Irish High Court ruling saves Denis O'Brien €57 million in tax
On September 6 2013 the High Court in Dublin upheld an appeal commissioner's decision in favour of Irish businessman, Denis O'Brien. The appeal commissioner had ruled that O'Brien was not liable to pay more than â‚¬57 million ($79 million) in capital gains tax (CGT) arising on the sale of loan notes in BT Hawthorn Limited in December 2000 and on the disposal of certain other assets during the 2000/2001 tax year.
The case, Oâ€™Brien (Appellant) v Quigley Inspector of Taxes (Respondent), centred on the issue of whether O'Brien had a permanent home available in Ireland for the tax year 2000/2001. This hinged on the interpretation of article 4(2)(a) of the Ireland-Portugal double taxation agreement (DTA). The High Court found in favour of O'Brien, concluding that the appeal commissioner was correct in determining that O'Brien did not have a permanent home in Ireland within the meaning of article 4(2)(a) of the DTA.
Sale of loan notes
In October 2002 the Revenue Commissioners (Revenue) raised an assessment, indicating that O'Brien was liable to pay CGT of more than â‚¬57 million relating to the proceeds received for the sale of loan notes in BT Hawthorn Limited in 2000, as well as other assets disposed of during the 2000/2001 tax year.
O'Brien appealed this assessment to the appeal commissioner who found in favour of the taxpayer, ruling that he did not have a permanent home available to him in Ireland in the tax year 2000/2001. Revenue subsequently requested the Appeal Commissioner to state a case for the opinion of the High Court.
The High Court was asked to determine whether having regard to the evidence given and the facts found, the appeal commissioner was correct in holding that O'Brien did not have a permanent home available to him in Ireland for the tax year 2000/2001 for the purposes of the DTA.
Permanent home available
The crux of the case turned on whether Mr O'Brien had a "permanent home available" to him in Ireland. This is considered in tie-breaker situations to determine which of the two contracting states the individual should be considered resident in for the purposes of the DTA.
Revenue argued that O'Brien had a permanent home available to him in Ireland and as such argued that the appeal commissioner should have gone on to consider the next rung of the test in article 4(2), that is, whether his personal and economic relations were closer to Ireland or Portugal.
As the concept of permanent home available is not defined in the DTA, the court heard differing interpretations of article 4(2), drawn from commentary surrounding this article, notably the OECD Commentary and Vogel on Double Taxation Conventions.
Decision of the court
The court stated that a residential property could not be a permanent home available to the individual without being occupied as this was at variance with OECD Commentary which sets out the requirement that the individual must have arranged and retained the accommodation for his permanent use.
The High Court also held that Revenue was incorrect in arguing that a home can be "available" without ever being actually availed of and that it is the availability of the premises, and its capacity to be used as a residence, which suffices to bring it within the concept of the permanent home available test. The High Court said that this ignored OECD Commentary and Vogel's analysis that it must be available "at all times continuously".
The High Court found that the appeal commissioner was correct in finding that:
The property was not O'Brien's home within the meaning of article 4(2)(a), because there was no element of personal link whatsoever between O'Brien and the accommodation.
Even if the property was O'Brien's home, it was not a permanent home within the meaning of article 4(2)(a). The facts as found by the appeal commissioner were contradictory to there having been any intention on O'Brien's part that the premises would be used, or kept available for his permanent use. And O'Brien did not regard the premises as suitable for his family, when they were acquired.
As a matter of fact, O'Brien had not arranged to have the property available to him at all times continuously and works had been commissioned which rendered the premises unavailable for residential use at any time from June 2000 to February 2002.
The High Court was satisfied that, in making the determination he made, the appeal commissioner did not adopt a wrong or mistaken view of the law, nor did he draw inferences which no reasonable appeal commissioner would arrive at.
Solicitors for Denis O'Brien: William Fry Solicitors; Solicitors for Revenue: Revenue Solicitors
Martin Phelan (firstname.lastname@example.org), William Fry Tax Advisors