues.
44. The structure of the analysis of the evidential documentary record hereafter will be as follows:
(a) Following the approach adopted by counsel for the Revenue Commissioners, I propose first considering the documentation which identifies the point at which the Revenue Commissioners, at their request, obtained from the Taxpayer or the Agent the necessary information which specifically related to the Taxpayer and which was eventually utilised in the Report from Ms. Cunniffe to the Nominated Officer and ultimately formed the basis of the implementation of the Nominated Officer’s function under subs. (2), (3), (4) and (6) of s. 811, including the mandatory requirements as to what was to be specified in the Notice.
(b) Some of the documentation, being the paper record of the general consideration and inquiries by, and internal discussion, within the Revenue Commissioners, and of communications between the Revenue Commissioners and other State bodies, of, and in relation to, the capital loss schemes of which the Revenue Commissioners were aware and of tax avoidance generally, will then be outlined at VII below, focusing on what were referred to in the short summary of legal submissions filed on behalf of the Taxpayer as “the highlights of the story”, which are selected primarily for illustration purposes.
(c) Finally, the contents of the correspondence between the Agent and the Revenue Commissioners following the letter of 27th June, 2011 and which are particularly relevant to the third issue, which discloses the information sought by the Agent from the Revenue Commissioners, will then be outlined at VIII below.
The primary distinguishing feature between the documents referred to at (a) and (c), on the one hand, and the documents referred to at (b), on the other hand, is that the former are documents which passed directly between the parties to the proceedings or their respective agents, whereas the latter are not.
VI. Evidence of information provided by the Agent
to the Revenue Commissioners 45. The correspondence and accompanying documentation which passed between the Agent and the Revenue Commissioners were exhibited in the replying affidavit sworn by Ms. Cunniffe on behalf of the Revenue Commissioners on 23rd March, 2012, starting with the letter from the Agent in response to the Revenue Commissioners’ letter of 25th March, 2009 seeking “a detailed Capital Gains Tax computation in respect of 2007 together with full supporting documentation”, which was a letter dated 14th April, 2009. With that letter the Agent furnished an “updated 2007 capital gains tax computation”, which suggested that the Taxpayer had in fact overpaid capital gains tax in 2007 by €15,883. The Agent also furnished supporting documentation in relation to what was referred to as a commercial property sale transaction, shares and securities quoted, and other assets, which included, inter alia, what were described as “significant foreign currency transactions” and “disposals of art”. Supporting documents comprising about seventy pages were attached. While I have no doubt that the Agent was doing its utmost to comply with the Revenue Commissioners’ requirements, the underlying transactions, which were conducted in another jurisdiction, were very complex. There were lacunae in the information furnished by the Agent and in the supporting document. For example, as counsel for the Revenue Commissioners pointed out, there was no reference to the fact that the Taxpayer vis-à-vis Schroders was sheltering foreign currency losses against gilt gains. In fact, there was no reference to the Gilt Straddle, and no documentation in relation to that transaction was furnished with the reply, although it must be acknowledged that, as a separate “standalone” transaction, it would not have given rise to liability to capital gains tax.
46. By a further letter dated 22nd May, 2009 from the Revenue Commissioners to the Agent, the Revenue Commissioners sought responses on nineteen points outlined, which related back to the material which had been furnished by the Agent with the letter of 14th April, 2009. Counsel for the Revenue Commissioners submitted, by reference to several of the points raised, that they indicated that the Revenue Commissioners were trying to understand the transactions. That is the clear impression one gets from reading the letter in the context of the information then available to the Revenue Commissioners. On 4th June, 2009, the Agent acknowledged receipt of that letter and pointed out that the information sought was extensive, but hoped to be in a position to furnish it within a few weeks. In addition, the Agent raised some queries. In the Revenue Commissioners’ response of 11th June, 2009 it was clarified that the Taxpayer’s tax return was under review, but a Revenue audit had not been initiated. In reply to the Agent’s question as to the relevance of certain documents sought by the Revenue Commissioners, namely, “all promotional literature and/or information memorandum provided to your client in connection with his transactions with Schroders”, the response of the Revenue Commissioners was that the request was to provide information that would help the writer, the official of the Revenue Commissioners, to understand the nature of the transactions engaged in by the Taxpayer. It was suggested that it is not unusual for banks to provide literature of such a nature and it would normally be available to all customers. A threat of “use of formal Revenue powers” was implicit in the letter, although it was not subsequently activated.
47. The Agent’s response to the Revenue Commissioners’ letter of 22nd May, 2009 was dated 17th July, 2009. Each of the points which had been raised by the Revenue Commissioners was addressed, the answers to some questions quoting, or being based on, information furnished by Schroders to the Agent. In addition, a considerable number of documents, running to almost 200 pages, were furnished, although approximately one third thereof related to the sale of the commercial property in London. Counsel for the Revenue Commissioners, while accepting that the Agent was answering the questions raised by the Revenue Commissioners, still questioned the sufficiency of the information and, in particular, the fact that no detail of the steps in, or the sequence of, the transactions, which constitute the “Transaction” in the Notice, was given by the Agent sufficient at that stage to enable a report in the nature of Ms. Cunniffe’s Report to the Nominated Officer to be produced. The point was also made that this was the first time that there was reference in the Agent’s correspondence to the Gilt Straddle. Counsel for the Taxpayer, on the other hand, referred the Court to the range of information furnished by the Agent in relation to the Gilt Straddle and the Foreign Exchange Straddle and the various documents which were furnished which had emanated from Schroders in relation to those transactions. Counsel for the Taxpayer laid particular emphasis on the answer to question 9 in the letter of 25th May, 2009 in which the Revenue Commissioners had sought an explanation as to how the €25,479,347 liability in respect of Schroders’ currency loss was satisfied. The reply was in the following terms:
“The loss of EUR 25,479,347 was paid to Schroders from the proceeds realised on the sale of our client’s holding in 3.25% Irish Treasury Stock 2009 . . . Details of the transactions are contained in the attached Schroders’ statements. The sale of 3.25% Irish Treasury Stock 2009 is an exempt Capital Gains Tax sale (s. 607 TCA 1997).”
That answer was correctly characterised by counsel for the Taxpayer as being “the heart of the transaction” and, with the benefit of hindsight, it can be seen that it is reflected in the documentation furnished by Schroders, in particular, in the document furnished by Schroders entitled “Reporting as at 28th September, 2007”, which contained statements of the accounts of the Taxpayer and his spouse with Schroders as at that date.
48. Having reviewed the documentation which by then had been furnished in relation to the Schroders’ transactions, it does appear that copies of most, if not all, of the documents of consequence in relation to both the Gilt Straddle and the Foreign Exchange Straddle had been furnished to the Revenue Commissioners at that stage. It is also true that, with the benefit of the explanation of the transactions in the various documents now before the Court, one can see, as counsel for the Taxpayer submitted, that the responses and the documents show that the Taxpayer was sheltering part of the gain on the sale of the commercial property in London by the losses on the Foreign Exchange Straddle, which losses, in turn, were, as between Schroders and the Taxpayer almost “cancelled”, to use the expression used in Ms. Cunniffe’s affidavit, by the gains generated by the Gilt Straddle, which were exempt from capital gains tax. The foregoing is clear from the accounts in the “Reporting as at 28th September, 2007” document referred to earlier. However, in my view, one can properly take issue with the assertion of counsel for the Taxpayer that the documents furnished could be regarded as containing clear explanations of the transactions for the benefit of the Inspector of Taxes conducting the review at that point in the investigation, in particular, with respect to the proper application of s. 811, as subsequent questions raised by the Revenue Commissioners demonstrate.
49. There was a further letter of 4th August, 2009 from the Agent to the Revenue Commissioners. The purpose of that letter was to submit an amended Capital Gains Tax computation for the Taxpayer for the year ended 31st December, 2007, the purpose of which was to correct the earlier calculation, the amendment being for the benefit of the Taxpayer. The principal source of the gain in that year was once again identified as the sale by the Taxpayer and his spouse of commercial property at New Bond Street, London, which it was disclosed had been acquired by them for £17.76m Sterling on 23rd August, 2000, a copy of the contract being furnished, and was disposed of on 24th August, 2007 for £62m Sterling. The amended computation took account of the fact that the original computation did not include a deduction for the stamp duty paid on the acquisition of the property. The amended computation resulted in the total gain on the sale of the commercial property being €55,486,908.
50. Aside from an acknowledgement of receipt of the letter of 4th August, 2009, the next letter from the Revenue Commissioners to the Agent was a letter dated 19th April, 2010, which referred back to the Agent’s letter of 17th July, 2009 and raised additional queries in relation to some of the responses of the Agent in that letter. In addition, further identified documents were sought and thirteen additional questions were raised. It is reasonable to infer from the letter that the author was seeking information which would help him understand the transactions, in particular, the Gilt Straddle and the Foreign Exchange Straddle. Counsel for the Revenue Commissioners pointed to questions in which the author queried whether those transactions were connected and, if so, an explanation of the connection was sought. Counsel also pointed to a question in which the Agent was asked to explain in detail and in sequential order the Taxpayer’s transactions that took place with Schroders on 26th and 27th September, 2007. By a further letter of 30th July, 2010 from the Revenue Commissioners to the Agent a number of additional issues were raised.
51. The Agent (then practising under the name Twomey Moran) responded to the letters of 19th April, 2010 and 30th July, 2010 by letter dated 27th August, 2010. Once again the Revenue Commissioners received a comprehensive response from the Agent. The Agent also furnished some additional documents, which had been sought by the Revenue Commissioners and which emanated from Schroders, which, although they complete the picture in relation to the Taxpayer’s interaction with Schroders, and most of them are included in the twenty four components of the “Transaction” in the Notice, would seem not to be crucial in the context of the exercise being carried out by the Revenue Commissioners and the task involved in forming an opinion in accordance with s. 811. More importantly, the responses given in that letter in relation to the issues seeking further clarification which had been raised by the Revenue Commissioners, do seem to clarify how the Schroders’ transactions were implemented. In particular, it is probable that, by outlining the sequence of the transactions with Schroders which took place on 26th and 27th September, 2007 in relation to the Gilt Straddle and the Foreign Exchange Straddle, a much better broad understanding of the effect of the transactions was conveyed to the Revenue Commissioners, which, in due course, was reflected in the Report submitted by Ms. Cunniffe to the Nominated Officer, but not necessarily of the detail. In dealing with the Revenue Commissioners’ queries, a number of the questions had been referred by the Agent to Schroders. Two of those related to explaining the formulae used in relation to the Foreign Exchange Straddle and in relation to the Gilt Straddle and how the formulae were applied. The responses from Schroders to the Agent were quoted by the Agent. It would be extremely pretentious to give the impression that one understands those responses, and, fortunately, in the determination of the issues before this Court on the appeal, one does not have to understand either the formulae or their application. In any event, as counsel for the Revenue Commissioners pointed out, by this time the Revenue Commissioners were relying on outside experts to advise on the questions to be asked. It is reasonable to infer that they relied on the experts to advise on the implications of the responses, including the reference, in explaining the Foreign Exchange Straddle and the Gilt Straddle formulae, to the utilisation of the so-called “Black Scholes Model” in calculating what were described as the “gearing elements” of the Foreign Exchange Straddle formula and the “gearing factors”, of the Gilt Straddle formula. While it may be, as counsel for the Taxpayer remarked, that the “Black Scholes Model” is something all students of economics would understand, it is reasonable to infer that it is not something which every Inspector of Taxes would be familiar with.
52. The correspondence from the Revenue Commissioners from 25th March, 2009 up to this point in time had been authored by an Inspector of Taxes who was an Assistant Principal Officer in Dublin Region District 4. The next letter from the Revenue Commissioners to the Agent, which was dated 5th October, 2010, was from an Inspector of Taxes in the Large Cases Division, High Wealth Individuals & Professionals Business Unit. The Agent was informed that that unit would be dealing with the “CGT 2007” aspect of the Taxpayer’s tax affairs. The Inspectors of Taxes in that unit reported to Ms. Ruddle at that time and subsequently to her successor, Ms. Cunniffe, both of whom, in connection with this investigation of the Taxpayer’s affairs, were Inspectors of Taxes. This letter demonstrated the writer’s lack of understanding of, and raised further questions in relation to, the matters which had been dealt with in the Agent’s letter of 27th August, 2010. In a further letter dated 12th October, 2010, the Revenue Commissioners pointed out, mistakenly it would seem, that one document, the Gilt Straddle - Settlement Confirmation note, which had been requested by the Revenue Commissioners in their letter of 19th April, 2010 had not been submitted and sought a copy of that document.
53. The Agent responded by letter dated 23rd December, 2010 and the letter was accompanied by a copy of the Gilt Straddle - Confirmation, which the documentation before the Court would suggest, as the Agent stated, had been furnished with the Agent’s letter of 17th July, 2009. To illustrate the apparent understanding, or, more correctly, the lack of understanding, within the Revenue Commissioners of the straddle transactions at that point in time it is useful to consider how the Agent addressed the issues which had been raised in the letter of 5th October, 2010. One issue raised queried, as regards the Foreign Exchange Straddle, the basis on which a tax deduction was claimed in respect of the premium element of the consideration for the acquisition of the US Dollars. The response of the Agent was that by virtue of s. 552(1)(a) of the Act of 1997, which provides that a tax deduction is available “for consideration . . . given by the person . . . wholly and exclusively for the acquisition of the asset”, a tax deduction was allowable under that section in respect of the Euro premium amount, as well as the JPY amount, both of which represented the consideration for the acquisition of the US Dollars. Counsel for the Revenue Commissioners submitted that the information contained in the letter of 23rd December, 2010 and, in particular, that information was of crucial importance. Counsel for the Taxpayer, on the other hand, submitted that the irresistible conclusion was that at that point the Revenue Commissioners understood the transaction. With the benefit of hindsight, it may be that the Revenue Commissioners should have got the message that the Euro premium amount was part of the consideration from the Agent’s response in the letter of 27th August, 2010, but it is clear that the Inspector of Taxes conducting the investigation of the straddle transactions at the time did not. Another issue raised related to a request in the letter of 5th October, 2010 for details of the inputs that were used in applying the Black Scholes Model and for a statement as to “what were the pricing objectives”. The response of the Agent was that it did not understand the relevance of those questions in calculating the capital gain. So, the Inspector of Taxes now conducting the review was no wiser at the end of December 2010.
54. The correspondence between the Revenue Commissioners and the Agent continued. By letter dated 24th March, 2011 the Revenue Commissioners pursued a number of questions. A question previously raised, going back to the Revenue Commissioners’ letter of 19th April, 2010, which had not been responded to by the Agent, was reiterated. The Agent was asked to explain how the Taxpayer had become aware “of the facilities and services available from Schroders, how he made contact with them and the parties dealt with etc.” In the response of 27th August, 2010, the Agent stated that they did not understand the relevance of the question in terms of calculating the capital gains and they asked for an explanation. The explanation given in the Revenue Commissioners’ letter of 5th October, 2010 was that one of the possible outcomes of the review was the preparation of a report to the Nominated Officer under s. 811 of the Act of 1997 recommending that he consider applying the provisions of s. 811 to the transaction. It was stated that the information was requested to ensure that the Nominated Officer would have as much information as possible of the transaction and any other transactions which might reasonably be regarded as being directly or indirectly related to or connected with that transaction, should it be decided to recommend considering the case under s. 811. That question was not mentioned in the Agent’s reply of 23rd December, 2010. In the Revenue Commissioners’ letter of 24th March, 2011 it was pointed out that no reply had been received on the point and that it was unclear whether that was simply an omission. The Agent was asked to clarify the position. In addition, further clarification was sought in relation to the components of the formulae utilised in relation to the “gilt price and the strike price”, which it was stated were “essential elements of the CGT computation”. Not having received a reply, the Revenue Commissioners sent a reminder dated 6th May, 2011 to the Agent.
55. The Agent’s reply was dated 13th May, 2011. The Agent’s contention that it did not understand the relevance of the question in relation to how the Taxpayer became involved with Schroders was persisted in. However, on the additional request for further clarification, the Agent furnished the inputs for the Gilt Straddle and the inputs for the Foreign Exchange Straddle, each of which inputs comprised five components. While, once again, it would be extremely pretentious to give the impression that one understands the intricacies of the application of those inputs, a comparison of this information with the formulae as explained in the Schroders’ replies quoted in the Agent’s letter of 27th August, 2010 points to its significance. Counsel for the Revenue Commissioners submitted that this information was necessary to enable the Revenue Commissioners to carry out the exercise they were engaged in. Further, he submitted that the correspondence illustrated that there was an ongoing investigation by the Revenue Commissioners and that it was considered necessary to get all the information the Revenue Commissioners required, and that was consistent with the evidence given by Ms. Ruddle.
56. It is convenient at this point to refer to the evidence relied on by counsel for the Revenue Commissioners given by Ms. Ruddle in the course of cross-examination by counsel for the Taxpayer and of re-examination by counsel for the Revenue Commissioners before the trial judge made the ruling refusing to permit questions outside the matters which had been raised by counsel for the Taxpayer in cross-examination. In her evidence, Ms. Ruddle stated that in the course of the investigation the questions and inquiries which the Revenue Commissioners were raising were based on advice they were obtaining from the external experts the Revenue Commissioners had retained. In this context, specific reference was made by her to correspondence from the Agent, including the letters of 22nd April, 2010, 27th August, 2010 and 13th May, 2011 and to the fact that the Revenue Commissioners needed the information being sought from the Agent to get an understanding of the transactions. She also testified that from 2009 over a two year period, she and the officers working with her were building up a picture of what actually happened in this case, what actually gave rise to what she described as “very, very substantial loss claims” and to get to a situation where they understood those. Her evidence was that none of the correspondence in issue would have been seen either by Mr. O’Grady or the Nominated Officer.
57. It also emerged from Ms. Ruddle’s oral evidence in cross-examination that in April 2010 and in June 2010 the Revenue Commissioners had retained “two sets of experts”, who were not identified, one being located within this jurisdiction and the other being outside the jurisdiction, to prepare opinions in relation to the Taxpayer’s transactions, which the experts could stand over in court. The documents and the information furnished by the Agent were passed on to the experts for advice. A final report was obtained from the expert within this jurisdiction in January 2011, whereas the final report from the expert outside the jurisdiction was not obtained until “the middle of 2011”. Prior to the appointment of those experts, who were variously described as “industry” and “independent” experts, as appears from the documents admitted in the High Court, the Revenue Commissioners had consulted an academic and officers of institutions of the State, such as the Central Bank, when endeavouring to get an understanding of the intricacies of the straddle transactions.
58. In fact, the letter of 13th May, 2011 concluded the journey on which counsel for the Revenue Commissioners took this Court through the correspondence between the Revenue Commissioners and the Agent. However, at the request of the Revenue Commissioners, the Agent had furnished copies of certain additional documents with their letter of 30th May, 2011. Receipt of those documents was acknowledged in the letter of 27th June, 2011 referred to at the outset, in which the Agent was informed of the intention to submit a report to the Nominated Officer under s. 811.
59. While officers of the Revenue Commissioners were investigating the transactions in which the Taxpayer was involved through the correspondence with the Agent, the broader investigation in relation to what were referred to as capital loss schemes, including the Schroders Ready-Made 26 Scheme, and the internal discussion within the Revenue Commissioners and with other State institutions in the period from 2009 to 2011 was happening. It is necessary now to identify some of the documentation thereby created and to outline the arguments advanced on behalf of the Taxpayer that this paper record establishes that the Revenue Commissioners or the Nominated Officer had formed the opinion that the transaction the subject of the Notice issued by the Nominated Officer on 24th August, 2011 was a tax avoidance transaction many months in advance of August 2011.
VII. Documentation being the paper record of general consideration of and
internal discussion within the Revenue Commissioners and
with State bodies in relation to capital loss schemes/tax avoidance 60. Before outlining the contents of some of the internal documents within the offices of the Revenue Commissioners or between the Revenue Commissioners and other organs of the State, which are relied on in support of the Taxpayer’s case, it is important to emphasise that Peter F. Mullen, who has previously been referred to as the Nominated Officer, performed two roles throughout the period in issue. Although, in the interests of brevity, he continues to be referred to as the Nominated Officer, I consider it reasonable to infer that the communications referred to below, which were sent or copied to him, were communicated to him in his capacity as the Assistant Secretary with responsibility for the Large Cases Division, not as Nominated Officer.
61. It is quite clear from the documents admitted in evidence in the High Court that by June 2009 the Revenue Commissioners were aware of a scheme which was then described as the “Capital Loss Scheme”, which was being utilised by taxpayers to avoid or mitigate liability for capital gains tax. This is clear from an internal e-mail sent by Ms. Ruddle to the Nominated Officer and to Mr. O’Grady on 2nd June, 2009 to which there was attached a spreadsheet which set out the details of the “Capital Loss Scheme”, which disclosed that by that stage seventeen participants in the Scheme had been identified. Substantial research, it was also disclosed, had been done “on both the Treasury Stock transaction and the FE CFD”, from which counsel for the Taxpayer suggests that the Revenue Commissioners were aware of the Gilt Straddle and also the Foreign Exchange Straddle devices, although it is to be inferred that the reference to “the FE CFD” is to a foreign exchange contract for difference. It is common case that the Taxpayer did not enter into the latter type of transaction, although some of the Schroders Ready-Made 26 schemes did involve contracts for difference. The e-mail further disclosed that the Revenue Commissioners were consulting with an academic in Smurfit Business School and had been in contact with the Central Bank, the Irish Stock Exchange and the National Treasury Management Agency, the latter having explained the transactions. Some details in relation to the Taxpayer actually feature in the spreadsheet, as do details in relation to the appellant in one of the other related appeals.
62. Put in the context of the correspondence between the Revenue Commissioners and the Agent outlined at VI above, the information in the spreadsheet in relation to the Taxpayer merely reflects the information which the Revenue Commissioners had obtained from the Agent at that stage, but no other information in relation to the Taxpayer. It is true that the position changed approximately six weeks later when the Revenue Commissioners obtained the letter of 17th July, 2009 from the Agent and the various documents which accompanied it, which have been outlined earlier. There is no doubt that by that stage the Revenue Commissioners had obtained quite a lot of the information by reference to which the “Transaction” the subject of the Notice issued by the Nominated Officer on 24th August, 2011 was ultimately defined. However, the Taxpayer’s contention that, when one compares the substantive information contained in Ms. Cunniffe’s Report to the Nominated Officer in August 2011 with the information which had been furnished by the Taxpayer to the Revenue Commissioners in the middle of 2009 one sees that there is in fact little, if any, difference in the substantive details, in my view, is not correct. For instance, as recorded earlier, it was not until they received the letter of 13th May, 2011 from the Agent that the Revenue Commissioners received the inputs used in the application of the formulae of the straddle transactions. In particular, while it is true that the Agent had been co-operative in furnishing information and documentation to the Revenue Commissioners, the documentary evidence does not support the proposition that the Revenue Commissioners were in a position to form the requisite opinion in relation to the Taxpayer at that stage or, indeed, long in advance of 2011 and also comply with the requirements of s. 811 of the Act of 1997 in relation to giving notice.
63. In October 2009, at the request of Ms. Ruddle, two of the principals of the Agent attended a meeting with Ms. Ruddle and other officers of the Revenue Commissioners in relation to what the Agent referred to as the “Schroders Loss Arrangement”. A note of the meeting prepared by Mr. Kieran Twomey was among the documents admitted in evidence. In addition, the note was exhibited in an affidavit sworn by the author of the note, Mr. Kieran Twomey of the Agent, on 8th May, 2012. In a subsequent affidavit sworn by Ms. Ruddle on 29th May, 2012 she averred that, having reviewed the note, she was in general agreement with it. What emerges from the note is that the discussion between the officers of the Revenue Commissioners and the Agent’s principals was of a general nature and did not specifically relate to the Taxpayer or any of the other appellants. What it does disclose is the very serious concerns of the Revenue Commissioners in relation to the so-called Capital Loss Scheme. However, the Agent was informed that the approach which would be taken by the Revenue Commissioners had not been decided on and a number of different approaches were under consideration, namely: treating the matter as evasion; challenging the arrangement on technical grounds; and considering s. 811, which would involve preparing a report for the Nominated Officer.
64. The concerns of the Revenue Commissioners became even more marked in early December 2009, as reflected in activity within the Revenue Commissioners, which involved the three Revenue Commissioners and senior officers, including the Nominated Officer, which led to a letter dated 3rd December, 2009 from the Revenue Commissioners to the Department of Finance. That Department was informed that the Revenue Commissioners were considering a package of provisions “to further counter tax avoidance”, the purpose of the letter at that stage being to set out the proposals the Revenue Commissioners had in mind, with a view to the Minister making a general reference to such “anti-avoidance” package in his 2010 Budget Statement, with the details to be included in the Finance Bill 2010. Appendix 2 annexed to the letter was expressed to give “details of a particularly aggressive recent avoidance scheme in the case of capital losses”. That one page appendix described what was called the Capital Loss Scheme in general terms and, in giving details of the transaction, again gave them in very general terms. Counsel for the Taxpayer emphasised that the letter of 3rd December, 2009 was sent to the Department of Finance with the concurrence of all three Revenue Commissioners including Mr. O’Grady.
65. Other internal memoranda created around that time were pointed to in support of the Taxpayer’s contention that by that time the Revenue Commissioners understood how the straddle transactions operated in the context of s. 811. One such document was a more expansive note prepared by Ms. Ruddle some days later, which contained a general outline of the transactions which gave rise to the concerns, coupled with an analysis of the taxation issues and a suggestion for legislative amendment. In giving details of the transaction, again in very general terms, the note envisaged “a Contract for Difference” being involved in the foreign exchange transaction and a “Gilt Forward” transaction being involved in the Government bonds transactions, neither of which, of course, was involved in the transactions entered into by the Taxpayer and his spouse between July and September 2007 with, and through the medium of, Schroders. However, the note referenced the existence of variations in some of the agreements entered into, with the explanation that “the ultimate financial results are the same”.
66. Counsel for the Taxpayer also attached considerable significance to an internal e-mail dated 23rd December, 2009 from Mr. O’Grady to the officer of the Revenue Commissioners who was the Head of Revenue Policy and Legislation Services and a memorandum attached to it, which memorandum was headed “Finance Bill 2010 proposals: avoidance through the creation and use of contrived capital losses”. As regards Mr. O’Grady’s memorandum and the subsequent communication between the addressee and the Department of Finance, it was submitted on behalf of the Taxpayer that it is crystal clear from the memorandum that Mr. O’Grady had formed the opinion that what was referred to as the “ready-made” scheme was a tax avoidance scheme in the s. 811 sense and that he understood the key features of the scheme. It was also emphasised that it was stated in the memorandum that the scheme was being challenged by the Revenue Commissioners in this jurisdiction and “most likely will involve the use of the section 811 general anti-avoidance provisions”. However, as was submitted by counsel for the Revenue Commissioners, the memorandum did not contain any analysis of the criteria which required to be complied with in relation to forming an opinion under s. 811. The references to what counsel for the Taxpayer characterised as the key features of the scheme (in the words of the memorandum - that it “operates by creating ‘matching’ losses and gains on essentially the same transactions” and that it “is designed to achieve a result whereby the gain (in this case on the sale of government gilts) is tax free, while the matching loss (that in this case on a contract for difference transaction) is tax allowable”) are very general. Apart from not being specific to the Taxpayer, in my view, those references fall short of demonstrating that Mr. O’Grady had the type of understanding which an Inspector of Taxes would require to apply the provisions of s. 811 to a specific transaction at that time. They displayed no understanding of how the scheme worked in practice and how it achieved its objective.
67. A single page memorandum furnished to the Nominated Officer by Ms. Ruddle on 20th January, 2010 headed “Capital Loss Transaction” was also relied on by counsel for the Taxpayer to demonstrate that the Nominated Officer was fully aware of the transactions in which the twenty six individuals had engaged and which gave rise to artificial losses, how the transactions operated and that the Revenue Commissioners considered they were tax avoidance transactions. The purpose of the memorandum was apparently explanatory, in the context of seeking to obtain the Nominated Officer’s assistance in connection with retaining of “industry experts” to review the documentation and to furnish a report on the transactions. There was no mention of s. 811 in that memorandum.
68. Such experts were retained by the Revenue Commissioners subsequently, as has been recorded when outlining Ms. Ruddle’s oral evidence earlier. On the evidence, they had considerable input in the ongoing investigations, including the investigation in relation to the Taxpayer. Importance was also attached to a document attached to the memorandum, which counsel for the Taxpayer suggests, probably correctly, was a briefing note from Ms. Ruddle to one of the industry experts to be retained, and, in particular, to a statement therein that at that stage the Revenue Commissioners “had made practically as much progress in gathering documentation as possible”. It is suggested that it should be inferred from that statement that the Revenue Commissioners were in a position to assess the character of the transaction as a tax avoidance transaction. It is not possible to draw such an inference, in my view, given that it is quite clear from the note that the independent experts were being retained to give an independent view on the transactions from a commercial perspective in the context of an earlier reference in the note to the “limited understanding of the documents on the part of the Revenue Commissioners”.
69. The Finance Act 2010 (the Act of 2010) enacted two amendments to the Act of 1997 in consequence of the Revenue Commissioners’ concerns referred to earlier: an amendment to s. 546 by the insertion of s. 546A (effected by s. 59); and an amendment to s. 607(2) by substituting a new paragraph (a) and by inserting an additional paragraph (c) (effected by s. 60). Those amendments, which applied to disposals made on or after 4th February, 2010 clearly have no bearing on the liability of the Taxpayer for Capital Gains Tax in the year 2007. Indeed, on the basis of what this Court was told, it is by no means clear whether they would have had a bearing on the liability of the Taxpayer, having regard to the nature of the straddle transactions entered into by the Taxpayer, if they had been enacted with effect from, say, 4th February, 2007. While it is unnecessary to go into the detail, it is worth noting, as was submitted on behalf of the Revenue Commissioners on the appeal, that the amendment did not “actually close the loophole in circumstances where the Revenue, at that time, misunderstood the nature of the transaction”.
70. The amendments are mentioned because counsel for the Taxpayer cited certain documents in relation to the legislative and parliamentary process in the enactment of the Act of 2010, which had been admitted in the High Court, in support of the Taxpayer’s contention that the Revenue Commissioners and the Nominated Officer had, before the passage of that legislation, formed the opinion that the type of transaction in question was a tax avoidance transaction. In particular, counsel for the Taxpayer referred to a statement by the Minister for Finance during the Second Stage of the passage of the Finance Bill through Dáil Éireann on 10th February, 2010. Having referred to what he described as “a highly inaccurate” newspaper report, the Minister stated that:
“. . . artificial losses are being challenged by Revenue under the general anti-avoidance provisions already contained in s. 811 . . .”
The Minister stated, however, that, given the aggressive nature of those avoidance schemes, it was felt necessary to specifically legislate against those schemes in order to protect Exchequer revenue. As was pointed out on the hearing of the appeal, the latter statement reflected the speaking note provided to the Minister by his officials. However, as the outline of the communications between the Revenue Commissioners and the Agent set out at VI above demonstrate, there was at that time an ongoing investigation by the Revenue Commissioners in relation to the Taxpayer’s liability for capital gains tax in 2007, which did not conclude until approximately one year and three months later.
71. There is no doubt but that the documents admitted in evidence demonstrate that there was continued communication within the office of the Revenue Commissioners by officials, such as Ms. Ruddle, with their most senior officers, on occasion with the three Revenue Commissioners and on occasion with the Nominated Officer, in relation to the twenty six cases which were under investigation by the Anti-Avoidance Unit of the High Wealth Individuals & Professionals Business Unit. One such occasion cited on behalf of the Taxpayer related to the drafting in February 2010 of the Revenue Commissioners’ Annual Report for 2009, in relation to which the three Revenue Commissioners were copied with the draft and the Nominated Officer was consulted. Emphasis was placed by counsel for the Taxpayer, by way of example, on the reference in the draft under the heading “Anti-Avoidance” to inquiries made by the Revenue Commissioners throughout 2009 into potential tax avoidance, giving by way of example inquiries into “similar financial transactions entered into by twenty six separate individuals that give rise to a potential tax loss of capital gains tax of circa €88m”. That was merely a true record of the historical position.
72. Another internal scenario which counsel for the Taxpayer suggest demonstrates that the Revenue Commissioners had formed the opinion that the Taxpayer was involved in a tax avoidance scheme long before August 2011, and that there was an awareness of this at the most senior levels in the Revenue Commissioners, arose in January 2011. The suggestion having been made by a regional officer dealing with a particular capital gains tax assessment as to the possibility of a technical challenge to the so-called Capital Loss Scheme under s. 607 of the Act of 1997, rather than first pursuing a challenge under s. 811, Ms. Ruddle prepared a memorandum on 26th January, 2011. Ms. Ruddle’s recommendation was that a request for information, which she had recommended be issued in that particular case, be pursued. If the responses received to the request were similar to the responses received in other cases, which she anticipated, she would then issue the standard letter advising that she was “in the process of preparing a report for submission to the authorised (sic) officer under s. 811 for consideration by him and inviting the agent of the taxpayer in that case to make a submission which she would include for consideration by the authorised (sic) officer”. The documentation admitted in evidence also indicates that the memorandum was sent to the Nominated Officer and that the recommendation of Ms. Ruddle was endorsed. In the memorandum Ms. Ruddle listed the work undertaken by the Large Cases Division in putting together the challenge to the cases, obviously referring to the Schroders Ready-Made 26 cases, on the basis that tax avoidance was involved. She also referred to the advice which had been received by the Revenue Commissioners from experts and observed that most of the queries she recommended be pursued in the particular case at issue were made at the suggestion of experts. Contrary to what is contended for on behalf of the Taxpayer, what Ms. Ruddle’s memorandum and the connected document indicates is that it was considered that, in the case at issue, a report recommending that an opinion be formed under s. 811(4) should not be prepared in the absence of a response from that Taxpayer in relation to the further information which Ms. Ruddle considered should be sought. In general, what emerges from that documentation is that the investigations at Inspector of Taxes level were ongoing and the point had not been reached at which a recommendation could be made whether a particular transaction was a tax avoidance transaction. However, it is clear from the documentation that Ms. Ruddle was conscious that there was urgency, in view of the fact that two of the appellants before this Court had given protective notification in August 2009.
73. While counsel for the Taxpayer also relied on other documents admitted in evidence, some of which were chronologically later in time, with the objective of proving the Nominated Officer’s involvement, it is not necessary to outline their contents. Nothing in the documentation in question supports the view that the Nominated Officer formed an opinion under s. 811 specifically in relation to the Taxpayer and specifically in relation to the straddle transactions entered into by the Taxpayer between June and September 2007 before 24th August, 2011. It is worth recalling that the averment of the Nominated Officer on affidavit that he -
“. . . did not form an opinion under s. 811 in relation to the transaction undertaken by the [Taxpayer] and his wife until 24th August, 2011”
could have been, but were not, challenged in cross-examination of the Nominated Officer at the hearing of the High Court.
74. Finally, as regards Mr. O’Grady, counsel for the Taxpayer referred to a presentation given by him on 7th January, 2011 to the Institution of Chartered Accountants Ireland and the PowerPoint slides of his presentation that were admitted in evidence. Among the examples given in one slide of no less than five “Marketed schemes 2006 - 9”, one was described as follow: “Capital loss schemes (copycat U.K. ‘mismatch’ schemes)”. Another slide highlighted by counsel for the Taxpayer refers to there being no “bright red lines”, presumably to identify tax avoidance transactions, but that it is “usually obvious by applying a ‘Duck Test’: if it looks, walks, quacks like a duck . . .”. In the light of the previous outline and analysis of the relevant provisions of s. 811, it is hardly necessary to observe that the formation of an opinion under s. 811 that a specific transaction is a tax avoidance transaction in accordance with those provisions involves much more than a conclusion that the transaction has the appearance of, moves like and sounds like a tax avoidance transaction. The formation of such an opinion requires the person forming it to have information in relation to the specific transaction and to apply the relevant provisions by reference to it. The question which arises in this case from the tortuous consideration of the evidential documentary record is whether it can be inferred from it that Mr. O’Grady had the information necessary to form the relevant opinion in relation to a specific transaction of the Taxpayer in issue in this case at any time before 24th August, 2011. That question will be answered when considering the first issue.
VIII. Correspondent between the Agent and the Revenue Commissioners
after 27th June, 2001 75. In the letter of 27th June, 2011from the Revenue Commissioners informing the Agent of the intention to submit a report to the Nominated Officer under s. 811, the Agent was invited to make a written submission on the transaction entered into by the Taxpayer by 18th July, 2011, which submission would be submitted with the Report to the Nominated Officer for consideration. The immediate response of the Agent was to seek, by letter of 1st July, 2011, a copy of the Report. The response of the Revenue Commissioners, by letter of 8th July, 2011, was that it was a matter of practice to invite a submission where s. 811 was under consideration, that there was no statutory obligation on the Taxpayer to make a submission, nor was there any statutory obligation on the Revenue to provide the Taxpayer with the Report for the purposes of making such a submission. In response, the Agent, by letter of 12th July, 2011, stated that the onus was on the Revenue Commissioners to establish that s. 811 applied to the Taxpayer. In the absence of the Report to the Nominated Officer, the Taxpayer had no knowledge of the case he had to meet and it was for that reason that the Report was requested. To that letter, the Revenue Commissioners responded, by letter of 25th July, 2011, that an opinion under s. 811 had not yet been formed in the Taxpayer’s case and, therefore, the question of where the onus of supporting the s. 811 opinion would fall did not arise at that point. Nothing further happened in relation to the Taxpayer before the Notice under s. 811 issued to the Taxpayer and to the Agent on 24th August, 2011, following the receipt by the Nominated Officer of the Report on 22nd August, 2011. However, as recorded earlier, the Agent did, however, receive notices under s. 811 in respect of the other appellants on 27th July, 2011 and 17th August, 2011.
IX. First issue: whether the finding of the High Court that the opinion was not formed prior to 24th August, 2011 is sustainable in the light of the evidence
76. Before considering whether the argument of the Taxpayer that the finding of the trial judge that the opinion of the Nominated Officer under s. 811 that the straddle transactions entered into by the Taxpayer constituted a tax avoidance transaction was first formed on 24th August, 2011 was unsustainable in the light of what was characterised by the Taxpayer’s counsel as the evidential documentary record, it is useful to analyse the objective in raising and pursuing that issue in the context of the provisions of s. 811 and of the relief which the Taxpayer seeks. The primary relief which the Taxpayer seeks is an order of certiorari quashing the Notice and the subject opinion and consequent calculations and determinations, but, as recorded earlier, a further relief sought is a declaration that a s. 811 notice given at a time other than immediately after the forming of the opinion is invalid. The Taxpayer does not challenge the validity of the formation of the opinion in these proceedings on the basis of the timing of its formation being in breach of s. 811, perhaps, by reason of the fact that subs. (4) of s. 811 expressly states that the jurisdiction conferred by that sub-section may be exercised “at any time”. The time requirement in s. 811, which is the foundation of the Taxpayer’s contention that the Notice is invalid, is the requirement in subs. (6)(a) that notice in writing of the opinion be given “immediately on forming such an opinion”. It is alleged non-compliance with that requirement which is the foundation of the Taxpayer’s claim that the Notice is invalid. However, it is also argued that the subject opinion is invalid on other grounds and should be quashed. Against that background, the questions which must be addressed on the first issue are, first, what was the opinion which was required to be formed and immediately thereafter to be the subject of a notice and, secondly, what evidence was before the High Court as to when, having regard to the requirements of subs. (6)(a), the Notice was given by reference to the timing of formation of the opinion.
77. As will be clear, there is a certain overlap between the three issues identified on the appeal. While the first issue is founded on an alleged breach of a statutory provision, subs. (6)(a), in relation to the timing of the giving of the Notice by reference to the timing of the formation of the opinion, the second issue, the allegation of bias, which is primarily based on alleged pre-judgment, to a large extent also concerns the timing of the formation of the opinion, which the Taxpayer contends pre-dated August 2011. The second issue and the third issue, however, both allege breach of natural and constitutional justice, as distinct from an allegation of breach of the relevant statutory provisions in s. 811.
78. In answering the first question posed above in relation to the first issue, it must be borne in mind that the opinion of which the Taxpayer was given notice in the Notice was, as required by s. 811, specific to the Taxpayer and it was specific to the straddle transactions entered into by the Taxpayer between July and September 2007. Further, as has been observed earlier in considering the proper construction of subss. (2), (3), (4) and (6) of s. 811, in order to form an opinion that the straddle transactions entered into by the Taxpayer constituted a tax avoidance transaction, and to be in a position to give notice of the formation of that opinion in accordance with the requirements of subs. (6)(a), the Nominated Officer would have had to have had the information necessary not only to form the opinion but also to calculate the tax advantage and determine the tax consequences, which must be specified in the Notice given under subs. (6)(a). Therefore, in considering the second question posed above by reference to the documentary evidence admitted in the High Court, the focus must be on endeavouring to identify any evidence as to the formation by the Revenue Commissioners of such an opinion in relation to the specific transactions the subject of the opinion, that is to say, the straddle transactions entered into by the Taxpayer and as to their capacity to give such a notice of the opinion which would be compliant with subs. (6)(a) prior to 24th August, 2011.
79. Before considering the parties’ submissions in relation to the so-called evidential documentary record, it is worth recording what Ms. Cunniffe averred to in her comprehensive affidavit sworn on 23rd March, 2012. Having given an overview of the system by which transactions are reviewed and assessed by the Revenue Commissioners, and having outlined in some detail the various stages in such process, including the identification of a transaction which may in the opinion of an Inspector of Tax appear to be in the nature of avoidance and how the technical analysis and investigation of the transaction is conducted, and having also dealt with the specifics of the investigation of the transaction at issue in the Taxpayer’s case which was conducted by Inspectors of Taxes, Ms. Cunniffe concluded by averring that there is no substance to the allegations made by the Taxpayer that the Revenue Commissioners “had formed a section 811 opinion long in advance of 24 August 2011 in respect of the Schroders Ready Made 26 as an individual transaction and/or as a discrete group type”. She continued:
“While the [Revenue Commissioners] took a coordinated approach to investigations of similar cases to ensure that the [Revenue Commissioners] administered the law fairly, reasonably and consistently in line with the Revenue’s Customer Service Charter, the [Revenue Commissioners] undertook separate investigations in respect of the transaction entered into [by] each taxpayer, including the [Taxpayer] and his wife. Even though there may be similarities on particular issues with other cases each taxpayer’s circumstances is unique. A separate report was prepared in respect of the transaction entered into by the [Taxpayer] and his wife setting out the specific details of the transactions entered into by the [Taxpayer] and his wife and to take into account the particular circumstances of the [Taxpayer] and his wife.”
80. In support of the contention that the finding of the trial judge as to the timing of the formation of the relevant opinion was incorrect, the Taxpayer submits that, as a matter fact, the evidential documentary record demonstrates that the relevant opinion was formed before August 2011 and such inference should be drawn by this Court. Having regard to the circumstances identified earlier (at para. 43), as would have been the position in relation to the hearing in the High Court, if this Court were to attempt to draw such inference while faced with the same unsatisfactory state of affairs as the High Court was faced with, it would create the potential to give rise to a serious risk of injustice to the Revenue Commissioners and to their deponents. The complaints advanced on behalf of the Revenue Commissioners on the hearing of the appeal as to the manner in which the Taxpayer seeks, in proceedings primarily based on affidavit evidence, to undermine the evidence given by the Nominated Officer and by Mr. O’Grady on affidavit in the High Court, particularly when neither deponent, although available for cross-examination, was cross-examined or given an opportunity to comment upon or explain the documents and, in particular, the contents thereof, upon which the Taxpayer now relies, are wholly justified. Recalling the basis on which the documentary evidential record was admitted in the High Court and, in particular, that it was not admitted on a Bula/Fyffes basis, having regard to the absence of cross-examination of the relevant deponents, Mr. O’Grady and the Nominated Officer, it would not have been proper for the trial judge to draw the inference it is suggested he should have drawn from the documentation, nor would it be proper for this Court to do so on the appeal.
81. Nonetheless, having outlined the evidential documentary record in some detail at VI and VII above, I consider it prudent to assess it to see whether it has the effect contended for by the Taxpayer. Such assessment will be carried out first by reference to the Taxpayer’s contention in the Revised Statement of Grounds that the Revenue Commissioners “acting through an individual Revenue Commissioner and/or the Nominated Officer and/or senior officers of the Revenue Commissioners” formed the relevant opinion far in advance of 24th August, 2011, and failed to comply with the statutory requirement that notice of such opinion be given immediately. Consideration will then be given to the additional ground advanced by the Taxpayer based on what is alleged should have been the Revenue Commissioners’ treatment of the totality of the Schroders Ready-Made 26 cases.
82. It is noteworthy that the documents relied on by counsel for the Taxpayer as utterly contradicting the position of the Revenue Commissioners that neither the Nominated Officer nor the Revenue Commissioners formed “the required opinion” before August 2011 are documents, as those outlined at VII above demonstrate, which relate to the general concerns within the office of the Revenue Commissioners in relation to tax avoidance, broadly speaking in relation to the utilisation of schemes in which capital losses which were created were deployed to reduce liability to capital gains tax, including the schemes utilised in “Schroders Ready-Made 26” group of cases, and how those concerns could be addressed and, if necessary, rectified, whether internally or with the assistance of other State bodies, for example, by procuring the enactment of amending legislation. The position of the Revenue Commissioners is that those documents relied upon by the Taxpayer were referring to tax avoidance “in the general sense”. It was further submitted that there was no evidence to suggest that at any time any officer of the Revenue Commissioners undertook, with respect to the Taxpayer, prior to August 2011, an exercise of the particular kind required in order to form an opinion pursuant to s. 811. On a careful consideration of all of the documentation which was admitted in evidence in the High Court, I consider that the last submission is correct.
83. In general, for the purposes of the application of s. 811 and, in particular, subs. (2), (3), (4) and (6), to the Taxpayer, I consider that it is irrelevant that the Taxpayer’s case was one of the so-called “Schroders Ready-Made 26” cases, although this will be elaborated on later. As the correspondence between the Revenue Commissioners and the Agent outlined at VI above illustrates, from 25th March, 2009 to the end of May 2011 there was an ongoing investigation by the office of the Revenue Commissioners in relation to the Taxpayer’s liability to capital gains tax for the year 2007. Ultimately, the opinion of the Nominated Officer and the calculations and determinations the subject of the Notice issued to the Taxpayer on 24th August, 2011 were based on the Report submitted by Ms. Cunniffe, which, in turn, was based on the information provided by the Agent to the Revenue Commissioners over the two years and three months period which the correspondence spans. For present purposes, I consider that it is reasonable to assume that, without the information obtained from the Agent, as a matter of probability, the Revenue Commissioners would not have been in a position to properly exercise the jurisdiction conferred by subs. (4), in accordance with the provisions of subs. (2) and (3), which required them to have regard to the “results, use, form and substance” of the transaction in respect of which the opinion was being formed. Moreover, without that information, they would not have been in a position immediately to give a notice containing the calculations and determinations which complied with the requirements of subs. (6)(a) of s. 811 to the Taxpayer.
84. In advancing arguments on the first issue, the Taxpayer has totally ignored the nature and extent of the obligations imposed on the Revenue Commissioners in applying s. 811. For example, in the short summary of legal submissions filed on behalf of the Taxpayer, there is a brief reference to subss. (2) and (3) of s. 811, in that it is stated that the key criteria to which the Revenue Commissioners must have regard in forming an opinion that a given transaction is a tax avoidance transaction is that (a) the transaction gives rise to a tax advantage for the Taxpayer and (b) it was undertaken primarily for that purpose, i.e. it does not have an independent commercial justification such as the realisation of profits in the course of business. However, there is no reference to subs. (4), nor is there any reference to what must be specified in a notice given under subs. (6)(a). In fairness, there is a fuller analysis of the statutory framework in the original outline submissions filed on behalf of the Taxpayer, but, strangely, the subs. (6)(a) requirements are not spelt out, although counsel for the Taxpayer did open that sub-section on the hearing of the appeal. In the Taxpayer’s analysis it is suggested that the forming of the opinion is something quite distinct from the subsequent recording in the notice, where the notice includes the calculation of the tax advantage and whatever tax consequences that flow from this. In the light of the practicality of the performance of the task imposed on the Nominated Officer in subs. (6)(a), that distinction seems to me to be quite unreal. In that context, it is pertinent to ask how, in the absence of the identified information provided by the Agent, which is outlined at VI above, the Nominated Officer would have been in a position to form the opinion that the straddle transactions entered into by the Taxpayer between July and September 2007 were anti-avoidance transactions. In particular it is pertinent to ask how a determination could be made as to whether those transactions had independent commercial justification without that information. In my view, it could not. It was the information provided by the Agent which was specific to the Taxpayer and specific to the straddle transactions entered into by the Taxpayer in July to September 2007 which ultimately enabled the Nominated Officer to form the opinion which was the subject of the Notice and to comply with the requirements of subs. (6)(a) in relation to the contents of the Notice. It was not until the end of May 2011 that all of the information sought by the Revenue Commissioners was furnished by the Agent.
85. On the other hand, the elements of the evidential documentary record from which the Taxpayer has invited the Court to draw the inference that the Revenue Commissioners or the Nominated Officer formed the opinion the subject of the Notice, including the documents which are outlined at VII above, do not contain the information and material which would have enabled the Revenue Commissioners or the Nominated Officer to form an opinion that the straddle transactions entered into by the Taxpayer and his spouse between July and September 2007 meet the criteria stipulated in subss. (2), (3) and (4) of s. 811 for the formation of an opinion that a transaction is a tax avoidance transaction, nor do they contain the information or material which would be necessary to comply with the requirements of subs. (6)(a) in relation to a notice of the formation of the opinion which would have to be served on the Taxpayer immediately following such formation. In particular, referring back to the observations made earlier when concluding that the “Duck Test” is not the test to be applied to the task of the Revenue Commissioners or a nominated officer in implementing subs. (4) of s. 811 in conjunction with, and having regard to the requirements of, subs. (6), and emphasising the true nature of that task, having considered those documents carefully, I am satisfied that there is no documentary evidence from which it could be inferred that Mr. O’Grady had, at any time, the information and material necessary to form an opinion that the straddle transactions entered into by the Taxpayer and his spouse the subject of the Notice were, on the proper application of subss. (2), (3) and (4) of s. 811, tax avoidance transactions.
86. The foregoing analysis addresses the Taxpayer’s contention that the Revenue Commissioners formed the relevant opinion in relation to the Taxpayer far in advance of 24th August, 2011 and that the requirement of subs. (6)(a) of s. 811 to give immediate notice of the formation of the opinion was not complied with. Insofar as it is necessary to do so, I will now consider the Taxpayer’s alternative arguments based on what is alleged should have been the Revenue Commissioners’ treatment of the totality of the Schroders Ready-Made 26 cases. In the Revised Statement of Grounds the Taxpayer asserts that, when the Revenue Commissioners formed the relevant opinion in relation to any one or more of the participants in the Schroders Ready-Made 26 Scheme, they were under statutory duty to immediately notify “all of the other members”, including the Taxpayer, and failure to do so was a breach of their statutory duty under s. 811. There is a certain equivocation as to what all of the members were to be notified of - whether it was the opinion formed or an opinion in relation to “the individual taxpayer with whom they should have been communicating”, as stated in the Revised Statement of Grounds. The reason it is suggested that there was such an obligation is that “each of the persons in the Schroders Ready-Made 26 is a person from whom a tax advantage would be drawn or denied if the opinion became final and conclusive”. Alternatively, it is asserted that in those circumstances the Revenue Commissioners must be deemed to have formed the relevant opinion in relation to the Taxpayer which would have required the giving of immediate notice to the Taxpayer, which did not happen. The reasoning underlying that assertion is that the Revenue Commissioners regarded the twenty six transactions “as singular or materially similar” for the purpose of s. 811 and regarded them as a single group to be dealt with in a similar way.
87. That alternative ground, in my view, is wholly misconceived, in that it totally ignores the nature of the power to form an opinion conferred, and the related duty to give notice imposed, on the Revenue Commissioners in s. 811. Indeed, on the hearing of the appeal counsel for the Taxpayer consistently acknowledged that, in applying s. 811, individual consideration has to be given to the situation of each taxpayer and that the opinion formed under subs. (4) of s. 811 has to relate to a specific transaction. Against that acknowledgement, it is difficult to see how the alternative ground can be argued at all. Insofar as it is pursued on behalf of the Taxpayer, the crucial factor is that the duty under subs. (4) is to form an opinion in relation to a specific transaction that it is a tax avoidance transaction and, inter alia, to calculate the tax advantage which arises from the transaction and make the consequential determinations. Further, there is an obligation on the Revenue Commissioners under subs. (6) to give notice in writing immediately on the formation of the opinion. However, as required by subs. (6), the notice must be given to any person who would, broadly speaking, lose a tax advantage in the event of the opinion becoming final and conclusive, but such loss of a tax advantage is clearly linked to the opinion and to the specific transaction to which the opinion relates. Accordingly, s. 811 is not open to the construction that, for instance, when the Nominated Officer formed the opinion that a specific transaction in which John Punch was involved was a tax avoidance transaction, in respect of which a notice issued to Mr. Punch on 27th July, 2011, the Nominated Officer was obliged to notify the Taxpayer of the formation of that opinion, or to form an opinion in relation to the Taxpayer. Nor is s. 811 open to the construction that, in those circumstances, the Revenue Commissioners must be deemed to have formed “the relevant opinion”, in relation to the Taxpayer.
88. Accordingly, I am satisfied that the Taxpayer has not established that the trial judge was wrong in fact or in law in finding that the relevant opinion in relation to the Taxpayer, which was the subject of the Notice, was formed on 24th August, 2011 and, not prior to 24th August, 2011, as the Taxpayer asserts, and that the Notice was given in accordance with subs. (6)(a) of s. 811.
X. Second issue: whether formation of the opinion is tainted by objective bias and/or pre-judgment
89. Having regard to the manner in which counsel for the Taxpayer have formulated the second issue (as set out earlier at para. 37), it is their contention that one or both identified officers of the Revenue Commissioners, Mr. O’Grady and the Nominated Officer, was or were involved “in the assessment of the transaction within the Revenue Commissioners from 2009 to 2011” to the extent that the formation of the opinion is tainted by objective bias or pre-judgment or both. This issue focuses on the formation of the relevant opinion, rather than on the giving of notice of it. As has been emphasised in addressing the first issue, the formation of the opinion the subject of the Notice which is challenged in the judicial review proceedings was specific to the Taxpayer and was specific to the straddle transactions entered into by the Taxpayer between July and September 2007. I have already concluded, in addressing the first issue, that, even leaving aside the status of the documentary evidence relied on by the Taxpayer and the problem related to the absence of cross-examination of Mr. O’Grady, there is no documentary evidence before the Court from which it could be inferred that Mr. O’Grady had, at any time, the information and material necessary to form the relevant opinion in accordance with the proper applications of subss. (2), (3) and (4) of s. 811. Therefore, the second issue will be addressed by reference to the Nominated Officer’s involvement prior to the formation of the opinion on 24th August, 2011.
90. There is consensus that the formation of an opinion that a transaction is a tax avoidance transaction in accordance with s. 811 is an administrative act, counsel for the Revenue Commissioners citing the decision of this Court in Deighan v. Hearne [1990] 1 I.R. 499, where the act under scrutiny was the exercise by an inspector of taxes of the powers vested in him under the Income Tax Act 1967 to make an assessment in default of return. However, there is a degree of dissension between the parties, in that it is submitted on behalf of the Taxpayer that the forming of the opinion at issue here is an administrative act which attracts the principles of natural justice, whereas it is contended on behalf of the Revenue Commissioners that it does not attract the application of the objective bias principle. Save to observe that, while of the view that it would be inappropriate to accept that the sweeping statement made on behalf of the Revenue Commissioners is correct, in this context it is not necessary to consider it further, because the function of the Court on this appeal is to assess whether, on the evidence which was before the High Court, it could have been concluded that there was objective bias or pre-judgment on the part of the Nominated Officer.
91. It is true, as was submitted on behalf of the Taxpayer, that there is a wealth of case law confirming that the involvement by a decision maker at an earlier stage in a process, which has serious repercussions for an applicant, is profoundly objectionable. However, that case law, to use a word frequently used in this judgment, straddles the application of a wide range of statutory provisions and legal principles in a very wide range of factual contexts, for example, compulsory acquisition of land, the imposition of a sanction on a member of a regulated professional body, and expulsion of a student from an institute of education, just to mention but a few.
92. The authority upon which counsel for the Taxpayer has placed most emphasis is the decision of the High Court in O’Neill v. Irish Hereford Breed Society Ltd. [1992] 1 I.R. 431. The issue there was the validity of the expulsion of the plaintiff from the defendant society in circumstances where a number of members of the society’s editing committee on members’ conduct, who had investigated the complaints against the plaintiff, were also members of the council of the defendant society which subsequently unanimously passed a resolution expelling the plaintiff in accordance with the rules of the defendant society. Counsel for the Taxpayer has drawn the Court’s attention to references in the judgment of the High Court (Murphy J.) to earlier authorities in which the issue of bias was addressed by this Court.
93. The first of those authorities pointed to on behalf of the Taxpayer was Corrigan v. Irish Land Commission [1977] I.R. 317. Murphy J. quoted the following passage from the judgment of Henchy J. (at p. 322):
“Counsel for the appellant expressly disavows any suggestion that the two lay commissioners who heard the objection in this case acted unfairly or improperly in any way in their conduct of the hearing, or that they were in any way actuated by bias, or that they went outside the evidence given at the hearing. He confines his argument to saying that the two lay commissioners left themselves open to the suspicion of bias in the mind of a reasonable man, that is to say, a suspicion that they might have brought to the hearing opinions or preconceptions unfavourable to the landowner, which they may have formed when dealing with the material on which they had formed the provisional and ex parte decision to acquire the lands. What is complained of, therefore, is not actual bias but a situation in which actual bias might reasonably be suspected.”
As was pointed out by Murphy J., although in his dissenting judgment Kenny J. was emphatic that it was altogether wrong that either of the Commissioners should hear and determine the objection of the landowner to the making of the compulsory purchase order because, as he stated (at p. 333) -
“. . . there is a risk that justice will not be done, and a certainty that justice will not be seen to be done”,
the majority in that case did not find it necessary to decide whether the facts of the case justified an inference of bias.
94. The second of the authorities quoted by Murphy J. to which counsel for the Taxpayer referred was O’Neill v. Beaumont Hospital [1990] ILRM 419, where, as Murphy J. recorded, the Supreme Court considered what would constitute bias of such a nature as would invalidate a quasi-judicial decision. Murphy J. stated that the material principles may be extracted from the following passages from the judgment of Finlay C.J. (at p. 438 et seq.):
“The bias alleged in this case is a bias consisting of pre-judgment . . .
I am satisfied that the proper standard to be applied by this Court . . . is the question as to whether a person in the position of the plaintiff, Mr. O'Neill, in this case who was a reasonable man, should apprehend that his chance of a fair and independent hearing of the question as to whether his services should be continued or terminated does not exist by reason of the pre-judgment of the issues which are involved in that by members of the board . . .
The test is an objective test as to whether a person in the position of the plaintiff who is a reasonable man might reasonably fear that the pre-judgment expressed by the chairman would prevent a completely fair and independent hearing of the issues which arise.”
95. Counsel for the Taxpayer also relied on the succeeding passages of the judgment of Murphy J. in O’Neill v. Irish Hereford Breed Society Ltd. in which he applied the foregoing principles. He stated (at pp. 451 and 452):
“It was, however, argued that those members present at the meeting of the council on the 11th July, 1989, who had attended the meeting of the editing committee on the 4th May, 1989, and recommended that consideration should be given to the expulsion of the first plaintiff were biased by the pre-judgment of the first plaintiff's conduct made by them at that meeting.
In reply to this contention the defendant points out that the editing committee did not itself consider and had no power to consider expelling the first plaintiff but merely recommended that the council should consider such expulsion. On the other hand the report from the editing committee clearly discloses that the editing committee had reached a view in relation to the first plaintiffs conduct . . .
Even allowing that the editing committee was carrying out a different function from that of the council it seems to me inescapable that those members of the editing committee who attended the meeting on the 4th May, 1989, had pre-judged at least some of the crucial facts which fell to be decided by the council on the 11th July, 1989, and had committed themselves to a view as to the consequences which should flow from their decision. On the face of it this constitutes bias consisting of pre-judgment.”
96. It is appropriate to record that the hearing of the Taxpayer’s appeal to this Court did not conclude when it was first listed and that, by the time the hearing was resumed, this Court had given judgment in Reid v. Industrial Development Authority & Ors. [2015] IESC 82 (now reported as Reid v. IDA at [2016] ILRM 1). At the resumed hearing the Court was informed by counsel for the Taxpayer that the Taxpayer was also relying on the decision in that case. In the judgment delivered in that case by McKechnie J. more recent authorities on the objective bias test are referred to. In his judgment (at para. 72) McKechnie J. summarised the objective bias test as follows:
“. . . in short, it is the reasonable suspicion or the reasonable apprehension test . . .”
However, he later emphasised (at para. 77) that, as regards the role of the IDA in the statutory compulsory purchase process at issue in that case, the Board of the IDA -
“. . . was not simply exercising a function in public administration but rather, having regard to the structure which it set up and within which the subject decisions were taken, it was in substance carrying out a quasi-judicial function.”
97. Having regard to the Taxpayer’s submissions, it is difficult to differentiate the basis on which it is contended that the Nominated Officer did not comply with the requirement of subs. (6)(a) of s. 811 by giving notice of the formation of the opinion that the transaction entered into by the Taxpayer was a tax avoidance transaction “immediately” after its formation, which is based on the proposition that the opinion was formed long before 24th August, 2011, and the basis on which it is contended that the formation of the opinion by the Nominated Officer is invalid on the ground of objective bias or pre-judgment. It is submitted that the trial judge did not give sufficient weight to the totality of the evidence which, it was contended, suggested that the Nominated Officer did not form an independent opinion in respect of the Taxpayer’s transaction. In the Revised Statement of Grounds, in support of the contention that the Notice and the subject opinion were ultra vires, it is stated that “the Revenue Commissioners had long since pre-judged the issue as to whether the transactions . . . were tax avoidance transactions within the meaning of s. 811” by the time they came to issue the Notice. Further, the alleged objective bias is specifically grounded on Mr. O’Grady’s involvement “in the investigation of Schroders Ready-Made 26”. Viewed from the perspective of those grounds, in reality, there is very little difference between the arguments advanced by the Taxpayer on the first issue and on the second issue.
98. On the analysis of the Taxpayer’s case conducted in the submissions on behalf of the Revenue Commissioners it is suggested that the Taxpayer is advancing two grounds under the heading of objective bias and pre-judgment: that the Nominated Officer was involved in issuing notices of opinion in respect of similar transactions undertaken by other taxpayers; and the Nominated Officer’s alleged involvement in consideration by the Revenue Commissioners of the Schroders Ready-Made 26 transactions, which ground had already been dealt with in the context of the first issue. As regards the earlier ground, it is submitted on behalf of the Revenue Commissioners that it is unsustainable in principle and unworkable in practice, on the basis that it gives rise to the implication that circumstances exhibiting a degree of similarity would require to be considered by separate nominated officers, suggesting that in relation to the Schroders Ready-Made 26 that could amount to at least twenty six officers. Apart from that, it is submitted that the fact that notices were issued to certain taxpayers involved in similar schemes does not mean that there was a pre-determination in relation to the Taxpayer’s scheme, an analysis of each taxpayer’s position and the relevant transaction or transactions entered into by each being necessary.
99. It is reasonable to surmise that it is a fact that, from time to time, several individuals or corporations may retain the same financial institution or tax adviser to assist in mitigating, or even eliminating, the tax liability of each and that they may end up utilising a similar scheme to achieve that objective. It does not follow that, once the assessment of the application of s. 811 to each has been carried out, and a report in respect of each has been prepared in the manner outlined in Ms. Cunniffe’s affidavit, if formation of opinions in consequence of all of the reports is carried out by one nominated office, it would give rise to a reasonable suspicion or to a reasonable apprehension of bias. On the contrary, in the absence of contradictory evidence, the reasonable inference is that the opinion in relation to each taxpayer was done independently on the basis of the facts relevant to each, as required by s. 811. Of course, each taxpayer, independently, has a right of appeal in accordance with subs. (7) of s. 811, if he chooses that option.
100. It is submitted on behalf of the Revenue Commissioners that the existence of a right of appeal cures any suggestion of bias or pre-judgment, it being emphasised that -
(a) the appeal is not one of review but rather is one of re-hearing, per McKechnie J. in Revenue Commissioners v. O’Flynn Construction (at p. 607); and
(b) in any event, the opinion of the Revenue Commissioners will not become final and conclusive pending the outcome of the appeal, and that, if the Taxpayer is dissatisfied with the outcome of the appeal, there is a further right of appeal to the Circuit Court with the possibility of further appeals to the superior courts.
Moreover, it is submitted that there is clearly a parallel to be drawn between this case and the decision of the High Court (Carroll J.) in Gammell v. Dublin County Council [1983] I.L.R.M. 413(Gammell). That point will be considered below in the context of the third issue.
101. As regards the second issue, for the reasons outlined above, I am satisfied that the formation of the opinion in relation to the Taxpayer is not tainted by objective bias or by pre-judgment, as suggested on behalf of the Taxpayer.
XI. Third issue: whether there was a breach of
natural and constitutional justice 102. The Taxpayer’s allegation that there has been a breach of natural and constitutional justice is based on the failure of the Revenue Commissioners to accede to the request from the Agent for a copy of the Report to the Nominated Officer. At the time the request was initially made, the Report was not in existence. It is also based on the contention that the Revenue Commissioners should have furnished, but did not furnish, to the Agent or the Taxpayer the grounds, reasons or circumstances which they considered made it appropriate to invoke s. 811 before the Nominated Officer formed his opinion and the Notice was given by him to the Taxpayer. Subsequently, in the course of the judicial review proceedings in the High Court the Taxpayer got discovery of the Report but without two of the appendices attached to it. Those appendices contained the reports of the external experts obtained by the Revenue Commissioners. The Revenue Commissioners claimed professional privilege in respect of those reports on the basis that they were obtained in contemplation of litigation. It is important to emphasise that the claim to privilege has not been challenged by the Taxpayer in the discovery process or otherwise and, accordingly, in my view, it does not require further consideration.
103. Essentially, the Taxpayer contends that the Revenue Commissioners failed to afford the Taxpayer a meaningful opportunity to make representations on the Report and that such failure constituted a breach of fair procedures. The Taxpayer relies on a line of authority which, as it was put, culminated with the judgment of this Court in Dellway Investments v. NAMA [2011] 4 I.R. 1 (Dellway), which was followed by the High Court in Treasury Holdings v. NAMA [2012] IEHC 297 (Treasury Holdings). The Revenue Commissioners’ response is that the circumstances in this case are distinguishable from the circumstances in Dellway and in Treasury Holdings. Further, their position is that the approach taken by the High Court (Carroll J.) in Gammell is the appropriate comparator to this case and that it should be followed.
104. Aside from contending that the circumstances here are distinguishable from the circumstances in Dellway, the Revenue Commissioners contend that the Taxpayer was given an opportunity to make representations, which, if made, would have been submitted to the Nominated Officer with the Report. Further, it is contended that the Taxpayer did not need to see the Report for the purposes of making submissions, it being pointed out that the information contained in the Report was predominantly gleaned from the Taxpayer’s tax return, the Agent’s responses to the queries raised by the Revenue Commissioners and the documents executed by the Taxpayer in the course of the straddle transactions. Commenting that the interaction between the parties (that is to say, between the Revenue Commissioners and the Agent) over a period of more than two years involved no less than twenty two letters, the Revenue Commissioners contend that the Taxpayer had ample opportunity to address the Revenue Commissioners in relation to the features of the transaction which might have demonstrated that it did not attract the application of s. 811.
105. In the light of the foregoing arguments and counter arguments it is useful to compare the circumstances in the Dellway case with the circumstances in this case. The decision under challenge in Dellway was a decision of the National Asset Management Agency (NAMA), which was said to be made under s. 84 of the National Asset Management Agency Act 2009, to acquire loans of Patrick McKillen and companies partly or wholly owned by him, without notice to, or consultation with, him. One of the grounds on which Mr. McKillen sought to challenge the decision was that he enjoyed certain rights connected to his bank loans and that he had the right to be heard prior to the making of the decision to acquire his loans due to interference, or potential interference, with these rights. The distinguishing feature which emerges in the comparison of the jurisdiction invoked by NAMA in Dellway and the jurisdiction invoked by the Revenue Commissioners under s. 811 in this case is that a borrower, such as Mr. McKillen, affected by a decision of NAMA pursuant to s. 84 to acquire eligible bank assets, has no right to appeal against the decision of NAMA. However, in this case, the Taxpayer, on whom the Notice was served pursuant to s. 811(6), had a right to appeal under s. 811(7) by way of a full inter partes hearing and the opinion embodied in the Notice would not be final and conclusive within the time limited to appeal or, in the event of an appeal, until the appeal was finally determined. It is from that distinguishing feature that it is contended by the Revenue Commissioners that the analogy with the decision in Gammell flows.
106. The facts in Gammell are helpfully summarised in Gwynn Morgan and Hogan on Administrative Law in Ireland (4th Ed., Dublin, 2015) (at para. 14 - 274), where it is stated that the case involved an order prohibiting the erection of temporary dwellings, which had been made under the Local Government (Sanitary Services) Act 1948 (the Act of 1948) in respect of the plaintiff’s caravan site by the defendant council. The plaintiff was not aware of the inspection of her site by the local authority and health board experts on whose certificate the local authority relied in making the order. Following the procedure under the Act of 1948, a notice that the order had been made and that any person aggrieved had fourteen days in which to apply to the Minister for the Environment, asking for the order to be annulled, was published in a newspaper circulating locally. On such an application the order could then be annulled or confirmed by the Minister. As is recorded by the authors, in the High Court Carroll J. held that the opportunity to make representations to the Minister sufficed for compliance with the audi alteram partem rule.
107. The analysis by the authors of the decision of Carroll J. cited by counsel for the Revenue Commissioners in support of their submissions that the decision in Gammell should be followed is to be found in Gwynn Morgan and Hogan (op cit.) at paras. 14 - 275 and 14 - 276. There had been earlier decisions of the High Court, namely, Ingle v. O’Brien (1975) 109 I.L.T.R. 7 and Moran v. Attorney General [1976] I.R. 400, in which it had been found that a failure to allow a person who had been affected by a decision the right to make his case at the time of the initial decision would not be cured by the provision of an appellate stage at which this right was allowed. As is pointed out by the authors, in her judgment Carroll J. drew an important distinction between those cases and Gammell in the following passage (at p. 417):
“However in this case we are not dealing with an order effective when made and an appeal therefrom to an appellate body. Under s. 31 of the Act [of 1948] the order has no effect until the person aggrieved has been given an opportunity of stating reasons why it should not come into effect. There is no ‘appeal’ to the Minister from an operative order. There is machinery set up under the section whereby an aggrieved party can make representations why the order should not come into operation. If successful, the order is annulled by the Minister and never becomes operative. This is very different to the Ingle case and to the Moran case where the revocation of the licence became operative immediately and of necessity there had to be a time lag between the revocation and the determination of an appeal to the District Court.”
108. Later, having quoted from the judgment delivered by Henchy J. in the Supreme Court in State (Duffy) v. The Minister for Defence [1979] ILRM 65, Carroll J. stated (at p. 418):
“This case appears to me to establish that provided representations can be made before a decision becomes effective the audi alteram partem rule is not breached. The fact that the representations are to be made to the Minister and not to the body making the order does not seem to me to be invidious in any respect. In fact, even though the County Council would not appear to be inhibited from acting, it seems preferable that representation should be made to the Minister who can avoid the criticism which might be levelled at the County Council that they are judges in their own cause.”
Although Carroll J. pointed out in the first passage from her judgment in Gammell quoted earlier that there was no “appeal” to the Minister from the operative order in that case, nonetheless, I agree with the observations in Gwynn Morgan and Hogan (op cit.) at para. 15 - 275 that the fact that in Gammell the confirmation was to be given by a body other than the body which had made the initial decision made the confirmation look more like an appeal. In any event, as regards the last sentence in the passage quoted above, an aggrieved person, such as the Taxpayer, who has invoked the right of appeal under subs. (7) of s. 811, would be in a similar position to the applicant in the Gammell case, so that, on the appeal to the Appeal Commissioners, no question could arise of the Revenue Commissioners being judges in their own cause or the decision on the appeal being tainted with bias.
109. Further, while it is not necessary for present purposes to express a view on the observation of the authors at the end of para. 14 - 276, following an analysis of whether, in the area of planning applications, the structure of the decision making system is analogous to that involved in Gammell, it is interesting to note their conclusion. It is that the two systems are similar and that the planning application system does not violate the audi alteram partem rule, it being pointed out that the key factor is that a local authority planning decision granting permission does not come into effect until the appeal has been heard of or, if no appeal is taken, until the period for appealing has elapsed, which is similar to what is provided for in subs. (5)(e) of s. 811.
110. However, on this appeal there is another string to the Taxpayer’s bow. It is submitted on his behalf that the possibility of an appeal is no answer to the breach of natural justice involved in the failure to give the Taxpayer a copy of the Report, because the grounds of appeal set out in s. 811 are confined to very limited grounds, none of which encompass the points which have been raised in the proceedings. It is suggested that it is a complete answer to the Revenue Commissioners’ reliance on the possibility of an appeal that the remedy, although characterised by the trial judge in his judgment as “an alternative effective remedy”, it clearly is not effective.
111. In assessing that argument from the perspective of each of the parties, the Taxpayer and the Revenue Commissioners, as at August 2011, it is necessary to emphasise again what the Nominated Officer was empowered to do by virtue of the provisions of s. 811. By virtue of subs. (4) of s. 811, the Nominated Officer had power to form the opinion that the “Transaction” as outlined in the Notice was a tax avoidance transaction and to determine the tax consequences. The Nominated Officer was under an obligation, by virtue of subs. (6)(a), to immediately give notice in writing of the opinion to the Taxpayer and also to specify the various matters set out in that paragraph, including the tax consequences of the transaction as regards the Taxpayer. By virtue of subs. (7) of s. 811 the Taxpayer, as a person aggrieved by the opinion formed by the Nominated Officer, had the right to appeal to the Appeal Commissioners, but only on the grounds set out in subs. (7). Those grounds cover the opinion which the Nominated Officer was entitled to form and every determination and calculation which he was empowered to make by virtue of subs. (4), in respect of all of which he was obligated to notify to the Taxpayer by virtue of s. 6(a). Accordingly, the structure of s. 811 is such that the right of the Taxpayer to appeal following receipt of the Notice under subs. (7) entitled him to challenge the formation of the opinion on the ground that the transaction specified in the Notice was not a tax avoidance transaction and to challenge all the other determinations and calculations made by the Nominated Officer, broadly speaking on the basis that they were wrong. Given that the structure also, by virtue of subs. (5)(e), effectively stalled the opinion and the determinations and the calculations of the Nominated Officer becoming effective in the event of an appeal until its final determination, it is not the case that the right of appeal which the Taxpayer had under subs. (7) was not an effective remedy. In summary, it was an effective remedy because it gave the Taxpayer the right to challenge the formation of the opinion on the basis that it was wrong and the consequential determinations and calculations which the Nominated Officer was entitled to make and which required to be notified to the Taxpayer, so that pending the final determination of the appeal the Taxpayer was wholly protected. Apart from that, any challenge he had to s. 811 on the grounds of repugnance to the Constitution could have been pursued in plenary proceedings in the High Court and any legitimate challenge to the validity of the actions of the Revenue Commissioners or the Nominated Officer could have been pursued by way of judicial review in the High Court.
112. It is true, of course, that the Taxpayer was not entitled to raise any of the three issues raised in the judicial review proceedings on an appeal under s. 811(7). However, insofar as he might have had a legitimate challenge to the validity of the decision of the Nominated Officer, as distinct from its correctness, the alternative remedy of seeking to quash that decision by way of judicial review would have been open to him. It is not beyond the bounds of possibility that a person in the position of the Taxpayer might be able to successfully challenge the validity of such a decision on grounds other than the grounds pursued by the Taxpayer. One possibility which springs to mind is that in a particular case there could be a challenge that the person who purported to form the opinion and give notice in accordance with s. 811 was not a nominated officer in accordance with subs. (12). The outcome of the judicial review proceedings on this appeal, however, flows from the fact that the Taxpayer has not demonstrated that either the Notice or the underlying opinion, calculations and determinations are invalid on any of the grounds argued by the Taxpayer.
113. Accordingly, the third issue must be answered against the Taxpayer because, on the proper analysis of the structure of s. 811 and, in particular, the nature and effect of the Taxpayer’s right to appeal, the proper conclusion is that the implementation of the process involved in that structure does not constitute a breach of natural or constitutional justice.
XII. Summary of conclusions
114. Whether, in forming the opinion that the straddle transactions entered into by the Taxpayer between July and September 2007 constituted a tax avoidance transaction within the meaning of s. 811 of the Act of 1997, the Nominated Officer properly applied the relevant provisions of s. 811 to the facts and circumstances and arrived at a correct conclusion does not fall for determination on this appeal. Similarly, the question whether the contents of the Notice issued on 24th August, 2011, including the calculations and determinations contained in it, are correct does not fall for determination on this appeal. Both of those issues are for determination on the pending appeal under subs. (7) of s. 811. Nothing in this judgment is intended to be, or should be construed as, the expression of a view on either of those issues.
115. The issues which arise on this appeal concern the validity of the Notice and of the underlying opinion, calculations and determinations, having regard to the alleged breach of statutory duty and the alleged breach of the principles of constitutional and natural justice advanced on behalf of the Taxpayer. The answers to the specific issues arising from those allegations raised on the appeal are as follows:
(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.
Accordingly, as each of the issues has been determined against the Taxpayer, the Taxpayer’s appeal must be dismissed.
116. Finally, in the interests of clarity, it is appropriate to record that this appeal was heard before the commencement of the Finance (Tax Appeals) Act 2015 on 21st March, 2016 and the provisions of that Act did not, therefore, arise on the appeal.
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