Court rules for Revenue in VAT refund case

The High Court has ruled the Revenue Commissioners were entitled to withhold some €1.3 million due in VAT refunds to a company in the Cunningham group for the purpose of setting off those monies against tax liabilities of other companies in the group.

Mr Justice John Hedigan today rejected arguments by Kanwell Developments Ltd, with registered offices at Upper Grand Canal Street, Dublin, that the Revenue had wrongly withheld VAT monies from it by setting off the monies against the tax liabilities of two other group companies, Mooreview Developments Ltd and Valebrook Developments Ltd.

He was giving his reserved judgment on proceedings by Kanwell against the Revenue aimed at securing the VAT monies.

Kanwell is part of the Cunningham group of building companies. In 1999, Kanwell was involved in a major building project in Salthill, Co Galway, for Salthill Properties, another Cunningham group company, involving the construction of 96 apartments, a pub, nightclub and other facilities.

Kanwell made VAT returns from December 1999 to December 2002 and claimed entitlement to repayment of some €1.3 million.

It accepted there were meetings between the group and Revenue in 2000, 2001 and 2002 aimed at arranging a "set off" of payments against liabilities within the group, that it agreed to a set off of some €320,000 due to Kanwell against liabilities of Mooreview and Valebrook but argued there was no legal authority for that.

It also claimed, even if a set-off was done by agreement, any authority to do so ended after September 2002 when, it claimed, it withdrew any authority that might have existed.

Mr Justice Hedigan said the dispute was whether Kanwell had asked for VAT refunds to be set off against the tax liabilities of the two group companies and, even if there was agreement on that, whether the Revenue needed statutory authority before it could set off.

Having heard evidence from witnesses for both sides, the judge said he considered the evidence from John Kelly of the Revenue to be the most authoritative. Mr Kelly was "emphatic and clear" the initiative for treating the Cunningham companies together for tax purposes came from Kanwell and his evidence was that all set offs done up to July/August 2002 were at the request of Kanwell representatives. Documentary and other evidence also supported this.

The judge concluded the set offs made up to July/August 2002 were at Kanwell's request and were authorised by it.

He also found the Revenue could make such set offs notwiothstanding the absence of any specific statutory authority in that regard. As there was no statutory prohibition against making set offs, the Revenue could make the set offs without an explicit statutory power once they were done at the request or agreement of Kanwell, he found.

The evidence was such form of offsetting has been used for many years and he saw "no reason" to call it into question in this case.

In relation to set offs of VAT against tax liabilities relating to periods from September to December 2002, the judge noted those set offs were made only against amounts due by Kanwell itself and no other party. He found Kanwell had agreed to those set offs in a letter of May 2003.

He futher ruled that final set offs made in July 2003, while not authorised by Kanwell, were within the Revenue's powers under provisions of the Tax Consolidation Act 1997 relating to failure to comply with tax obligations. In those circumstances, the Revenue had statutory power to make the set offs even where the company had not agreed to them.