Coopers & Lybrand (now PricewaterhouseCoopers) described as "aggressive, from a tax point of view" advice given by them to DCC concerning the 1995 transfer of the DCC stake in Fyffes to a Dutch-registered DCC subsidiary, the High Court heard yesterday. This was a recognition that the Revenue "might not appreciate" taking out of the Irish capital gains tax net, an asset that was within that net.
Mr Terry O'Driscoll, a tax partner with PWC, said that while they were quite happy with the structure proposed by Coopers & Lybrand (C&L) to DCC in 1995 for the transfer of beneficial ownership of the DCC shareholding in Fyffes to Lotus Green Ltd, they would always bear in mind how it would be likely to be perceived by the Revenue.
There were two parts to the advice - one was the concept of having an investment held by an Irish corporate through an intermediate corporate overseas. This was not something he believed the Revenue would have an intrinsic difficulty with.
However, in relation to taking an asset within the Irish CGT net out of that net, they had concerns the Revenue "might not appreciate the result achieved there". The description "aggressive, from a tax point of view" was really looking at the structure from a Revenue perception, he said.
He agreed the essential objective behind the 1995 transfer of the shareholding to Lotus was to minimise the tax payable on any subsequent disposal of the shareholding. Having put the structure in place, he also agreed that C&L was concerned over the following five years that their advice was achieved.
He agreed C&L had suggested a procedure, later approved by legal counsel, under which DCC could avoid the payment of some €500,000 in stamp duty on the transfer of the Fyffes shareholding to Lotus. He said it was DCC's choice whether to go for that option and it had done so.
He agreed that a contract was drafted in 1995 which, on its face, provided for the legal ownership of the Fyffes shareholding to be transferred to Lotus from DCC and S and L Investments Ltd (another DCC subsidiary). He agreed that contract was never completed. He agreed that if there was a completed transfer of the legal interest in the shares, stamp duty could be charged.
He also agreed that the C&L advice was that the transfer could be kept at contract stage and that the contract might not be completed, therefore avoiding the payment of stamp duty.
While he had never heard anyone within DCC, S and L or Lotus say that they understood the contract would never be completed, he believed it was unlikely that the contract would be completed. He said this was not an unusual way to avoid the payment of stamp duty. He agreed the "starting point" was that the contract would not be completed.
Mr O'Driscoll said it was not his own preference that the transfer of the legal ownership would never have happened. From a corporate tax point of view, C&L would have favoured that the stock transfer form be executed and the stamp duty paid "because that gave more substance to the actual transaction and closed off one avenue that might be open to Revenue".
While he understood the contract was never completed, he also understood it was "a real document from a legal point of view" in that at any stage the transferee of the shares could be called on to complete it. He agreed the starting point of the advice "if circumstances stayed the same", was that the agreement would not be completed.
He also agreed that, in order to ensure that Lotus was entitled to avail of the 'participation exemption' from tax under Dutch law, that it had to be ensured that Lotus Green was genuinely resident in Holland and was managed and controlled from there.
Mr O'Driscoll was being cross-examined by Mr Brian Murray SC, for Fyffes , in the action by Fyffes alleging "insider dealing" in relation to the sale of the DCC stake in Fyffes in February 2000.
The action is against DCC plc, its chief executive Mr Jim Flavin, S and L Investments Limited and Lotus Green who deny the claims and plead the share sales were properly organised by Lotus Green.
Earlier yesterday, concluding his direct examination by Mr Michael Ashe SC, for DCC, Mr O'Driscoll said that, following a discussion at DCC House on the afternoon of February 3rd 2000 (the day of the sale of the first tranche of the Fyffes shares), it was clarified that the preference shares held in Fyffes could be taken into account in assessing whether, after that day's share sale, Lotus held 5 per cent of the issued share capital in Fyffes.
To qualify for the Dutch tax exemption, it was necessary for Lotus to own a 5 per cent shareholding in Fyffes.
The case resumes on Tuesday before Ms Justice Laffoy.
