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Couple lose €243,000 tax appeal over sale of wife’s shares to husband

No bona fide commercial reason’ for sale


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A husband and wife have been hit with an additional €243,000 tax bill after she sold €1.1m of shares in her majority-owned company to one controlled solely by her husband.

They had argued that only capital gains tax should be payable on the transaction. But the Tax Appeals Commission has determined that the share sale had no bona fide commercial reason, and that the tax bill on the sale is a total of €605,000.

The names of the husband and wife and their companies were not revealed in a ruling just published by the Tax Appeals Commission.

The Commission heard that prior to April 2014, the wife owned 90 of the 100 shares issued by her company. Her husband owned the remainder.

That month, the estimated value of her company was approximately €1.3m and her 90 ordinary shares were converted into A ordinary shares, and their value capped at €1.1m.

The same month, she agreed to sell those 90 A ordinary shares for €1.1m to her husband’s company.

Following the transaction, in 2015, her husband filed a capital gains tax (CGT) return for 2014 which disclosed a gain of just under €1.1m from the disposal of his wife’s shareholding and a subsequent CGT liability of €362,000, which was duly paid.

In 2016, the Revenue Commissioners notified the husband that it would undertake an audit of his tax affairs in respect of 2014, referencing the taxation of the disposal of his wife’s shares in her company.

In 2018, Revenue wrote to the wife’s tax agent, stating that it “was not willing to accept that the share transaction was for bona fide commercial reasons on the basis that no evidence has been provided to indicate that the transaction was for bona fide commercial reasons”.

Later that year, Revenue issued an amended tax assessment for 2014 in respect of the transaction. That assessment charged income tax of €605,000, which was €243,000 more than had been paid in CGT.

The businessman then appealed to the Tax Appeals Commission, insisting the disposal of the shares by his wife was for genuine commercial reasons and not for the avoidance of tax.

He said that she “wished to encash the value inherent in her shares so as to provide funds to deal with a personal borrowing position”.

But the Tax Appeals Commission held that there was no evidence to demonstrate this.

“The Commissioner heard no evidence whatever about the appellant’s reasons for selling her shares,” noted Appeal Commissioner Conor O’Higgins.

“Whether it was because she had debts that needed to be paid or was for some other reason cannot be ascertained in the absence of evidence,” he added. “A bald statement in written argument does not constitute evidence.”

“This being so,” he said, “the Commissioner finds there to be no basis upon which to conclude that the disposal of the Appellant’s shares was for a bona fide commercial reason.”

He determined that the tax assessment from the Revenue Commissioners must stand.

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