Limerick businessman JP McManus may not be the most liked person within the Revenue Commissioners because he is wealthy, well known and paid no tax for 15 years, one of his lawyers claimed in a US court.

The charge was made in a legal action the racehorse owner has taken against the US government in a bid to recover $5.2 million (€4.7 million) withheld in taxes from $17.4 million in gambling earnings Mr McManus won from US businessman Alec Gores during a three-day backgammon match in California in 2012.

Terry Giles, attorney for Mr McManus, questioned the motives of Irish Revenue officials in assisting their American counterparts, the Internal Revenue Service, when the case came before the US Court of Federal Claims at a hearing in Washington yesterday.

Overstepped

The Revenue “way-overstepped” its bounds in the case, he argued, by disputing that the €200,000 domicile levy paid by Mr McManus and other wealthy Irish tax exiles meant he benefitted from a 1997 double taxation treaty between the countries that made his gambling winnings tax-exempt in the US.

Mr Giles told Judge Nancy Firestone that the Irish authorities were assisting in the case because it did not want the Limerick man, a resident of Switzerland, to have the $5.2 million he claims he is due.

Mr McManus was a “very wealthy guy”, well-known in Ireland and paid no tax there between 1995 and 2010, he said. “He is probably not the most favourite guy in their Revenue department,” he added.

Attorney Jason Bergmann, for the US government, argued that the Irish authorities had no financial interest in the case.

He told the court that €200,000 levy could not be considered a tax covered under the treaty because it was a limited type of “wealth tax” capped at a fraction of Mr McManus’s likely substantial worldwide income.

The levy was not a comprehensive tax on worldwide income because it was not linked to the amount of income earned globally, he said, but a capped amount imposed on Irish-domiciled citizens who had worldwide income in excess of €1 million and Irish assets worth more than €5 million.

“For Mr McManus, €200,000 is a drop in the bucket,” said Mr Bergmann, noting that if he won $17.4 million in one weekend “presumably his worldwide income was much larger than that”.

Mr Giles countered saying the view that the levy was a drop in the bucket for a man of Mr McManus’s wealth was “what is offensive – they didn’t think it was enough”.

Ireland had established the right to tax his worldwide income by introducing the levy in 2010 and that the Government could have increased the amount as they wished, he argued.

“You cannot attack Mr McManus because Ireland has decided to limit it,” said Mr Giles who represented Mr McManus with attorney Mark Curry and his Limerick solicitor John Power.

Minister for Finance Michael Noonan and the Department of Finance had “over and over again” referred to the domicile levy as a tax, the attorney told the court, and that the Government had “never said anything” about the domicile levy not being a tax covered by the treaty.

Mr Giles said that the levy was created “to fit the treaty like a glove” and to argue the opinion that it was not covered was “intellectually dishonest”.

Mr Noonan clarified to the Dáil in July that the Revenue does not view the levy as a covered tax.

‘Very strange’

The case “gets very strange”, said Mr Giles, when the US government “hid the name” of the Irish tax official by redacting his identity from a letter sent to the IRS stating that the levy was not covered.

This meant Mr McManus could not question the official in a deposition, he said. He claimed the official may have breached Irish law by disclosing what was not a covered tax under the treaty.

Mr Bergmann said that the name was withheld by the IRS, not the Irish tax authorities. “No one should infer that Ireland was trying to hide something,” he said.

Judge Firestone asked both sides to agree to a sealed “protective order” keeping the identify of the official private to the parties. She expressed concern that an individual may be exposed to a potential criminal liability for a violation of Irish law.

Mr Giles also argued that under the “non-discriminatory” article 25 of the treaty Mr McManus should not have his gambling winnings taxed in the US became they are not taxed in Ireland, describing it as the “good-for-the-goose-is-good-for-the-gander clause”.

The judge asked for further written submissions from both sides on this issue at the end of the hearing.

The case continues.