A Supreme Court decision has cleared the way for the Revenue Commissioners to continue its pursuit of a number of wealthy taxpayers whom it believes engaged in elaborate “straddle” transactions primarily for tax avoidance purposes.
The issue whether or not the transactions amounted to tax avoidance has yet to be decided by the Appeals Commissioners.
The court’s unanimous decision in the case of Dublin businessman Ronan McNamee has implications for 26 others involved in similar “straddle” transactions involving what the Revenue estimates are total potentially recoverable tax sums of € 110million.
It is legal to seek to reduce tax liability through avoidance measures but some measures may be disallowed under Section 811 of the Taxes Consolidation Act 1997 if it is found they were primarily arranged for tax advantage.
The five judge court dismissed the challenge by Mr McNamee, Temple Road, Dartry, to the validity of a Revenue officer’s opinion notice of August 2011 the “straddle” transactions in which he and his wife engaged in 2007 were tax avoidance transactions.
The court stressed it was dealing only with the validity or otherwise of the opinion notice, not whether the transactions were in fact tax avoidance transactions under Section 811. That issue, and the accuracy of calculations in the notice, will be decided in Mr McNamee’s pending appeal to the Appeals Commissioners against the notice.
The ruling has implications for cases by three other businessmen brought over similar notices. They are: Derek Whelan, Foxrock Manor, Foxrock, Dublin; John Punch, The Park, Cobh, Co Cork and Martin Punch, The Fountain, Glanmire, Co Cork.
Cases
The Revenue previously said it identified in 2010 about 26 cases where similar arrangements to those engaged in by the McNamees were concluded via a London-based merchant bank, Schroders & Co Ltd, referring to those as the "Schroders Ready-Made 26". The Revenue sought assistance from the National Treasury Management Agency and Smurfit Business School to help it understand the complex transactions .
In the McNamee case, a Revenue officer issued the notice in 2011 on foot of his opinion the result of the straddle transactions was capital gains tax paid by the McNamees on gains in 2007 of some €57.8 million, mainly from a property sale, was substantially reduced.
The officer said the transaction gave rise to allowable losses of €25.6 million and tax exempt gains of some €25.4 million, with the actual monetary loss some €250,000. The officer formed the opinion there was a tax advantage and Mr McNamee had avoided paying some €5.1 million in capital gains tax (CGT).
The issues in the Supreme Court appeal centred on the validity of the 2011 opinion notice and its underlying opinion, calculations and determinations.
In separate concurring judgments, Ms Justice Mary Laffoy and Mr Justice Peter Charleton rejected arguments the notice was issued in breach of statutory duty and principles of natural and constitutional justice.
They dismissed claims the involvement of the nominated officer and/or a Revenue Commissioner in assessment of the transaction within Revenue from 2009-2011 meant the officer’s opinion was tainted by objective bias or pre-judgment.
Report
The Revenue’s refusal to give Mr McNamee’s tax agent a copy of a report provided by Revenue to the nominated officer for the purpose of persuading him to form an opinion this was a tax avoidance transaction did not amount to a breach of natural or constitutional justice, they also ruled.
That report was compiled by a senior official in the Revenue’s High Wealth Individuals & Professionals Business Unit.
After the judgment, a spokesman for Mr McNamee said the transaction was disclosed in his tax returns and he paid some € 5 million in CGT arising from it. Mr McNamee took his action because Revenue did not challenge the transaction for some four years after it happened and then sought to double the amount of tax paid on it, the spokesman added. “That delay is essentially what Mr McNamee was challenging.”
