The Commercial Court has begun hearing a dispute between the Revenue Commissioners and the wife of Shane Ryan, son of Ryanair founder Tony Ryan, over whether the sale in 2003 of a "significant number" of her family's shareholding in Ryanair is liable for Irish capital gains tax (CGT).
The Revenue Commissioners dispute the claim by Lorraine Kinsella that the share disposal of October 2003 is not liable for Irish CGT.
Ms Kinsella, an Irish citizen and company director with an address at Elm Place, London, who married Shane Ryan in July 2002, claims the share disposal was not liable for capital gains tax here because, at the time it happened, she was a tax resident in Italy.
Opening the case before Mr Justice Peter Kelly yesterday, Paul Gallagher SC, for Ms Kinsella, said the case centres on interpretation of the double taxation agreement signed between Ireland and Italy in 1971.
In the action, Ms Kinsella claims that in 2002, prior to the share sale, accountancy firm KPMG had contacted the Revenue to get "confirmation" that the 1971 convention between Ireland and Italy for the avoidance of double taxation applied to Irish CGT.
The Revenue, in a letter of September 12th, 2002, had replied it considered that Irish CGT was covered under Article 2 of the Ireland/Italy Double Taxation Convention.
Ms Kinsella said she, her husband and their advisers proceeded to structure the proposed share disposal in reliance on the Revenue confirmation. She established tax residency in Italy under Italian domestic law and established residency of Italy under the terms of the convention in June 2003.
The transaction proceeded in September 25th, 2003, Ms Kinsella said. It involved her entering an agreement to buy shares in Ryanair Holdings plc from her husband. She then sold those shares at market value to an unconnected third party on October 10th, 2003. The shares, when sold, had a "negligible base cost" for Irish tax purposes, Ms Kinsella said.
Ms Kinsella said her tax returns for 2003 were made on the basis that the convention applied to the share disposal. However, in a Revenue E-Brief published on September 19th, 2005, the Revenue said there "may be a doubt" about the correctness of its previous position in relation to whether Irish CGT was a covered tax under Article 2 of the Ireland/Italy Convention and it was seeking legal advice on the matter. Pending clarification, the previous view that CGT was a covered tax under Article 2 of the convention "is withdrawn", the brief said.
Ms Kinsella claims the Revenue had purported to withdraw with retrospective effect the "express confirmation" given to KPMG that the convention did apply to Irish CGT.
Ms Kinsella argues the convention does apply to Irish CGT. Alternatively, she contends she had a legitimate expectation, based on the contacts with the Revenue and the Taxpayers' Charter of Rights, that the convention did apply to CGT. It would be "unjust, unconscionable and inequitable" for the Revenue to change from their stated position and now to contend the convention does not apply to Irish CGT, she said.
The Revenue denies that KPMG wrote to it in September, 2002 seeking "confirmation" that, in the Revenue's opinion, the convention applied to Irish CGT. It pleads KPMG wrote with a "general query" seeking the Revenue opinion about whether the convention applied to Irish CGT. The Revenue also denies that it provided such "confirmation" in its letter of September 12th, 2002 and says it provided an "opinion" on a general query.
