Tax Appeals Determinations – June 2025

This month we look at two cases in the Tax Appeals Commission. In 58TACD2025, a taxpayer appealed a decision against an amended assessment to CGT and in 60TACD2025 a taxpayer appealed a decision against an amended assessment to VAT.

58TACD2025

  • This case concerned an appeal against an amended assessment to capital gains tax (CGT) raised in relation to a sale of shares following an earlier share-for-share reorganisation. The assessment was raised on the basis that the prior share-for-share reorganisation, while it may have been carried out for bona fide commercial reasons, was part of a scheme or arrangement of which the main purpose, or one of the main purposes, was to avoid tax.
  • The Appellant had previously subscribed for €100,000 A ordinary shares in a company (LANDCO) with plans to develop land. It was noted that the reason he subscribed for A ordinary shares was to have a power of veto if a decision was taken by management to sell, but the shareholding did not give the Appellant the opportunity to participate in the day-to-day running of the company.
  • In June (year redacted but in the year of the sale), the Appellant incorporated a holding company (HOLDCO). On 2 July (in the same year), he transferred his A ordinary shares in LANDCO to HOLDCO in return for shares in HOLDCO. He claimed an exemption from CGT in accordance with section 586 Taxes Consolidation Act (TCA) 1997. On 19 July, HOLDCO sold its shares in LANDCO to a third-party purchaser. HOLDCO did not pay any corporation tax (CT) on the disposal of the shares in LANDCO on the basis that the market value of the LANDCO shares at the time of transfer was deducted against the proceeds of the subsequent disposal of the shares to the third-party purchaser. In fact, the Appellant had deducted certain expenses relating to the sale when calculating his CGT exposure, thereby returning an overall loss on the disposal.
  • The Appellant contended that the formation of HOLDCO was to protect his house and farm by creating a separate legal vehicle for investment and development; to secure finance, which he felt would be easier to obtain through a company; and to assist in succession planning. However, the timing and expediency of the establishment of HOLDCO and the subsequent transfer of the A ordinary shares created a “golden thread” of evidence which pointed to the avoidance of tax as one of the main purposes of the share-for-share exchange and subsequent sale via HOLDCO.
  • Revenue also raised a fundamental issue with the share-for-share exchange and the claim for relief under section 586(2)(b) TCA 1997. This section requires that a general offer is made to the shareholders of the target company, i.e. LANDCO, which would allow the shareholders of the target company to have control of the company making the offer. The Appeals Commissioner found that the letters provided to the shareholders of LANDCO did not satisfy the requirements of that section. The Appeals Commissioner held that where a tax relief is being claimed, the requirements must be clearly met, and simply stating that the letter was made “pursuant to section 586 TCA 1997” did not satisfy those requirements.
  • The fact that the letter did not meet the requirements under section 586(2)(b) TCA 1997 was sufficient to dispose of this case in favour of Revenue. However, given that tax avoidance was at the heart of this appeal, the Appeals Commissioner went on to consider whether in fact the transaction was carried out with the main purpose, or one of the main purposes, to avoid tax within the meaning of section 586(3)(b) TCA 1997.
  • In analysing the bona fides of the share-for-share reorganisation, the Commissioner held that on the balance of probabilities, the Appellant demonstrated that the transaction was effected for bona fide commercial reasons.
  • In analysing whether the main purpose or one of the main purposes of the arrangement was to avoid tax, the Commissioner noted that there was no “smoking gun” proving that the Appellant knew about the sale offer prior to the reorganisation. Instead, the Commissioner had to consider the evidence and form a conclusion based on a balanced analysis of the evidence.
  • The Commissioner noted there was a clear urgency to complete the reorganisation which was not properly explained by the Appellant. It appeared from the overall evidence, that on the balance of probabilities, the Appellant knew about the sale offer prior to the reorganisation, despite his assertions that he did not. Further, the Commissioner also questioned the fact the Appellant readily agreed to a sale so quickly after the reorganisation without proper consideration or deliberation of the offer.
  • The Commissioner upheld the amended assessment of €351,545.

60TACD2025

  • This case concerned an appeal against a rejected claim for refunds of VAT made by the Appellant. The amount of tax under appeal was €2,549,924.
  • The Appellant was VAT registered and promoted the sale of certain goods to the public. The Appellant received payments from producers for the purpose of promoting the goods, and it was agreed that the payments received were not consideration for the supply of a service and were therefore not taxable.
  • The appeal was taken under two grounds. The first was a claim to legitimate expectation based on an earlier appeal taken in 2006. In this earlier appeal, the Appellant claimed it was entitled to full deduction for its inputs, to which Revenue agreed and subsequently withdrew its case. Ultimately, this claim under legitimate expectation was refused by the Appeals Commissioner on the basis that the admission from Revenue in 2006 related to the facts and circumstances at that time and did not preclude Revenue from raising a new question for the years currently under review.
  • The second ground was that the Appellant conducted a mixture of activities which are both taxable and outside the scope of VAT. It argued that precedent from the Court of Justice of the European Union (CJEU) demonstrated that where a business has inputs which are used for both taxable supplies and non-VATable activities, they enjoy full VAT input deduction. Subsequently, at the oral hearing, the Appellant asserted that its activities were in scope of the Principal VAT Directive (PVD) and that all of its expenditure had a direct and immediate link with its taxable transaction. The Commissioner found that the Appellant was entitled to make this assertion based on the initial Ground of Appeal.
  • The Commissioner reviewed a substantial body of case law to decide whether the Appellant was entitled to full deductibility for its inputs. It noted that the income received by the Appellant was not consideration of the supply of a service and was therefore not taxable. The case law establishes that, where there is a mixture of economic and non-economic activity, VAT is only deductible where the inputs of the non-economic activity have a direct and immediate link with the output transactions giving rise to a right of deduction. As Revenue accepted that the Appellant was involved in economic activity, the Commissioner had to determine the appropriate apportionment of costs. As this activity would require weeks or months of hearing, the Commissioner noted it was not in a position to carry out such an apportionment. Revenue accepted that a detailed apportionment exercise would be needed to establish the precise details and amounts.
  • The Commissioner upheld the Appeal, noting that the Appellant had succeeded in part and that the refusal for the repayment of VAT should be varied by allowing a repayment of all input VAT relating to the economic activities of the Appellant for the periods July/August 2016 to November/December 2020. Further, where input VAT was incurred on non-economic activities, this should be repaid where there was a direct and immediate link with the Appellant’s output transactions, which gave rise to the right of deduction for the aforementioned period.