The Revenue was not required to allow a man make a “qualifying disclosure” of his tax affairs in circumstances where it was already inquiring into his affairs as a result of broader Revenue investigations into a scheme involving the transfer of share rights in companies without payment of tax, the High Court has ruled.
A qualifying disclosure would have meant a 50 per cent reduction in penalties later paid by Gerard Gaffney, of Aulden Grange, Santry, Dublin, who, the Revenue claimed, could have disclosed his participation in a scheme concerning a transfer of €1.27 million share rights in a company to him before, at the time of, or even after filing his tax return but had chosen not to do so.
The background to Mr Gaffney’s action arose from wider Revenue investigations revealing extraction of “significant funds” from “a large number” of companies via transfer of share rights for the benefit of persons without payment of tax, Ms Justice Elizabeth Dunne noted.
That led to identification of the related beneficiaries and Mr Gaffney’s case and related transactions were identified as part of that process, she said.
The examination of those transactions gave rise to serious concern of non-compliance with tax obligations. Revenue notified Mr Gaffney on March 8th, 2011, of an investigation into his tax affairs for the years 2009 and after.
Tax scheme
Mr Gaffney had entered into a tax scheme involving his subscribing for 200 ordinary shares at €1 each in a company, Teamridge Ltd. A second company, Venture Construction Ltd, subscribed €1,275,000 for 100 shares at a premium of €12,749 per share. Mr Gaffney subsequently received €1,233,533 from Teamridge’s liquidation.
The Revenue claimed an important aspect of the scheme not mentioned by Mr Gaffney in his tax return was the transfer from Venture to him of all the rights attaching to its shares in Teamridge, leading to the full value of the shares passing to him.
After Mr Gaffney received the Revenue letter he was advised by his tax advisers to settle his tax affairs and paid the Revenue €366,705 made up of €308,040 capital gains tax (CGT), €27,861 in interest and €30,804 in penalties.
Calculation of penalties
In her judgment rejecting Mr Gaffney’s case yesterday, Ms Justice Dunne noted the case involved construction of the relevant provision of the tax Acts – section 1077E – dealing with calculation of penalties for deliberately or carelessly making incorrect returns of CGT, income, corporation and other taxes.
She rejected claims the Revenue acted unlawfully or unreasonably in refusing Mr Gaffney the option of making a “prompted qualifying disclosure” in relation to his tax liabilities after the Revenue investigation was begun.
A prompted qualifying disclosure can be made only between the date the Revenue notifies a taxpayer an investigation will start and the date it starts, she said. Such an inquiry related to any matter occasioning a liability to tax of that particular person, not a general investigation.
Where an investigation is broadly based in relation to a scheme in general terms, such as in this case, it is not possible to notify an individual of that fact, she said.
Mr Gaffney was not entitled to be notified in advance of the Revenue’s intention to pursue investigations into various tax schemes, following which the Revenue might decide to pursue individual taxpayers. This investigation had already begun when the Revenue, in its March 8th, 2011, letter, notified Mr Gaffney of it, so this was not a case where an investigation was to commence.
She also disagreed a Revenue audit does not involve an investigation or inquiry. There was no “disconnect” between Section 1077E and the code of practice for Revenue audits, she ruled.
