The High Court has ruled that a tax avoidance scheme used to minimise capital gains tax on the sale of shares for individuals is legal.
The case had been taken against the Revenue Commissioners by Lorraine Kinsella, wife of Shane Ryan, son of Ryanair founder Tony Ryan.
Ms Kinsella sold €19 million worth of Ryanair shares in 2003, but paid less than €40,000 in tax in Italy where she was tax resident and avoided Irish capital gains tax (CGT).
The case centred on the interpretation of the Double Taxation Convention (DTC) signed between Ireland and Italy in June 1971.
In his judgment yesterday, Mr Justice Peter Kelly interpreted the convention in the manner contended by Ms Kinsella and ruled the convention applies to Irish CGT.
He also noted the Revenue Commissioners' anxiety about use of the scheme and said the efficacy of such a scheme should be decided upon by the use of "the appropriate statutory machinery".
Noting that both sides had agreed the court would not be concerned with any question of tax collection, he left it open to the Revenue to seek to raise an assessment.
The Revenue was free to take steps relating to Ms Kinsella's activities pertinent to the scheme subject only to the court's interpretation of the convention issues raised.
The judge said Ms Kinsella and her husband would succeed in avoiding a substantial liability to Irish CGT if the share transaction "was carried out bona fide" and in accordance with the advice given and if that advice was correct, he said. Those issues were for the Revenue to decide in any assessment raised.
Ms Kinsella, an Irish citizen and company director with an address at Elm Place, London, who married Shane Ryan in July 2002, had claimed the share disposal was not liable for CGT because at the time she was a tax resident in Italy.
The judge noted she had in June 2003 entered into a letting agreement for a "tiny apartment" in Rome and had in September 2003 purchased shares in Ryanair Holdings plc from her husband for €18 million.
No monies changed hands because the purchase was funded by a loan from Mr Ryan secured on the shares.
Because it was a sales transaction between spouses, there was no liability to CGT.
Ms Kinsella sold the shares in October 2003 to a third party for more than €19 million. She filed a tax return in Italy declaring a gain of €314,638, giving rise to a tax liability in Italy of less than €40,000. She had paid that sum.
Mr Justice Kelly said the case arose from tax avoidance measures by Ms Kinsella with CGT the particular tax sought to be avoided. For the avoidance measures to work, it was essential the DTC should apply to CGT.
Analysing the plain wording of the convention, the judge said this showed a clear intention the convention was designed to cover CGT.
Irrespective of whether Irish domestic Revenue law regards CGT as something other than a tax on income, it was regarded as such for the purposes of the convention.
He concluded CGT is a substantially similar tax to the existing Irish taxes specifically mentioned in the convention.
A second issue to be decided, arising from Ms Kinsella's claim of Italian residency, related to the meaning of the word "day" as set out in the convention.
Ms Kinsella argued her gain fell to be taxed under Italian, not Irish law.
For that to occur, she had to prove she spent the requisite number of days in Italy during the relevant fiscal year.
She had given evidence in that regard but, in light of the possibility of a Revenue assessment, the judge said he would make no findings on that issue.
