Thursday 19 September 2019

McGann loses tax appeal over 'gift' of €2.3m

Executive says he got advice that money received while Smurfit Kappa CEO was a gift and paid tax on that basis

Gary McGann. Photo: Bloomberg
Gary McGann. Photo: Bloomberg
John Mulligan

John Mulligan

One of Ireland's most prominent corporate executives, Gary McGann, has lost a tax appeal over a €2.3m payment he received while chief executive of packaging giant Smurfit Kappa.

The €2.3m payment by private equity firms to the veteran businessman while he headed the group - described as being for "gratitude, appreciation, admiration and friendship" - was not a gift and must be taxed as income, the Tax Appeals Commission has ruled.

Mr McGann and three other Smurfit Kappa executives were allocated a €5.8m payment from US private equity firm Madison Dearborn Capital and a Cayman Islands-based feeder fund controlled by Cinven and CVC in June 2007.

The payment was earmarked just months after the packaging group successfully listed on the stock markets in Dublin and London earlier that year, raising €1.5bn.

A Madison Dearborn Capital executive told the Tax Appeals Commission in a hearing that the global financial crash of 2008 had delayed the sale of the firm's shareholdings until the Smurfit Kappa share price recovered in 2011. The payment notified to the executives in 2007 was only made to them in March 2011.

Mr McGann received just over €1m from a Madison Dearborn vehicle and €1.2m from the Cinven-CVC vehicle.

Mr McGann is a highly respected figure in business. He is currently chairman of Swiss-Irish food group Aryzta, the chairman of Flutter Entertainment, the owner of Paddy Power and Betfair. He is no longer a director of Smurfit Kappa.

He told the Irish Independent: "The position is that I took advice and was told it [the €2.3m payment] was taxable as a gift and paid the tax on this basis. The Revenue [Commissioners] sought to tax it as income and the case was about that."

Mr McGann treated the total €2.3m payment as a gift and later paid capital acquisitions tax of €596,350 on the amount.

The tax ruling also notes that Mr McGann also received a €1.38m loan from Anglo Irish Bank in June 2008 to buy shares in Smurfit Kappa. Mr McGann was a non-executive director at the failed bank from 2004 to 2009.

Mr McGann was appointed chief financial officer of the Jefferson Smurfit Group in 1998. In 2002, the company was acquired in a €3.7bn buyout led by Madison Dearborn. Mr McGann became CEO that year. In 2005, Jefferson Smurfit acquired Dutch packaging group Kappa, which brought Cinven and CVC on board as investors in the enlarged Smurfit Kappa group. Mr McGann was confirmed as CEO of the group in early 2007 as it prepared for its flotation that year.

In a letter received by Mr McGann in 2007 from Madison Dearborn, he was told of the "deep appreciation" of his efforts and commitment during the private equity firm's investment in Smurfit Kappa.

It added that everyone at Madison Dearborn Capital Partners is "conscious of the sacrifices that you made in this period of your life to deliver the exceptional return that we have achieved to date". The letter said that as "a concrete expression of our gratitude, we have decided to make a gift to you of €1,075,150".

But Tax Appeals Commissioner Lorna Gallagher said the €2.3m payment to Mr McGann "constitutes a taxable emolument assessable to income tax" and not a gift.

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