Two significant stakeholders in a construction conglomerate received favourable judgement in a €4.8 million Capital Gains Tax (CGT) and income tax dispute with the Revenue Commissioners. The disagreement centred on a transaction involving land that was rezoned for €30 million. After a review, Commissioner Clare O’Driscoll of the Tax Appeals Commission (TAC) wiped off the assessment issued by the Revenue Commissioners to the two disputants completely.
In the year 2012, an amalgamated CGT and income tax bill of €2.4 million each was issued to the two disputing parties by the Revenue. This was largely on the premise that the disputed land had a worth of €40 million instead of the alleged €30 million.
The tax disagreement originated from two land transactions in 2007. The disputed lands were between the construction company’s Chairman, Managing Director, another leading shareholder, and the Revenue.
The company had committed to a contract for two contiguous agricultural land parcels for an aggregate sum of €23.1 million in January and March 2006. However, the agreed sum was contingent on the lands being rezoned for residential use by the local authorities, which happened in 2007. It was in this year that the original transactions came into fruition.
Following a company-wide restructuring, the contracts for the aforementioned parcels of land were transferred to the group’s chairman and the other party involved in the appeal. The land transaction between the group and the disputed parties in 2007 was €30.6 million. This amount included the original €23.1 million disbursed to the initial landowners and a €7.5 million rise that was paid to the Chairman and co-appellant. This payment came through the company’s credit director’s loan accounts and did not provide a direct cash advantage to the two parties.
The disputed lands, which have a large road frontage and are within pedestrian-friendly distance from the town, were described as being within a rapidly developing locality. Revenue utilized a letter from an expert who appraised the displaced lands at €40 million, assuming ten residential units could be established per acre as basis for its valuation.
In a TAC hearing, despite assertions in a certain letter to the contrary, the chairman of the group maintained that it would be extremely improbable to achieve 10 units per acre. He emphasised the necessity for reserving space for green areas in addition to non-residential developments. During this period, between July and August 2007, the market value of the lands was determined to be €30 million by Ms O’Driscoll.
As evidence indicates, the two appellants each remitted Capital Gains Tax for their equal shares in the combined increase of €7.5 million, to the Revenue, in 2007. Ms O’Driscoll refuted the Revenue’s assertion that the two appellants’ correct CGT should have been calculated based on the combined profits of €16.9 million, stemming from their €40 million estimation.
Furthermore, she concluded that the chairman and the other appellant’s director’s loan accounts, each credited with €3.75 million, had no connection to profit made or exercised within the company and hence, were not liable to income tax.