Italy was key destination for spouses on road to avoiding tax

ANALYSIS:DOCUMENTS IN the Companies Registration Office show the moves taken by Gerry McCaughey and others to avoid paying 20 per cent capital gains tax after they sold Century Homes for €74 million in 2005.

The annual return for that year charts how McCaughey transferred his shares to his wife, Sophie McCaughey, on March 3rd.

While his address on the 2005 document is in Co Monaghan, hers is at Villa Maria Letizia, in San Remo, Italy. She in turn transferred the shares to the company that purchased Century Homes on April 14th, 2005.

Similarly, shareholder Gary McCaughey, with an address in Co Monaghan, transferred his shares to Terry McCaughey, with an address on the Via Hope, San Remo, in March, and she sold them a month later.

James McBride, with an address in Co Monaghan, transferred his shares to Kate McBride, with an address in Imperia, San Remo, in March, and she sold them on a month later.

The moves mirror the advice contained in a KPMG document seen by RTÉ and disclosed yesterday morning.

It is entitled “Century Homes Shareholders, Report on the Irish and Italian Tax Implications of Migrating from Ireland to Italy.”

The document outlines how the spouses should move to Italy at a certain date so as to establish tax residency there for 2005, and the shares should then be sold to them by their husbands at a fair market value, using loans from the husbands backed against the shares.

The wives would shortly dispose of the shares, and be liable in Italy for tax on any profit that arose. The KPMG document recommended it should file the couples’ tax returns. “We would prefer to minimise dissemination of knowledge of the matters contained in this report as Revenue attack is more likely if this route was to be copied by others.”

The tax loophole that allowed the manoeuvre had to do with the double taxation agreement between Ireland and Italy and has since been closed.

An identical move was the subject of a High Court case two years ago involving Lorraine Kinsella and her husband, Shane Ryan, son of the founder of Ryanair, the late Tony Ryan.

The court heard that in 2002 contact was made with Terry McGowan of KPMG to discuss share disposals and taxation. After receiving advice, Ms Kinsella took up residence in a “tiny apartment” in Rome and registered as living there. She soon afterwards purchased Ryanair shares worth €18 million from Mr Ryan, using funds loaned to her by him.

She sold the shares on to a third party for more than €19million, and paid tax in Italy of less than €40,000.

As part of the scheme Ms Kinsella had to spend less than 90 days in Ireland in 2003, while Mr Ryan could not spend more than 183 days in Italy. The couple were married in 2002 but it was not the case put to the court that they got married as part of the tax scheme.

The Revenue sought to contest the tax manoeuvre but was unsuccessful.