Anti-avoidance provision --- Section 61A
Section 61A has been enacted to plug the loophole
of Section 61. It applies to transactions that are done chiefly for tax
avoidance. Section 61 only empowers the Revenue to disregard such transactions.
But Section 61A extend the Revenue's power to make
an assessment as if the
transaction had not been carried out or in such other manner as the Revenue
considers necessary to counter the tax benefit concerned. The tax-avoidance
transactions are defined as ones with a sole or dominant purpose of enabling a
person to obtain a tax benefit.
As established form case law, tax mitigation is
acceptable, although from the Revenue's perspective, undesirable. Tax
avoidance is not acceptable by the Revenue because it seriously
undermines the principle of fairness and public's confidence in revenue policy.
In practice, the distinction between tax
mitigation and tax avoidance is not very clear. In the case Ensign Tankers
(Leasing) Ltd. v. Stokes 64 TC 617, this was said:
is a fundamental difference between tax mitigation and unacceptable tax
avoidance. Examples of the former have been given in the speech of my noble and
learned friend. These are cases in which the taxpayer takes advantage of the
law to plan his affairs so as to minimise the incidence of tax. Unacceptable tax
avoidance typically involves the creation of complex artificial structures by
which, as though by the wave of a magic wand, the taxpayer conjures out of the
air a loss, or a gain, or expenditure, or whatever it may be, which otherwise
would never have existed. These structures are designed to achieve an
adventitious benefit for the taxpayer, and in truth no more than raids on the
public funds at the expense of the general body of taxpayers, and as such are
Click here to read what the judge said in Yick Fung Estates Ltd v
In practice, Section 61A applies when all the following
questions give a “yes” answer.
Was there a transaction?
Was it done with a sole or dominant purpose
of obtaining a tax benefit?
Was a tax benefit obtained?
If the IRD assessor considers that Section 61(A) is applicable, he will submit
the case to an Assistant Commissioner for issue of
an assessment to counteract the tax benefit.