Sunday 22 June 2008

Revenue to demand €50 million from property developers

The Revenue Commissioners will demand about €50 million in back taxes from property developers after a landmark court ruling that a Vat avoidance scheme designed by accountancy firm Deloitte & Touche was ‘‘an abusive practice’’.

In a sternly-worded judgment, High Court judge Peter Charleton rejected a claim by a building partnership that it was not liable for Vat on the sale of 15 holiday homes in Baltimore, Co Cork.

Edward Cussens, John Jennings and Vincent Kingston had sought to reduce their Vat liability on the sale of €3 million-worth of holiday homes, by signing a lease for 20 years and one month with a related company, Shamrock Estates, which then leased the property back to the partners.

However, the High Court held that the lease was ineffective because there was no prior written consent by ACC Bank, the mortgage provider. The court also ruled that the ‘‘lease and leaseback had no commercial reality and constituted an abusive practice within the doctrines identified by the European Court of Justice’’.

The Revenue is understood to be pleased with the ruling, which effectively gives it a new legal weapon to combat elaborate tax avoidance schemes. Industry sources estimated the Revenue could reap as much as €50 million in back taxes and suggested some leading property developers could be affected.

The decision enshrines in Irish law an earlier decision by the ECJ which ruled that transactions carried out for the sole purpose of obtaining an artificial tax advantage were an abuse of the tax system. The 2006 ECJ ruling related to a tax avoidance scheme by the Halifax Bank in Britain and others.

The ruling is a blow to Deloitte &Touche, which is believed to have set up similar schemes for other clients. Many of them will now face Vat demands from the Revenue Commissioners unless the decision is successfully appealed.

Kingston, one of the members of the partnership, said it was likely the partners would appeal to the Supreme Court, adding that they had 21 days from the June 11 High Court decision to decide whether to appeal. He confirmed that his partnership had been advised by Deloitte & Touche. At the time of writing, Deloitte & Touche had not responded to a request for comment.

Dermot O’Brien, a Vat specialist and former president of the Irish Taxation Institute, said this weekend that the ruling was of huge interest. ‘‘It is one of the most significant Irish Vat judgments,” he told The Sunday Business Post.

Sunday Business Post

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