Lotus Green 'was a scheme to save tax'

A Dutch resident company used as part of a tax scheme produced documentation that had no bearing on reality, the court was told yesterday, reports Colm Keena

The court heard that the defendants, DCC plc, Mr Jim Flavin, S&L Investments Ltd, and Lotus Green Ltd, will say that Lotus Green, acting independently, was the party that sold the Fyffes shares that are at the centre of the case.

Yesterday Mr Paul Gallagher SC, for Fyffes, said the basis for setting up Lotus Green was as a tax scheme with the aim of making a substantial and legitimate tax saving at the time of the sale of the Fyffes shares.

Lotus Green was incorporated in February 1995. In May 1995, it became a wholly-owned subsidiary of Marjobe Ltd, a company which was in turn owned by DCC Properties Ltd, and Dutch company DCC International Holdings Ltd, BV.

DCC plc and a subsidiary, S&L Investments Ltd, sold their Fyffes shareholdings to Lotus Green for cash, on August 9th, 1995. The consideration was £38 million, reflecting the market value of the shares at the time.

No capital gains tax was paid as the transfer was considered to have occurred within the group.

Marjobe was then put into liquidation. The liquidator distributed the shares it held in Lotus Green to DCC International Holdings BV. These developments had the effect of breaking the relationship between Lotus Green and the Irish group, Mr Gallagher said. The shares left the Irish tax net.

Lotus Green was now resident for tax purposes in the Netherlands. When the Fyffes shares were sold, any profit made would not be subject to Irish capital gains tax.

Dutch law allowed certain substantial holdings to be sold without incurring capital gains tax as long as specific criteria were met. Lotus Green met these criteria and was given a form of exemption. This exemption was in effect when the Fyffes shares were sold in February 2000.

The shares had been purchased in 1981 and the profit made on them was €85 million.

The transfer of the shares to Lotus Green was funded by DCC plc and S&L Investments, Mr Gallagher said.

DCC Properties was given a £35 million loan by DCC plc and S&L Investments. DCC Properties then loaned the money to Lotus Green which used it to buy the Fyffes shares from DCC plc and S&L Investments.

The end result was that Lotus Green had the shares and owed £38 million to DCC Properties. The defendants thereafter were careful and concerned to ensure that the structure that had been set up was operated in a way that wouldn't affect the tax advantages, Mr Gallagher said.

He said DCC and S&L had effectively transferred a very substantial shareholding and were owed a substantial amount of money. He said Fyffes would say that, from the very start, DCC controlled all aspects of Lotus Green.

Lotus Green had "A" directors and "B" directors and at least one "A" director was required for any decision. The "A" directors were always DCC executives and the "B" directors Dutch. The Dutch directors were a Mr Roskam, a Mr Diepenhorst, and a Mr Venneboer.

Documentation suggested that all the Lotus Green housekeeping documentation was prepared by DCC, including board agendas, minutes, resolutions and strategy papers. Strategy papers on the sale of the Fyffes shares were prepared in 1998 and, on February 2nd, 2000, the day prior to the first of the Fyffes share sales that are issue.

Mr Gallagher said Mr Fergal O'Dwyer, chief financial officer with DCC and an "A" director of Lotus Green, was fundamental to the preparation of these papers.

During the period from its establishment, Lotus Green held 26 board meetings but "effectively nothing occurred". It did not trade. Filings by the company on occasion mentioned that it had been considering investments during the year but those statement had been made on the advice of tax advisers and "did not reflect any reality", Mr Gallagher said.

The control of Lotus Green by DCC led to a "slight but significant distortion of reality", Mr Gallagher said.

The February 2000 strategy paper was prepared by Mr O'Dwyer and it had his name. It was then changed in Dublin by DCC's tax adviser and a tax adviser from an accountancy firm, before going to Lotus Green. The copy that went to Lotus Green did not have Mr O'Dwyer's name on it but rather the names of two Dutch directors, Mr Gallagher said. This latter fact had not yet been satisfactorily explained, he said.

Mr Gallagher said there was also a letter from Mr Roskam requesting a meeting of the Lotus board which he, Mr Gallagher said, was written by Mr Roskam after he'd received instructions to do so.

At an early stage DCC was advised by SKC (now KPMG) that Lotus Green needed to be managed and controlled in the Netherlands and it would be preferable if as many board meetings as possible were held in the Netherlands.