A former director of Gladebrook Ltd, the company which sold its 49 per cent holding in Sugar Distributors (Holdings) for £8.6 million (€10.9 million) to Siucre Eireann 10 years ago, is opposing a claim by the Revenue authorities that he must pay capital gains tax (CGT) on £1.86 million he received from the deal, the High Court was told yesterday.
Mr Justice McCracken is hearing an appeal by an inspector of taxes against a decision of the Appeals Commissioners, who decided former Gladebrook director, Mr Thomas Keleghan, of Kincora Grove, Clontarf, Dublin, was not liable for CGT.
Mr Keleghan was one of five shareholders in Gladebrook. Mr Keleghan, Mr Charles M. Lyons, of "Woodside", Oak Park, Carlow, and Mr Charles P. Garavan, Curragrean, Oranmore, Galway, each had 2,151 shares in Gladebrook. The other shareholders were Mr Michael Tully, of Cluain Mhuire, Oak Park, Carlow, with 1,122 shares and a Jersey island company, Talmino Ltd, with 2,425 shares.
Mr Keleghan claims that "a loan note" for £1,867,068 which he received from Siucre Eireann is not subject to CGT. Yesterday, Mr Eoghan Fitzsimons SC, on behalf of the Revenue authorities, said the Talmino company was owned by the former managing director of Siucre Eireann, Mr Christopher Comerford. This case arose only in relation to Mr Keleghan.
A total of £8.6 million was issued in the form of "loan notes" by Siucre Eireann. Mr Keleghan redeemed his loan note for cash in February 1993.
According to documents before the court, Mr Lyons and Mr Garavan held loan notes for similar amounts as Mr Keleghan. Mr Tully's loan note was for £974,000 and the Talmino note was for over £2 million.
Mr Keleghan signed a "service agreement" with Siucre Eireann in 1990 but never became an employee of that company. He remained sales director of Sugar Distributors Ltd - which had been owned by Sugar Distributors (Holdings) Ltd - until his retirement in 1991.
Mr Fitzsimons said the exchange of Mr Keleghan's shares in Gladebrook for a loan note was a "paper for paper" transaction. No cash was involved and, under Schedule 2 of the 1975 Capital Gains Tax Act, tax was deferred until the paper was later disposed of for cash.
Mr Keleghan was owed money by Siucre Eireann and this had been acknowledged by the issue of a loan note. Siucre Eireann repaid the debt and the tax inspector believed this gave rise to a capital gains charge.
One could not say that charging capital gains tax gave rise to an injustice or an anomalous or absurd result. The taxpayer had made a gain on the sale of his Gladebrook share and the tax on that gain was now being levied when he had the cash to pay this tax.
Mr Fitzsimons also argued that, in relation to a sum of £250,000 included in the £1.86 million sum, Mr Keleghan would be liable for income tax. It formed part of the disposal of shares in Gladebrook.
A "side letter", which Mr Keleghan had received from Siucre Eireann, clearly stated that the £250,000 of the amount attributable to the sale of shares was to be regarded as an inducement payment for entering into the service contract.
Mr Ray Fullam SC, for Mr Keleghan, said his client submitted the loan note was exempt from tax and that the provisions of Schedule 2 in the 1975 Act did not apply.
It was a simple debt, providing for a rate of interest and provision for retention.
He submitted that the £250,000 was not an emolument.
In order for it to be assessable for tax, it must be paid in return for acting or being an employee but Mr Keleghan never became an employee of Siucre Eireann.
Mr Fullam will continue his argument today.
