Ruling could reap €110m for Revenue

A High Court ruling yesterday concerning an alleged tax avoidance scheme could yield up to €110 million in tax payments to the Revenue from 26 wealthy individuals here.

Businessman Ronan McNamee, Temple Road, Dartry, Co Dublin, unsuccessfully challenged a Revenue opinion notice that certain “straddle” transactions in which he and his wife engaged in 2007 were tax avoidance transactions.

The tax advantage for the McNamees of the complex transaction involving Irish government gilts and foreign exchange finance instruments was they avoided paying €5.12 million in capital gains tax, plus a €1.12 million surcharge.

It was alleged the Revenue during 2010 identified about 26 cases in which similar arrangements as those engaged in by the McNamees were concluded via a London-based merchant bank, Schroders Co Ltd, referring to those as the “Schroders Ready-Made 26”.

Judgment

In a detailed judgment yesterday, Mr Justice Brian McGovern dismissed Mr McNamee’s application to quash the Revenue opinion notice of August 2011 on grounds including alleged delay and breach of natural and constitutional justice in how that notice issued.

Three other challenges over similar transactions are affected. Those are by Derek Whelan, a company director, Foxrock Manor, Foxrock, Dublin; John Punch, The Park, Cobh, Co Cork; and Martin Punch, a company director, The Fountain, Glanmire, Co Cork.

The decision has implications for all 26 people involved in similar transactions with the total amount of recoverable tax estimated at up to €110 million.

The opinion notice in Mr McNamee’s case was issued under section 811 of the Tax Acts governing tax avoidance schemes or transactions. Section 811 enables the Revenue, subject to appeal, to reverse or cancel the effect of certain arrangements.

Section 811 is applied where a Revenue investigation reveals a transaction that may constitute a tax avoidance scheme not susceptible to challenge under specific legislation. Where that occurs, a tax inspector will compile a detailed report and make a recommendation to a nominated officer appointed to consider a particular transaction.

A nominated officer who forms the opinion of a tax avoidance transaction must give notice of that opinion “immediately” to the affected person. In Mr McNamee’s case, he alleged the nominated officer formed such an opinion well before the notice served in August 2011.

Investigation

He also claimed material obtained under the Freedom of Information Acts showed the Revenue from 2009 treated the 26 individuals as a group, the Schroders Ready-Made 26. Once it believed any of the 26 had engaged in a tax avoidance transaction, it must issue a notice to all of them, he claimed.

Mr Justice McGovern said the complex “straddle” transactions required investigation and advice from experts to help understand the mathematical formulas used and the real reason behind them.

He accepted the notice of opinion was formed on August 24th, 2011, by the nominated officer on foot of an investigation report on the McNamees’ transaction received by the officer two days earlier. While the various parties making up the Schroders Ready-Made 26 group may have adopted broadly similar tax avoidance measures, section 811 required the Revenueto consider each case individually, he ruled.

The judge dismissed claims over the role of Revenue commissioner Michael O’Grady in investigating the transaction and drafting amending legislation. Claims of bias by the nominated officer were rejected.