A NUMBER OF business people and company directors have challenged decisions by the Revenue Commissioners disallowing them sums of up to €6.2 million on grounds that certain complex financial transactions they engaged in amounted to tax avoidance measures.
Mr Justice Brian McGovern is hearing one of four cases brought in the Commercial Court to essentially determine key legal issues relating to disputed transactions involving some 26 high net-worth individuals.
The applicants claim the disputed Revenue decisions arose from pre-determined views within Revenue that several people were engaged in tax avoidance via arrangements to create and use contrived capital losses.
The Revenue took the view that one scheme had been allegedly used to generate artificial capital losses of €409 million to shelter capital gains tax of more than €85 million.
The applicants are challenging the manner in which a Revenue officer formed the opinion in 2011 that their transactions were tax avoidance transactions under Section 811 of the Taxes Consolidation Act with the effect that the tax advantage was withdrawn and claims for capital gains losses disallowed.
As a result of information received via Freedom of Information requests, they allege the Revenue identified and grouped together about 26 cases in which identical or very similar arrangements were concluded via a London-based global assets management company and referred to those as the “Schroders Ready-Made 26”.
It is alleged that the transactions of the applicants that the Revenue sought to impugn fell within the Schroders Ready-Made 26.
Yesterday, Michael Collins SC, for one of the applicants, Ronan McNamee, argued that the notices of opinion issued by a Revenue officer in 2011 were issued some time after a Section 811 opinion had already been reached at the highest level in the Revenue about the Schroders Ready-Made 26.
It is claimed that Revenue nominated officer Martin O’Grady had prejudged the applicants’ position in circumstances including having allegedly either received, or himself sent, emails containing reference to anti-avoidance activity of the Revenue in 2009.
Mr O’Grady was also aware in early 2010 of the Schroder Ready-Made 26, it is alleged.
The challenge by Mr McNamee, a businessman with an address at Temple Road, Dartry, Dublin 6, arises from two financial transactions entered into by him and his wife about September 2007.
The transactions involved financial “straddles”, one involving Government gilts and the other foreign currency.
Mr McNamee claims he and his wife made a profit from the sale of the gilts, which was exempt from tax, and a loss on the foreign currency transaction, which he deducted when compiling chargeable gains for his 2007 tax return.
In August 2011, a Revenue nominated officer issued a notice the transaction was a tax avoidance transaction and directed that a total tax advantage, including a surcharge, of €6.2m, was to be withdrawn from Mr McNamee.
It is claimed a notice of such Section 811 opinion must be given “immediately” to any person from whom a tax advantage would be withdrawn if the opinion became final and conclusive but that was not done in this nor in the other cases involved.
Derek Whelan, a company director with an address at Foxrock Manor, Foxrock, Co Dublin, has brought a similar challenge to a Revenue officer’s notice of August 2011 that straddle transactions were tax avoidance transactions with the effect that a substantial tax advantage should be withdrawn.
John Punch, with an address at The Park, Cobh, Co Cork, has also disputed a Revenue notice that a tax advantage of some €2.2 million should be withdrawn over straddle transactions of 2009.
Martin Punch, a company director, The Fountain, Glanmire, Co Cork, has challenged a similar opinion a tax advantage of about €3.7 million be disallowed arising from a straddle transaction of 2009.
