Richard Bruton (Dublin North Central, Fine Gael)
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Question 10: To ask the Minister for Finance if his provision in the Finance Bill 2006 to impose penalties on tax avoidance schemes, subsequently proved illegal, has been affected by a recent European Court of Justice ruling on what can be regarded as abusive and attracting a penalty. [12368/06]

Brian Cowen (Laois-Offaly, Fianna Fail)
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Section 126 of the Finance Bill seeks to ensure that attempting to avoid tax, using means that would not succeed if challenged by reference to the general anti-avoidance section, section 811 of the Taxes Consolidation Act 1997, will no longer be a risk-free activity. Taxpayers considering the use of artificial arrangements to avoid tax will now have to take account of the risk of having to pay an additional 10% surcharge on the tax that they attempt to avoid. In addition, they run the risk of having to pay interest back to the date when the tax concerned would have become payable if there had been no avoidance.

The new section enables taxpayers to protect themselves against any possibility of the new surcharge or interest arising. Taxpayers can do this by making a protective notification to Revenue of the transaction concerned and they can avail of this option on a wholly "without prejudice" basis.

I take it that the Deputy is referring to the European Court of Justice ruling last month in the case colloquially known as Halifax. I should point out that this ruling was in respect of a UK case not an Irish case. The ruling is primarily relevant to VAT — a tax governed by EU law — although it is, of course, possible that, in time, similar principles may inform ECJ decisions in respect of other taxes. The court found that the European civil law principle prohibiting abusive practices applies to VAT. Where such abusive practices are undertaken to enable a taxpayer to claim a deduction for VAT paid on inputs, the court ruled that the taxpayer is not entitled to deduct the input VAT concerned.

The ruling addressed the definition of transactions that involve abusive practices. In summary, it found that transactions involve an abusive practice where, first, a tax advantage accrues from the transactions and, second, the essential aim of the transactions is to obtain that tax advantage. According to the ruling, it is for the national court to verify whether action constituting an abusive practice has taken place. In the case of Halifax, this will be ultimately determined in the UK courts.

The Revenue Commissioners advise me that they do not expect that this judgment will adversely affect the operation of the section to which the Deputy refers in his question. It is worth pointing out that the judgment's specification of the circumstances in which an abusive practice arises are not, in substance, dissimilar to the criteria in Irish tax law for identifying tax avoidance. These are set out in the general anti-avoidance section — section 811 of the Taxes Consolidation Act 1997 — on which section 126 of the Finance Bill is based. The issues involved are complex and, ultimately, it will be for the courts to decide how the ECJ judgment will affect the operation of section 126.

Michael Ring (Mayo, Fine Gael)
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Question 11: To ask the Minister for Finance the issues which are being reviewed in assessing whether the exemption from stamp duty on site values should apply where developers build houses on the basis of a licence to build from the landowner; and if he will make a statement on the matter. [12532/06]

Brendan Howlin (Wexford, Labour)
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Question 67: To ask the Minister for Finance the steps he plans to take to close the loophole which allows some property developers to avoid stamp duty by developing land under licence from the original owner; and if he will make a statement on the matter. [12378/06]

Brian Cowen (Laois-Offaly, Fianna Fail)
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I propose to take Questions Nos. 11 and 67 together.

Stamp Duty is a charge on documents, which are mostly legal documents, used in the transfer of property. Where a property is purchased, stamp duty is charged on the conveyance or transfer effecting change of legal ownership of the property concerned. If there is no conveyance, there is no stamp duty. A builder or developer can, therefore, obtain a licence from a vendor to build on land owned by the vendor without incurring a stamp duty charge at that stage of the venture. Once the buildings, whether commercial or residential are completed, the conveyances or transfers of such properties to purchasers are chargeable to stamp duty in the normal manner unless specific exemptions are available to such purchasers.

Taking account of the proliferation of developments generally in recent times and in the context of its targeted auditing project in the construction sector in 2006, the Revenue Commissioners are reviewing the use of licensing and similar arrangements as part of their audit and compliance programmes. The review, as with Revenue's overall approach to its business, will focus on risk. I have asked Revenue to let me know the outcome of the review and I will decide what action, if any, is required bearing in mind the effect on the housing market and the cost to the Exchequer.