The Supreme Court dismissed an appeal by the Revenue Commissioners, holding that a notice issued to Hans Droog under the tax anti-avoidance rules was out of time. The Court concluded that the four-year limit in section 955 of the Taxes Consolidation Act applied and had not been expressly displaced by section 811.
The case concerned income tax for 1996/1997. Mr Droog’s self-assessment return claimed relief for a £IR50,046 share of losses from Taupe Partners, a partnership involved in acquiring, distributing and licensing films. An assessment issued on 25 February 1998 allowed the relief.
On 22 February 2007, a Revenue nominated officer notified Mr Droog of an opinion that the transaction was a tax avoidance transaction under section 811. The officer assessed the resulting tax advantage at £IR24,022 and said the relief would be withdrawn if the opinion became final and conclusive. Whether the transaction actually was tax avoidance was never decided: the case was resolved on the time-limit issue. The Appeal Commissioner found there was no suggestion of fraud or neglect in relation to Mr Droog’s return.
After an initial hearing limited to that issue, the Appeal Commissioner ruled in December 2009 that the four-year limit applied. The High Court agreed. Revenue appealed to the Supreme Court, arguing that section 811 allowed an opinion to be formed “at any time” and that applying the limit could cause practical difficulties where appeals delayed an opinion becoming final.
The Court held that “at any time” did not clearly and expressly disapply the Part 41 time limits. It also reasoned that the notice began a process whose purpose was to require additional tax, which section 955 barred after four years where the taxpayer had made a fully compliant return. The judgment did not decide whether the separate time limits on Revenue inquiries under section 956 had been breached.
The Supreme Court dismissed Revenue’s appeal. It did not determine whether the Taupe Partners transaction was a tax avoidance transaction; the procedural time-limit ruling meant that question was not reached.