Two major shareholders in a construction group have won a €4.8 million capital gains tax (CGT) and income tax battle with the Revenue Commissioners over a €30 million rezoned land deal.
Tax Appeals Commissioner Clare O’Driscoll reduced an assessment issued by Revenue to the two appellants to zero.
In 2012, Revenue issued a combined CGT and income tax assessment of €2.4 million to each of the appellants, mainly on the basis its assessment of the value of the lands at the centre of the tax dispute had a value of €40 million rather than €30 million.
The dispute involving the chairman and managing director of the construction company and another major shareholder with Revenue stemmed from two land purchases in 2007.
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In January and March of 2006, the group entered into conditional contracts for two adjoining tracts of agricultural land for a combined €23.1 million.
That value was on condition the sites would be rezoned for residential use by the local council. Rezoning took place in 2007 and the purchases were completed that year.
However, as part of a corporate restructure at the group, the contracts for the sites were subsequently reassigned to the group chairman and the second appellant.
The €30.6 million value on the land deal with the group in 2007 comprised the €23.1 million paid to the original landowners and an uplift of €7.5 million paid to the group chairman and second appellant by way of credit to directors’ loan accounts in the company and did not provide a cash benefit to the two.
The lands in question had extensive road frontage and were within easy walking distance of the town “and in an area that is improving rapidly”.
Revenue based its €40 million valuation on a letter to the group directors by an expert who put the €40 million valuation based on the lands achieving 10 residential units per acre.
However, the group chairman told the Tax Appeals Commission hearing that the letter was misconceived in that it was highly unlikely that 10 units per acre would be achieved and provision needed to be made for green areas and other, non-housing related development.
Ms O’Driscoll found as fact that the market value of the lands in July to August, 2007 was €30 million.
The two appellants each paid CGT on their 50 per cent share of the combined €7.5 million uplift to Revenue in 2007. Ms O’Driscoll dismissed Revenue’s claim that the correct CGT assessment on the two should be based on combined gains of €16.9m based on its €40 million valuation.
She also found the credits of €3.75 million applied to director’s loan accounts held by the chairman and the second appellant did not relate to their having or exercising profit with the company and were not subject to income tax.
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