As outlined in response to Questions Nos. 64, 65 and 66 on 9 April last, section 22 Finance Act 2022 amended the provisions for employer PRSA contributions. As with any change in tax policy, Revenue monitored developments after the introduction of these provisions. From Revenue’s analysis of employer PRSA contributions in 2023, it appeared some cases displayed behaviour that was not in keeping with the policy intention of the changes. Section 12 Finance Act 2024 aimed to address these concerns by imposing a limit on the size of employer contributions to a PRSA that are not considered a BIK. I am informed by Revenue that there is a continuous focus on compliance across pensions, which involves identifying and confronting non-compliant behaviour.
I am advised by Revenue that the taxpayer confidentiality provisions in section 851A Taxes Consolidation Act 1997 (TCA) prohibits it from commenting further on the application of the General Anti-Avoidance Rule (the “GAAR”) in these specific instances.
However, Revenue has advised that, in general terms, tax avoidance is applying tax legislation in a way that inappropriately obtains a tax advantage. Tax avoidance can involve the misuse of tax reliefs and allowances or the re-characterisation of a transaction. It involves transactions which are undertaken primarily to claim a tax advantage and not for genuine business reasons.
In relation to the question of the application of what is sometimes referred to as the general anti-avoidance rule (GAAR), at a high level, the GAAR disallows a tax advantage which has arisen as a result of a tax avoidance transaction. It does this by providing that regard should be had to the substance of the transaction, rather than just its legal form. This means that, for example, where artificial steps are put into a transaction with the intent of reducing the tax arising, those artificial steps are ignored. It is designed to counteract transactions which have little or no commercial reality and are carried out primarily to create an artificial tax benefit.
The GAAR is provided for in section 811C TCA and operates by providing that a taxpayer is not entitled to a tax advantage arising out of a tax avoidance transaction. In addition, if Revenue believes that a taxpayer has participated in a tax avoidance transaction, there is no time limit on when Revenue can carry out enquiries as to whether or not the transaction is tax avoidance, withdraw the tax advantage by amending an assessment and collect or recover any amount of tax.
The question as to whether a tax advantage has arisen out of a tax avoidance transaction is a matter of fact, based on the specific circumstances of a case.
