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Anti-Avoidance Vs Tax Planning – The Importance of Wording

Welcome to Query Of The Week

Welcome to this week’s Query Of The Week. Each week our technical team respond to a huge number of client queries and in this segment, we share with you the most common questions that keep coming up time and time again.

In this week’s Query Of The Week, John Murphy discusses the importance of wording when looking at Anti-Avoidance Considerations and Tax Planning for Irish Tax Advisors.

Anti-Avoidance Considerations for Irish Tax Advisors

If this Query Of The Week was of interest to you, you will also be interested in our Anti-Avoidance Considerations for Irish Tax Advisors online CPD course.

Full details for this online course can be found below.

CPD Allocation 1 Hour
Fee €25 (or 1 CPD Club point)
Presenter John Murphy – OmniPro
Category Audit

Query Of The Week – Video Transcript

(Please note that this is a direct unedited transcript of the spoken word as recorded on the video) 

Each week our technical team respond to a massive number of client queries, and in this segment, we share with you the most common questions that keep coming up time and time again.

In this week’s Query Of The Week, John Murphy examines the difference between Tax Avoidance and Tax Planning.

Hi, my name’s John Murphy and I work in the OmniPro practice support and tax side of the business.

We got a query during the week where someone wanted to know what the difference is nowadays between tax avoidance and tax planning.

There’s no easy answer to that question; there’s such a fine line there that you might think you’re tax planning but actually it turns out to be tax avoidance, because so much anti-avoidance has been put in the legislation at this point in time. But in practical terms, tax avoidance is defined by the Revenue as claiming a relief in a manner that was unintended to be claimed or the motivation for doing something was to get tax relief.

. From a legislative point of view there are two types of anti-avoidance. specific anti-avoidance and general anti-avoidance. Specific anti-avoidance is where it’s easier for Revenue to pull you up on it, where the main purpose or one of the main purposes is for the avoidance of tax.. The other one is general anti-avoidance, so that’s the one they’ll fall back on if there’s no specific anti-avoidance and effectively what that’s questioning is, if the primary purpose was for the avoidance of tax.

Therefore, it’s easier to get over the general avoidance type because you only have a primary purpose so usually if you can give a commercial reason for it, you’re going to be able to get out of general anti-avoidance legislation in that respect. But the specific legislation is where it’s not just the primary purpose, it’s the main or one of the main purposes.

Some examples of specific anti-avoidance are in section 598, retirement leave, entrepreneurial relief and section 600, incorporation relief, where specific anti-avoidance is included in the legislation. General anti-avoidance is the fall-back approach for Revenue.

Advisers have to be very careful when they’re drafting reports to clients, that their wording doesn’t help, say, the Revenue to place an argument that it’s actually fairly clear here from a letter that the main purpose, or one of the main purposes, was to use a tax relief in a manner that was unintended to be used or just to get tax relief for tax, and that was the primary purpose. One way you might word your letter is, “the tax consequences  on a corporation are..”, as opposed to, “the benefits to the corporation are..”, , Revenue can and have looked at the advisers’ advice and try to establish that that this was the main or one of the main purposes of avoiding tax.

Therefore, it’s essential to watch your reports, watch what your writing, make sure that you’re wording it correctly so that it doesn’t help Revenue to say that there is tax avoidance, or that the main purpose or one of the main purposes was the avoidance of tax, which ultimately it isn’t. There will always be bonafide reasons, so you’ll start out with the bonafide reason, why it’s been contemplated as a result, and what I usually do is, yes these are the main reasons for this, the bonafide reasons are for this are xyz, then later on in the report you can say, while there is anti-avoidance here, we believe that the anti -avoidance doesn’t apply because the bonafide test is here on that basis.

I’m going to go into a little more detail on specific and general anti-avoidance in our webinar on May 1st so if you’re interested in this area, and I think everybody should be because this is where I believe tax legislation is heading. You need to be aware of general and specific anti-avoidance e.g. Finance Act 17  brought in retirement relief and entrepreneurial relief, and now they’ve brought in further anti-avoidance there, for trying to throw goodwill into a company for example, so we’re going to go through all those in that webinar.

Hopefully you’ve found this query useful, and as I mentioned we’ll be doing a webinar on the May 1st.