InDisputes – Hegarty v Revenue: High Court Overturns TAC on General Anti-Avoidance Rule

In the recent case of Hegarty & Ors v Revenue Commissioners [2026] IEHC 59, the High Court heard an appeal by way of case stated[1] on the general anti-avoidance provision which applies to transactions commenced on or before 23 October 2014[2].

The Tax Appeals Commission (“TAC”) had determined that certain transactions entered into by the taxpayers were ‘tax avoidance transactions’ within the meaning of section 811 of the Taxes Consolidation Act (“TCA”).  The High Court held that, due to errors of law, the TAC determination could not stand in respect of the substantive conclusion regarding section 811 TCA.

Background

The taxpayers entered into a number of transactions with Schroders.  Each transaction consisted of entering into two separate contracts with Schroders: a gilt forward contract (“GFC”) (on which a gain was ultimately made) and a foreign exchange contract for difference (“CFD”) (on which a loss was ultimately realised).

Under section 607 TCA, government securities (eg, gilts) are not chargeable assets and therefore, are not subject to chargeable gains.  However, CFDs do not fall within section 607 TCA and a loss made in respect of the CFDs was an allowable loss for CGT purposes under section 31 TCA.

Revenue formed an opinion that the transactions were ‘tax avoidance transactions’ under section 811 TCA.  Revenue sought to limit the taxpayers’ losses for CGT purposes to the actual monetary loss incurred by each taxpayer, taking into account both transactions on a combined basis.

Under section 811(3)(a)(ii) TCA, a transaction is not considered a tax avoidance transaction if the transaction was undertaken to obtain the benefit of any relief, allowance or other abatement provided for in the TCA, and the transaction would not result in an abuse or misuse of the provision, having regard to the purposes for which it was provided (known as the ‘relief exemption’).

TAC Determination

In TAC, it was held that the purpose of section 31 TCA was to provide relief for actual monetary losses.  The purpose of section 607 TCA, or whether there was an abuse or misuse thereof, was not considered, and it was held that the transactions lacked any commercial motive other than to obtain a tax advantage.  Ultimately, the Commissioner found that there had been a tax avoidance transaction, and restricted the taxpayers’ allowable losses to the quantum of losses if the results of the GFC and CFD were taken together and netted off.

The taxpayers appealed this determination to the High Court by way of case stated.

High Court Judgment

The High Court held that the TAC determination could not stand in terms of its substantive conclusion that the transactions amounted to tax avoidance within the meaning of section 811 TCA.  However, the High Court did not form an opinion on whether the transactions could be considered “tax avoidance transactions”.

The High Court held that the Commissioner in TAC had failed to consider the expert evidence presented to him regarding the commerciality of the transactions, or to outline why the taxpayers’ expert evidence was discounted.  This was held to be an error of law, which had a “domino effect” which legally compromised the TAC’s determination.  The High Court further noted that the Commissioner appeared to have concluded that if the primary purpose of a transaction was to avail of a tax advantage, then the relief exemption could not be availed of.  The High Court disagreed with this as a misreading of the legislation, and said that such a conclusion would trap the taxpayer in “a circular argument which they would always lose”.

The Court listed the legal errors which were material to, and went to the core of, the decision reached in the TAC determination:

1. there was a misinterpretation of the expert evidence;
2. there was a failure to give adequate reasons for the conclusion reached on a matter on which there was expert evidence;
3. there was an error in relation to the allocation of the legal burden in relation to an important issue of statutory interpretation – correctly applying the relief exemption requires an objective assessment of the law by TAC or the Court, and there is no ‘positive burden’ on a taxpayer to prove there has not been an abuse or misuse of a relieving provision under the relief exemption;
4. there was a failure to apply the statutory interpretation methodology required by the case law, such as Heather Hill v An Bord Pleanála [2022] IESC 43;
5. there was a failure to adequately consider the purposes of sections 31 and 607 TCA;
6. there was a failure to adequately consider “misuse” and “abuse” contained in section 811(3)(a)(ii) TCA in the context of section 811 TCA as a whole; and
7. there was an error by applying an incorrect statutory interpretation test of imagining what the Oireachtas would have “envisaged” as to whether the transactions are to come within section 811 TCA.

Key Takeaways

Decisions such as this, and recent TAC decisions examined in our InDisputes series, highlight the complexity of the anti-avoidance provisions in Irish tax legislation, and the scrutiny that Irish Revenue, TAC and the courts place on those provisions.  It is essential that taxpayers take appropriate professional advice at the outset of transactions.

At TAC, it is crucial that any Revenue witnesses (including expert witnesses) are thoroughly cross-examined. It is also clear that in the context of appeals from TAC by way of case stated, given the strict parameters in which a case stated must be carried out, it is key to take appropriate legal advice to be in a position to identify and appropriately litigate all potential errors of law in TAC determinations.

This case is another reminder that it is essential when construing legislative provisions to ensure that the correct principles of statutory interpretation are appropriately applied.

[1]. Tax Appeals Commission determination 57TAC2023.

[2]. Section 811 of the Taxes Consolidation Act 1997, as amended.