Ex-Smurfit Kappa chief sues Revenue after €2.3m ‘gift’ dispute

Former Smurfit Kappa chief executive Gary McGann has filed a court case against Revenue, a month after the businessman lost an appeal against the tax treatment of €2.3 million of payments which he asserted were a gift from the cardboard-box maker's one-time private-equity owners.

Mr McGann's case was registered with the High Court on Friday, and he is being represented by law firm Arthur Cox, according to court filings.

Efforts to secure comment from Mr McGann, who led Smurfit Kappa between 2002 and his retirement in 2015, and Arthur Cox on the exact nature of the lawsuit were unsuccessful.

Mr McGann is chairman of baked goods group Aryzta, and of Flutter Entertainment, which was formed from the 2016 merger between bookmakers Paddy Power and Betfair.

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Ruling

The Tax Appeals Commission ruled early last month that Mr McGann had failed to discharge the burden of proof that Revenue had wrongly assessed that the €2.3 million of payments – made in 2011 as a result of his employment with Smurfit Kappa – as liable for income tax. The published version on the ruling on the TCA website did not name Mr McGann.

About €1.07 million of the money came from Chicago-based private-equity giant Madison Dearborn Partners, which had bought control of the then Jefferson Smurfit Group (JSG) in 2002. The remaining €1.22 million came from a vehicle controlled by European private-equity companies CVC and Cinven, who owned Dutch-based Kappa Packaging before its 2005 merger with JSG to create Smurfit Kappa.

Smurfit Kappa floated on the stock market in early 2007, though the global financial crash forced the three private-equity firms to delay the planned sale of their investments until the share price had recovered in 2011. Their remaining holdings were sold by 2013.

A total of €5.8 million was paid out to Mr McGann and three other executives at the paper packaging group, on foot of a profit of $350 million (€317.4 million) that was made by the private-equity investors, according to the TCA ruling.

While TCA commissioner Lorna Gallagher said she was satisfied that Mr McGann's payments were for his "exceptional services", it was not possible to separate his "individual excellence from his role as CEO in circumstances where the manner of demonstrating his excellence was by being CEO, by acting as CEO and by delivering exceptional results as CEO".