THE Revenue Commissioners had to call in experts to examine whether a scheme allegedly involving 26 "high net worth" individuals was a tax avoidance measure, a court heard.
Revenue did not form an opinion in advance of getting in the experts and did so only after receiving a report from them, the court heard.
Mr Justice Brian McGovern is hearing one of four cases brought in the Commercial Court to determine key legal issues relating to disputed transactions involving the 26.
It is claimed disputed decisions by the Revenue arose from pre-determined views within Revenue that several people were engaged in tax avoidance via arrangements to create and use contrived capital losses. The Revenue claims the arrangments could result in a €110m tax loss.
The Revenue took the view one scheme was allegedly used to generate artificial capital losses of €409m to shelter capital gains tax of over €85m.
The challenge relates to the manner in which a Revenue officer formed the opinion in 2011 the transactions were for tax avoidance purposes.
It is alleged the Revenue identified and grouped together about 26 cases in which identical or very similar arrangements were concluded via a London-based global assets management company and referred to those as the "Schroders Ready-Made 26".
The test case by Ronan McNamee, a businessman of Temple Road, Dartry, Co Dublin, arises from two financial transactions entered into by him and his wife about September 2007. The transactions involved financial "straddles", one involving Government gilts and the other foreign currency.
Mr McNamee claims he and his wife made a profit from the gilts sale, which was exempt from tax, and a loss on the foreign currency transaction which he deducted when compiling chargeable gains for his 2007 tax return. In August 2011, a Revenue nominated officer issued a notice the transaction was a tax avoidance transaction and directed a total tax advantage, including a surcharge, of €6.2m, was to be withdrawn from Mr McNamee.
Counsel for the Revenue Commissioners Denis McDonald SC today submitted there was no basis for the suggesting that Revenue had formed an opinion before a decision was made.
Revenue, he said, gathered evidence to see if Section 811 of the Taxes Consolidation Act - under which tax advantage is withdrawn and claims for capital gains losses disallowed - could be activated. It brought in experts who prepared a detailed report on it and this was appropriate and perfectly proper, he said.
Revenue had to follow steps in relation to applying the law and it was not a question of general discretion, he said. Every Revenue offiicial must be concerned about potential lossess to the Exchequer, but it can't be suggested that should pollute the mind of the officer making a decision on whether this was a tax avoidance measure.
The case continues.