A member of the family behind the house-building firm Shannon Homes has won a legal action which could have resulted in them having to pay millions in capital acquisitions tax (CAT).
The Court of Appeal ruled the High Court was wrong in finding that a son of one of Shannon’s former owners, Joseph Stanley Sr, was not covered by a four-year time limit for assessing him for CAT over a 2007 transfer of the father’s assets to his sons.
In the early 2000s, Mr Stanley retired and while he retained ownership of his stake in Shannon, the business was effectively carried on by his five sons in conjunction with other shareholders.
While the transfer took place in 2007, it was not until December 2013 that the Revenue Commissioners raised an assessment of just over €7m in CAT for Robert Stanley, who strongly disputed this and lodged an appeal with the Revenue.
Mr Stanley argued, among other things, there was a four-year time limit, after such transactions, for Revenue to raise an assessment under the provisions of the 2003 Capital Acquisitions Tax Consolidation Act.
Revenue argued the time limit did not apply where a person did not deliver a correct return, as it claimed in this case.
The appeals court ruled Mr Stanley did deliver a correct return and therefore the time limit did apply. Mr Justice Michael Peart said for the four-year limit to be dis-applied, there must be either fraud or neglect by the taxpayer and there was no question of that in this case.
Earlier, the judge said under the transfer of Joseph Shannon Sr’s assets to his sons, the five each bought a one-fifth share in a company called Kitara Properties for just over €3.4m each.
The actual market value of the Kitara shares was €85.5m which meant each one-fifth share was worth €17m.
Mr Stanley Sr, because he was transferring valuable assets, faced a capital gains tax (CGT) bill of €3.4m on each of the transfers to his sons.
As a result of the sons receiving a gift of €13.6m each (the difference between what they paid for their shares and the actual value of the shares), a potential liability for CAT of €2.7m each also arose for the sons. CGT and CAT was 20% at this time.
However, because the CAT and CGT arose on the same transaction, a credit was available to the five sons for the CGT payable by the father.
As Joseph Stanley Sr’s CGT liability exceeded the CAT liability of the sons, no liability for CAT arose under the 2003 Capital Acquisitions Tax Consolidation Act.
However, in the same month of the transfer to the sons, there was a share subscription by Kitara under which a company called Belmayne Ireland ended up owning 90% of Kitara.
It was this transaction which led the Revenue to issue an assessment six years later for CAT claiming Robert Stanley was not entitled to the benefit of the CGT/CAT credit rule where an asset was disposed of within two years after the date of a gift.
Mr Stanley argued the Belmayne transaction did not constitute a disposal for CAT purposes but Revenue maintained it did.
In December 2015, the High Court found he had not delivered a correct return and the four-year time limit for raising an assessment did not apply.
In his appeal court decision, Mr Justice Peart said Revenue only relied on the issue of an alleged failure to deliver a correct relevant return on which CGT credit was wrongly claimed arising out of the Belmayne transaction.
The form which the taxpayer had to fill in to claim the credit made no provision for giving details but simply asked what the amount of any credit being claimed was, he said.
Revenue did not contend it was as a result of new information coming to light six years later which caused the issuing of the assessment and this may have been explained by the fact that Mr Stanley had already provided Revenue with full details of the Belmayne transaction in 2007, he said.
He must therefore allow Mr Stanley’s appeal, he said.