The Gazette 1986

GAZETTE

sep T em BER 1986

of the taxpayer, and instead had regard to what he described as the reality of the situation. In this case, the taxpayer ceased to practise as a barrister on his appointment to the High Court bench in January 1973. In February 1973, a company called SG Ltd. was incorporated, the three issued shares of which were held by members of the taxpayer's family. Following his appointment, the taxpayer wrote to Solicitors for whom he had done work stating that he did not wish to receive any fees but if they wanted to, the Solicitors could pay the company instead. The fees would not have been liable to tax in the hands of the company. The arrange- ment was designed to fall outside the scope of section 20, Finance Act, 1970, which imposed a charge to income tax on profits "received" by a self-employed person who had ceased to practise which would otherwise have been non-taxable capital. The question for decision was, therefore, whether the fees paid to SG Ltd had been "received" by the taxpayer within Section 20. Barrington J. stated the principles of construction of tax statutes as follows: 68 "The principles of legal interpretation to be applied to the construction of Revenue Statutes are well established. It is a general principle that to be liable to tax the citizen must come clearly within the words of the charge to tax. On the other hand, once within the scope and terms of the charge to tax, he cannot escape unless clearly within the terms of an exemption. There is no rule of law against the citizen making genuine and lawful arrangements of his affairs by which the incidence of tax on his property is lessened. In the construction of a Taxing Act the Court has primary regard to the statutory words themselves and to their proper judicial construction. Particular words must be construed in their context. Taxing Acts are to be construed strictly, in the sense that one has to look merely at what was clearly said, there being no room for any intention, but a fair and reasonable construc- tion must be given to the language without leaning to one side or the other. Whether applying the terms of the charge, or the terms of the exemp- tion, no considerations of equity or hardship affect the construction of the Act." Barrington J. noted that the object of section 20 was to remove the exemption from income tax of post- cessation receipts. He remarked that a barrister had no legal right to be paid his fees by a client. Counsel for the taxpayer had argued that, therefore, there was no enforceable choice in action capable of being trans- ferred, and that section 20 had to be construed literally so that a constructive receipt was not sufficient. Barrington J. considered the meaning of "received" in the light of the English authorities cited to him, and adopted the remarks of Lord Hanworth M.R. in Dewar -v- C.I.R. 69 He said: 70 " . . . when sums are placed at a taxpayer's disposal and in fact disposed of by him they are to be treated for the purposes of the Income Tax Acts, as having been received by him."

He therefore regarded the letter sent to solicitors as 71 "a general licence to dispose of fees which would otherwise be payable to Counsel coupled with a reference to a specific method of disposition which the Respondent would find acceptable." He concluded 72 : "Looking at these transactions as a whole it appears to me that one is driven to the conclusion that they really were a disposition by the Respon- dent in favour of SG Ltd. of moneys which were due to the Respondent, in law or in honour, and which would otherwise have been paid to the Respondent. Under these circumstances, and despite the strict cannons of literal interpretation to be applied to Revenue Statutes, it appears to me to be unreal to suggest that these sums were not "received" by the Respondent within the meaning of section 20 of the Finance Act, 1970." Conclusion In the light of the overwhelming trend of recent decisions of the Irish courts, it would appear that the decision of O'Hanlon J. in the Metropole case is an exception, and the current is running against those seeking to avoid tax while remaining within the strict wording of legislation. There are decisions where the courts have been prepared to interpret legislation literally so as to remove a liability 71 or to grant a relief. 74 However, these cases did not involve tax avoidance arrangements of the kind in the Cork & County Properties, Belvedere Estates or Club 349 cases. More significantly, the decision in Furniss -v- Dawson has been followed by the Appeal Commissioners on at least one occasion. 75 In view of the tendency of the Oireachtas and of the Irish courts to be influenced by English legislative and judicial precedents, particularly in the area of taxation, and of the emerging trend in relation to avoidance cases evidenced by recent Irish tax cases, it remains to be seen whether the principle in Furniss -v- Dawson will become part of Irish law. • Footnotes 35. (1936) A.C. 1. Ramsay's case was cited in the C.A.T. case of Jacob -v- Revenue Commissioners (High Court, unreported. 6 July 1983, McWilliam J.) but was merely noted without comment by the Judge at p.7 of his judgment. 36. Address of Mr. Alan Dukes, T.D., Minister for Finance, to the Institute of Taxation in Cork on 20 May 1985. 37. 'Tax Administration' Ch.II (Prl. 3142,1965). 38. Section 63 states that relief does not apply to the issue of shares by way of exchange within paragraph 4 or under a scheme of reconstruction or amalgamation within paragraph 5 unless the issue is for bona fide commercial reasons and does not form part of any arrangement the main purpose or one of the main purposes of which is the avoidance of tax. Section 62 FA, 1982, was enacted to deal with Reverse Nairn Williamson schemes (see Harrison -v- Nairn Williamson, (1978) S.T.C. 67). 39. S.I. No. 151 and 152 of 1985, respectively, which have been confirmed in the Finance Bill, 1986. Similar provisions were introduced in the U.K. in the Finance Acts, 1984 and 1985. 40. McCarthaigh (Inspector of Taxes) -v- Daly, [1986] 6 ILRM 116. See also Reed -v- Young, (1985] S.T.C. 25 (C.A.). (The House of Lords recently upheld the Court of Appeal.) In the U.K. Anti- avoidance legislation limiting allowable losses to partners' capital contributions was enacted in the Finance Act, 1985. The Irish provisions have been incorporated in the Finance Bill, 1986. 41. Section 104-8 F.A., 1984. See also Finance Bill, 1986. 42. [1982] l.L.R.M. 13. 229