The Revenue Commissioner has failed to convince the High Court that a Spanish infrastructure company should pay capital gains tax on profits from disposing of shares in the Eurolink consortium that built and operates the tolled M4/M6 Kinnegad-Kilcock motorway.
Revenue was appealing a finding by the Tax Appeals Commission (TAC) that Cintra Infraestructuras International SLU, a global transport infrastructure provider, did not need to pay a tax bill of €868,388.
Revenue had issued the demand based on an alleged chargeable gain of more than €2.6 million from Cintra’s sale in 2016 of its 66 per cent shareholding in the Eurolink consortium to a Dutch private market fund manager.
Eurolink was awarded a public-private partnership contract by the National Roads Authority in 2003 to design, build, operate, maintain and finance the 39km stretch of motorway traversing counties Meath and Kildare.
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The consortium provided €322 million in capital finance towards the estimated €550 million project cost in return for receiving the vast majority of toll revenue for the term of the contract, which is due to expire in 2033.
In a recent ruling, Ms Justice Nuala Butler held that the TAC had applied the correct legal principles in finding in Cintra’s favour.
She said Revenue’s appeal turned on whether the shares in the Irish firm derive their value from “land in the State”. Much of the argument at the trial, she said, centred on how Eurolink collects tolls from road users.
Liability to capital gains tax under section 29(2) of the Taxes Consolidation Act of 1997 for non-resident people or companies applies if the chargeable gains accrue on the disposal of “land in the State”, she said.
Revenue submitted that the word “land” in the 1997 Act includes rights in or over land, which in this case was the motorway.
It argued that the value from the contractual rights of access conferred on Eurolink under the 2003 contract with the National Roads Authority amount to a licence.
Eurolink’s shares, it said, got their value from the contractual entitlement to retain a portion of the tolls collected under the contract, which must be treated as a value deriving from land.
Cintra submitted that its access rights under the 2003 contract are provided only for the purposes of carrying out the development and operational project and do not grant any legal estate or other interest in the land. It pointed to the fundamental difference between a lease and a licence. Eurolink’s licence allows it to fulfil its contractual obligations without unlawfully trespassing, the court heard.
Mr Justice Butler concluded “with some hesitation” that Cintra’s arguments are correct. Although Revenue’s deceptively simple argument was attractive, if it was intended that the definition of land was to be extended “so radically and artificially by the inclusion of licences” that would need to be defined expressly in the legislation, she said.
As this has not occurred, she was satisfied the definition of land should not be altered or extended by including something that “does not logically or naturally or logically fall within its terms”.
She held that the TAC was correct in its findings.
