A COURT ruling on an alleged tax-avoidance scheme could yield up to €110m in tax payments to the Revenue from 26 wealthy individuals.
Businessman Ronan McNamee, of Temple Road, Dartry, Co Dublin, has failed in his High Court challenge to a Revenue notice that certain transactions in which he and his wife engaged in 2007 were tax-avoidance transactions.
The tax advantage for the McNamees of the so-called 'straddle' transaction – involving Irish government gilts and foreign-exchange finance instruments – was that they avoided paying some €5.12m in capital gains tax, plus a €1.12m surcharge.
It was alleged that during 2010 the Revenue identified about 26 cases in which similar arrangements as those engaged in by the McNamees were concluded via a London-based merchant bank, Schroders & Co. These were referred to as the 'Schroders Ready-Made 26'.
In a judgment yesterday, Mr Justice Brian McGovern dismissed Mr McNamee's application to quash the Revenue opinion notice of August 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 also affected. They are from: Derek Whelan, a company director, of Foxrock Manor, Foxrock, Dublin; John Punch, of The Park, Cobh, Co Cork; and Martin Punch, a company director, of The Fountain, Glanmire, Co Cork.
The court's decision has implications for all 26 people involved in similar straddle transactions, with the total amount of recoverable tax estimated at up to €110m.
The opinion notice in Mr McNamee's case was issued under Section 811 of the Tax Acts, which enables the Revenue, subject to appeal, to reverse or cancel the effect of certain arrangements.
Mr McNamee claimed that once the Revenue believed that any of the 26 had engaged in a tax-avoidance transaction, it had to issue a notice to all of them.
Mr Justice McGovern said the complex straddle transactions required investigation and advice from experts. There was no actual or apparent bias by the Revenue in dealing with the matter.
He accepted that the notice of opinion was formed on August 24, 2011, by the nominated officer on foot of an investigation report on the McNamees' transaction that had been received by the officer two days earlier.
The judge outlined how Mr McNamee and his wife in 2007 entered into a two-limbed 'straddle transaction' made up of a foreign-exchange straddle contract (FESC) and a gilt-foreword contract (GFC) using Irish government gilts.
The McNamees bought Irish government gilts for €25.5m on September 26, 2007, and sold them the same day to Schroders for €50.9m, the judge said.
The next day, they bought some $29m (€22.4m) for some 3.3 billion Japanese yen, plus a premium of €25.7m from Schroders, resulting in a foreign-exchange loss of €25.6m.
The foreign-exchange limb led to a total loss of €25.6m, while the gilt limb led to a total gain of €25.4, resulting in the McNamees incurring an overall loss of some €250,000. Separately in 2007, the McNamees made disposals leading to gains totalling some €57.8m.
As government gilts are not chargeable for capital gains tax, CGT was not payable on the €25.4m gain from the gilt limb.
The overall effect of the straddle was to generate an allowable loss of €25.6m when the monetary loss actually incurred by the McNamees was only €250,000, the judge said.
The losses incurred on the foreign-exchange limb were therefore available to be set off against the €57.8m gains on the disposals.