The Tax Appeals Commission (TAC) has determined that a disputed income tax bill of €605,488 against a business couple over a €1.1 million share sale should stand.
The TAC has made the ruling after finding that there was no basis upon which to conclude that the €1.1 million disposal of the wife’s shares to a company owned by her husband “was for a bona fide commercial reason”.
The appellant in the case, the wife, had already paid capital gains tax (CGT) of €362,543 in relation to the €1.1 million she received for her shares.
The couple — assessed jointly — must now pay €242,945 in income tax owed to Revenue as part of the overall €605,488 assessment.
Appeals commissioner Conor O’Higgins deemed the €1.1 million to be a distribution from the company chargeable to income tax.
In his findings, Mr O’Higgins relied on Section 817(4) of the Tax Consolidation Act 1997.
This is a Revenue anti-avoidance provision that seeks to counteract a “scheme or arrangement” involving a close company, the purpose of which is to enable a shareholder to extract money from that company by means other than the payment of a dividend or distribution and the consequent payment of income tax.
Before the TAC, counsel for Revenue submitted that it was clear on the facts that there was a scheme or arrangement put in place by the woman, the purpose of which was to avoid the payment of income tax on money that was extracted from the company.
Revenue argued that the €1.1 million received should have been subject to the higher rate of income tax, rather than the 33 per cent CGT that was paid.
The tax dispute arose from the woman selling 90 of 100 ordinary shares valued at €1.1 million in a company where her husband owned the remaining 10 shares.
The woman sold the shares for €1.1 million to a company where her husband was the sole shareholder. The funds used for the purchase were provided by the company itself by way of a loan.
Revenue issued the €605,488 assessment in 2018 from the 2014 share sale and this was appealed to the TAC.
At the TAC the appellant did not appear to provide evidence.
However, she asserted in the Notice of Appeal that the share disposal was for bona fide commercial reasons.
She stated that the bona fide reason for the transaction was that she had borrowings with a third party that necessitated the raising of funds.
