Group of wealthy investors lose Revenue tax appeals case
A group of wealthy investors have failed in their legal challenge against Revenue’s refusal to allow them to write off losses of several million euro linked to a complex financial transaction.
The Tax Appeals Commission, or TAC, ruled that a scheme in which the 32 individuals invested large sums of money involving a British Virgin Islands-registered firm was specifically designed to generate losses to be written off against tax, rather than to make a profit.
The TAC said there was no commercial rationale for any financial transaction involving the scheme which was promoted by an unidentified firm of tax advisors in Ireland.
TAC Commissioner Lorna Gallagher said evidence by several investors that they were completely surprised by the tax advantage they enjoyed from the scheme was “entirely lacking in credibility”.
The appeal was taken by a group of investors who claimed that under the Taxes Consolidation Act 1997 losses they suffered on the scheme, were allowable trading losses that could be written off against tax. The TAC heard the investors were advised in advance of investing the scheme best suited higher-rate taxpayers with large incomes and capital gains to absorb any initial trading loss.
One of the transactions was the purchase of the right to receive a dividend from a company registered in the British Virgin Islands which was preceded by a significant new investment of capital by members of the scheme.
One investor -- a financial trader -- told the TAC that despite the mechanism of the scheme, the deduction of expenses and that the fact that his initial contribution would not be returned to him, he still expected to make a return on his capital contribution.
The TAC heard the witness had invested €20,000 of his own money and another €180,000 which was borrowed, which ultimately generated a profit of just over €238.
Under cross-examination, another investor, an accountant, claimed he was taken completely by surprise that he could claim losses of over €207,000 instead of €10,000 as a result of the performance of his investment.
“All of the objective facts point towards the transaction having been put in place for tax purposes to secure a tax advantage through generating a loss of the kind that was ultimately claimed in these appeals,” TAC ruled.
As a consequence, as Irish residents, they were liable for tax on foreign dividend income.
It is understood the group is considering an appeal to the High Court.
