Revenue may recoup €110m from scheme to avoid tax

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

Ronan McNamee, of Temple Rd, 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 straddle transaction involving Irish government gilts and foreign exchange finance instruments was that they avoided paying €5.12m in capital gains tax, plus a €1.12m surcharge.

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

Three other challenges over similar straddle 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 straddle transactions, with the total amount of recoverable tax estimated at up to €110m.

Speaking following the ruling, Revenue chairwoman Josephine Feehily said the judgment was an important one in confirming the efficacy of Revenue’s procedures around Section 811 of the Taxes Consolidation Act.

“Challenging transactions which we believe have little or no commercial reality is an important part of our strategy to target and confront those who do not comply with the law,” she said. “At the end of last year, 50 avoidance schemes were being challenged by Revenue.”

It was alleged that, in 2010, the Revenue identified 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”.

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, reverse, or cancel the effect of certain arrangements thought to constitute a tax avoidance scheme not susceptible to challenge under specific legislation.

Mr McNamee took his case because he alleged the officer nominated to examine his transactions formed an opinion well before the notice served on him in Aug 2011.

Earlier, the judge outlined the McNamees in 2007 entered into a two-limbed “straddle transaction” made up of a foreign exchange straddle contract and a gilt foreword contract using Irish government gilts.