Caoimhghín Ó Caoláin (Cavan-Monaghan, Sinn Fein)
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Question 39: To ask the Minister for Finance his views on introducing legislation, as exists in other EU States, obliging tax lawyers to register tax avoidance schemes being marketed in order that new loopholes can be speedily closed. [31311/08]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I am advised by the Revenue Commissioners that arrangements for identifying and tackling aggressive tax avoidance schemes differ across States. A common thread running through many of these arrangements is the need for tax authorities to know, as early as possible, the details of schemes that may need to be challenged (under existing anti-avoidance legislation) or closed down by legislation. Consideration was given as to how best to address this information need in the context of the 2006 Finance Act, having regard to approaches in other jurisdictions. It was considered that a voluntary reporting approach, coupled with a built-in incentive to disclose, best suited our particular requirements and would avoid many of the problems associated with obligatory regimes. On that basis, Finance Act 2006 introduced the "protective notification" regime, which was further strengthened in Finance Act 2008.

The primary purpose of the protective notification regime is 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 the general anti-avoidance provision (section 811 of the Taxes Consolidation Act 1997). Under the regime taxpayers who do not make a protective notification face, among other things, a 20% surcharge on the amount of tax that they sought to avoid where the Appeal Commissioners and ultimately the Courts uphold a Revenue challenge that a transaction is a tax avoidance transaction. By way of a positive incentive for the taxpayer to make a protective notification, the time period within which the Revenue Commissioners must challenge a transaction under section 811, which was previously open-ended, is limited, where a full protective notification is made, to a period of two years from the date of the notification.

The enhanced protective notification regime is already having an impact with 55 new protective notifications received by the Revenue Commissioners since the enactment of this year's Finance Act. While many of these notifications relate to the same avoidance schemes it is apparent that taxpayers and their advisers are taking the provisions of the protective notification scheme seriously and availing of the opportunity to disclose their tax planning arrangements to the Revenue Commissioners. The operation of the protective notification scheme will, however, be kept under review, taking account also of the experiences of other jurisdictions with obligatory disclosure schemes.