The Gazette 1986

sep T em BER 1986

GAZETTE

there was no evidence to support the notional management fee. Carroll J. held that the Appeal Commissioner was correct to apply the principles enunciated in the Petrotim case. She noted that although that case concerned goods, services were also a marketable commodity. The principle was the same and the Appeal Commissioner was entitled to find that the transaction was so outside the ordinary course of business of any trader that it was not done in the course of trade. Carroll J. also adopted the remarks of Lord Denning in Petrotim, inter alia, to the effect that Sharkey -v- Wernher applied to the case 60 : . . where a trader may, for no reason, choose to give things away or throw them into the sea. So when he puts securities through his books at a derisory price, the figures are to be regarded as struck out for the purposes; and in their place you must put in the market realisable value at the time." Accordingly, Carroll J. held that notional fees for services should be taken into account. However, the Judge held that the estimated fees as calculated by the Appeal Commissioner were not justified by the evidence as there was no evidence at all upon which he could base his findings. Once again, neither the Ramsay case nor Furniss -v- Dawson , were cited to the court. (E) Avoidance and Evasion The recent decision of Costello J. in Warnock -v- Revenue Commissioners 61 may represent a significant development in the attitude of the Irish courts to tax avoidance arrangements. Section 57, Finance Act, 1974, is an anti-avoidance measure to tax Irish resident persons on income derived from assets transferred abroad if they have 'power to enjoy' the income. Section 59 empowers the Revenue Commissioners to require any person to furnish them with such information as they think necessary for the purposes of section 57 by notice in writing. In Warnock, the Revenue Commissioners served a section 59 notice on the Plaintiffs, a well-known firm of accountants 62 to provide certain information concerning, as Costello J. put it 61 "the use of tax havens in connection with tax avoidance schemes". The Plaintiffs challenged the notice on the basis (a) that it was ultra vires section 59, and (b) was invalid because it would cost £50,000 to comply with it and the cost and the disruptive effect of compliance would be unduly burdensome and oppressive. Costello J. noted that sections 57 to 59 were anti-avoidance measures to counter attempts to avoid tax liability by the transfer of assets to tax havens abroad. He remarked that the power given to the Revenue Commissioners under section 59 was a "very extensive one" and that "it would be hard to imagine how it could be drafted in wider terms". 64 However, he concluded that the Revenue officer in question had bona fide formed the opinion that the information was necessary. As regards ultra vires, he did not agree with the Plaintiffs' argument that in seeking information on pre-6 April,

1974, transactions, section 59 was giving section 57 retrospective effect. Costello J. fell that the Oireachtas specifically authorised them to obtain the information in the legislation. With respect to the question of whether the notice was oppressive and burdensome, Costello J. noted that the notice was "quite narrowly restricted" 65 in that it was restricted to transactions which individuals had entered into relating to specifi- cally named territories, and was for the purpose of seeking information about the use of tax havens for tax avoidance purposes. As a matter of fact he held that compliance with the notice would not have involved any excessive amount of time or energy on the part of the Plaintiffs. He therefore concluded that the Plaintiffs had not established that compliance would be oppressive and upheld the validity of the notice: 66 "It seems to me that the very wide powers which were given to the Revenue Commissioners by the Oireachtas were based, at least in part, on the view that persons who avoid the payment of taxes may also be inclined when the net is tightened to evade the payment of taxes. And it seems to me that as all the transactions referred to in the notice are ones which could establish that a liability to tax under section 57 might arise, the information sought in it was needed to assist the Commis- sioners carry out their important public function in tracking down tax evaders." O'Coindealbhain (Inspector of Taxes) -v- Gannon 67 Barrington J. refused to apply the literal wording of the legislation in favour Solicitors — how public More recently, in the case of

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