A non-Irish resident firm that deals in distressed property loan portfolios across Europe has lost a €1.09 million capital gains tax (CGT) battle with the Revenue Commissioners.
This follows the Tax Appeals Commission (TAC) ruling that the firm is not entitled to be refunded the €1.09 million in CGT from Revenue.
The new 22-page TAC decision records that the firm acquired a portfolio of Irish mortgage loans secured over land here.
The firm purchased the portfolio in the course of business it carries out in the UK. It was not acquired through a branch or agency in Ireland.
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In 2016, the firm agreed to sell the portfolio to an unconnected purchaser which is a company incorporated and tax resident here.
The firm – subject to corporation tax in the UK – contested the Revenue view that the sale of the portfolio was chargeable to Irish CGT or subject to withholding tax pursuant to section 980 of the Tax Consolidation Act.
Ultimately, the firm agreed to pay €1.092 million to Revenue on a ‘without prejudice’ basis in order that the sale of the portfolio could be completed.
On December 3rd, 2020, the firm requested a refund of €1.09 million and Revenue refused, resulting in the firm appealing the €1.09 million CGT assessment to the TAC in January 2021.
An expert witness for the firm told the TAC that the company purchased distressed loans with a view to disposing of them but also that part of the intention of acquiring them was to generate cash flow during the hold period from payments being made by the borrowers.
He confirmed that the loans when they were acquired by the appellant firm were bought for about a quarter of their then value.
He stated that he thought it very likely that receivers were appointed in relation to some of the loans from the portfolio.
Commissioner Lorna Gallagher found the firm was not entitled to the repayment of the €1.09 million CGT.
Ms Gallagher stated that she was satisfied that the disposal of the loan portfolio constituted the disposal of an ‘interest in land’ and is within the charge to CGT imposed on non-residents and was also correctly subject to the withholding tax provisions of section 980 of the Tax Consolidation Act.
In its submission to the TAC, Revenue submitted that the sale of the loan portfolio constituted the sale of ‘land’ for the purposes of the Capital Gains Tax Acts. Revenue argued that as long as the debt was outstanding, the mortgage subsisted and the interest in land subsisted.
