Pat Rabbitte (Dublin South West, Labour)
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Question 132: To ask the Minister for Finance if, in view of the recent surge in the number of protective notifications, he sees scope for further enhancing the Revenue Commissioners powers to crack down on aggressive tax avoidance schemes; and if he will make a statement on the matter. [21979/08]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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The protective notification regime, provided for by section 811A of the Taxes Consolidation Act 1997 (TCA 1997), was introduced by Finance Act 2006 and was amended in Finance Act 2008 with a view to making it more effective. Section 811A is, in effect, a companion provision to the general anti-avoidance provision, contained in section 811 of the TCA 1997, which was introduced in 1989 after the Courts had declined to strike down certain artificial tax avoidance schemes.

Section 811 acts as a back-stop provision, designed to prevent tax avoidance arrangements, which circumvent the broad purpose of tax law to impose a charge to tax while staying within the letter of the law, from being effective in reducing tax liabilities. Under section 811 the Revenue Commissioners can seek to withdraw the tax advantage from the arrangements concerned by invoking the general anti-avoidance provision. The Revenue Commissioners can, of course, only challenge these artificial arrangements if and when they come to their attention.

Clearly, it is vital for the overall effectiveness of the tax system that the Revenue Commissioners be aware of the tax avoidance strategies being used by taxpayers. The primary purpose of the protective notification regime is, therefore, to encourage taxpayers and their advisers to be open with Revenue in relation to transactions that may be tax avoidance transactions within the meaning of section 811. The reason for revisiting the issue in this year's Finance Act was that the response to the original 2006 initiative had been very disappointing with only 8 notifications received and all of these emanating from the same group of companies. In this context, it was clear that the initiative needed to be reconsidered.

It was against that background that Finance Act 2008 increased the section 811A surcharge from 10% to 20% of the tax reinstated where a transaction is ultimately determined to be a tax avoidance transaction, introduced a "reasonableness test" on any appeal to the Appeal Commissioners and the Courts, and, by way of a positive incentive for the taxpayer to make a protective notification, introduced a two year time limit on the Revenue Commissioners forming an opinion that a transaction is a tax avoidance transaction from the date a notification is made.

A taxpayer can still get full protection from the surcharge, interest on the unpaid tax and the reasonableness test on appeal, and can obtain the certainty and finality of a two-year time-limit on Revenue forming an opinion that a transaction is a tax avoidance transaction, by the simple expedient of voluntarily making a protective notification to the Revenue Commissioners on a wholly non-prejudicial basis.

It is encouraging that the changes made in the 2008 Finance Act are already having some impact, with 53 new protective notifications received by the Revenue Commissioners since its enactment. In that regard, however, I am advised by the Revenue Commissioners that the significant increase in the number of protective notifications does not translate into a similar increase in the number of tax avoidance schemes or arrangements coming to their attention, as many of these notifications relate to the same scheme.

That said I am, nonetheless, heartened by the fact that it appears that taxpayers and their advisers are now treating the provisions of section 811A seriously and taking the opportunity to avail of the protections afforded by the section. When the enhancement of section 811A was announced earlier this year, my predecessor indicated that if it transpired that taxpayers and their advisers did not use this opportunity to be open with Revenue, there would be no hesitation in revisiting the issue again and proposing such further changes as may be necessary to ensure the provision's effectiveness. To this end my Department, together with the Revenue Commissioners, will monitor the effectiveness of section 811A over the next year to assess if it requires any further adjustments.