A DUBLIN businessman was able to generate a “contrived” tax loss of €25.6 million using a London financial services firm at a cost of just €249,000, the High Court was told yesterday.

Ronan McNamee (60), one of the founders of Cuisine de France and more recently the founder of a gluten-free bread business, BFree Foods, along with his wife Jacqueline, intended to use the tax losses against a capital gains tax bill he was facing following “real” profits arising from the sale of property.

The decision of the Revenue to refuse to allow the McNamees to use the tax losses is being challenged by way of judicial review.

“Not everyone can go off to London and buy a [tax plan from] Schroders for €250,000,” counsel for the Revenue Commissioners, Denis McDonald SC, told the court. Revenue has an obligation to ensure that the tax system operates fairly, he said.

Schroders is an asset-management business with offices in London that was used by the McNamees and 25 others to generate tax losses that could be used against profits totalling €550 million, the court has been told.

The potential loss to the exchequer from all the cases comes to €110 million.

Mr McDonald said the tax losses generated by Shroders for the McNamees occurred in 2009, after the financial crisis which had such serious consequences for the fairness of the system.

He said that, during 2009 and 2010, the Revenue, by way of correspondence with the McNamees’ tax advisers, Kennelly Twomey, now renamed Twomey Moran, sought to understand the Schroders scheme.

He said that in 2007 the McNamees signed a contract with Schroders and that a subsequent series of trades in September 2007 resulted in the tax loss.

As part of the scheme the McNamees bought Irish gilts for more than €25 million, and sold them that same day to Schroders for twice that amount. Schroders then sold the gilts to Royal Bank of Scotland for close to the original price paid by the McNamees. This left the McNamees with a profit of in excess of €25 million. Profits on government gilts are tax-free.

At the same time and in a related exercise, Schroders organised a series of foreign exchange transactions involving euro, dollars and yen, of amounts similar to the value of the gilts.

The outcome of the operation was that the McNamees had losses in excess of €25 million from the foreign exchange transactions, which were chargeable against other taxable gains, while the associated gains on the gilts transactions did not create capital gains tax charges. The net cost to them was €249,000.

The four parties taking judicial review proceedings used similar trades to generate tax losses. The other parties are John Punch, Cobh, Co Cork; Martin Punch, Glanmire, Co Cork; and Derek Whelan, Foxrock, Co Dublin.

Their counsel, Michael Collins SC, said the scheme involved equal and opposite gains in a situation where the gains were “exemptible”.

Mr Justice Brian McGovern said the losses were “contrived”. The hearing is likely to end today.