In a recent decision by the Tax Appeals Commission (the TAC), a taxpayer company (the Appellant), successfully appealed a €500 million plus1 stamp duty assessment made by the Revenue Commissioners. The assessment arose on foot of an acquisition made by the Appellant of an Irish domiciled company2 (the Target Company) with the consideration funded through cash and shares.

The determination is a comprehensive overview of the role of the TAC as an expert tribunal and its particular role in the area of EU law.

Outline of facts

The Appellant’s acquisition of the Target Company was structured through a scheme of arrangement. There are typically two types of schemes of arrangement utilised in Ireland. Under the first scheme, shares are simply transferred from a target company to an acquiring company. The second scheme is known as a cancellation scheme, whereby shares are cancelled in the target company in exchange for the acquiring company issuing new shares or providing cash consideration. Here, the Appellant used the latter scheme. The advantage of the second scheme over the first was that originally, no stamp duty was payable on the issue of any new shares by the Appellant.

On 8 October 2019, a 1 percent charge to stamp duty was introduced on the second scheme, in what was described as an anti-avoidance measure. This amendment potentially brought the Appellant’s scheme of arrangement within the charge to stamp duty. The Appellant filed a nil return for stamp duty together with an expression of doubt. The expression of doubt was rejected by the Revenue and a notice of assessment was made. The Appellant appealed to TAC.

Grounds of Appeal

The Appellant’s appeal was grounded on the following:

1. The assessment was excessive;
2. A nil liability to stamp duty should apply pursuant to section 31D of the Stamp Duties Consolidation Act 1999 (the SDCA) when the provision is interpreted in accordance with relevant EU law;
3. The assessment was unlawful, contrary to EU law and in breach of the prohibition against the imposition of “any form of indirect tax” on the restructuring operations of capital companies which is contained within EU Council Directive 2008/7/EC;
4. The assessment was in breach of the Revenue’s own EU law obligations to interpret domestic legislation in light of the wording and purpose of Council Directive 2008/7/EC;
5. The assessment unjustly interfered with the Appellant’s vested property rights under the Charter of Fundamental Rights of the European Union and the European Convention on Human Rights;
6. The assessment amounted to an unjust and unreasonable attack on the Appellant’s vested property rights under the Constitution of Ireland.

The Appellant also stated in respect of all of the above, and in particular grounds 5 and 6, the assessment purported to impose a stamp duty charge retrospectively on an agreement that was entered prior to the enactment of section 31D SDCA.3

The TAC’s jurisdiction to consider EU law

As a preliminary issue, Revenue argued that the TAC was not a national authority for the purposes of EU law and therefore did not have the jurisdiction to consider EU law (except where such a question of EU law was incidental to the question of quantification). Revenue argued that the principles of conforming interpretation in the context of EU law do not extend the principles of statutory interpretation or the jurisdiction of the TAC. Revenue submitted that the meaning of section 31D was clear and unambiguous and any other interpretation, i.e. whether or not section 31D was in conformity with EU law was outside of the TAC’s jurisdiction.

In addressing Revenue’s objection to jurisdiction, the Commissioner considered section 31D SDCA itself, the historical role of the TAC and its own evolution since the 19^th century in Ireland.

In considering the evolution and history of the TAC, the Commissioner cited the 2014 Budget and the revised role and reforms that were announced in that budget for TAC where one of the stated objectives for TAC were “to ensure an enhanced and cost effective appeal mechanism, which provided transparency and increased certainty for taxpayers”4 and to “enhance the independent status of the TAC while ensuring accountability, to make the system more transparent, and to make the process more efficient”5. The Commissioner cited the Revenue’s own public comments in support of the proposed changes announced in the 2014 Budget for TAC, where the TAC’s status as an “expert tribunal”6 was clearly accepted. The Commissioner therefore concluded that it would be “incongruous to establish an expert tribunal such as the TAC but then allow an appeal by way of a total rehearing, to a forum which does not profess to have the same expertise in tax matters”7.

In the course of the preliminary issue, Revenue conceded that the Commissioner could refer this appeal for a preliminary ruling to the CJEU but did not concede that the reference meant it had jurisdiction to determine the appeal. Accordingly, the Commissioner also considered whether TAC could make a reference for a preliminary ruling to the CJEU.

The reference procedure for preliminary rulings to the CJEU allows national courts or tribunals to ask questions on matters of EU law allowing the CJEU to provide guidance on legal matters under dispute in a member country, ensuring consistency in application of EU law throughout Member States. A preliminary ruling by the CJEU is binding on the court or tribunal seeking it. The fact that the predecessor to the TAC, the Appeal Commissioners, had previously made referrals for preliminary rulings to the CJEU and the Revenue had participated, was also considered by the Commissioner. The Commissioner, in dismissing Revenue’s argument, concluded that it follows that a court or tribunal that seeks a preliminary ruling must have jurisdiction to in fact give judgment on the matter.

The Commissioner noted that Revenue’s own website provides guidance on tax appeals and there was no reference to any limitation on TAC in its consideration of EU law. TAC routinely makes determinations on VAT matters, with the origination of VAT in Ireland emanating from its membership of the EU. Customs duties and tariffs are also dictated by EU law and are adjudicated on routinely by TAC. On these grounds, the Commissioner dismissed Revenue’s preliminary submission that it could not adjudicate on this matter in the first instance.

Application of EU Law

The Commissioner noted that both parties agreed that section 31D SDCA, as a matter of domestic law, was “not problematic as to its meaning”8 and that its meaning was “clear from the natural words contained within”9.

However, the appeal centred on the application of Directive 2008/07 to section 31D SDCA. Directive 2008/07 is known as the Capital Taxes Directive. Directive 2008/07 was a successor to Directive 69/335 which set out the agreement in the Member States to the charging of Capital Taxes. The initial objective of Directive 69/335 was to ensure that capital duty was to be charged only once and at the same amount in each Member State. The purpose was also to abolish stamp duty on securities. It is clear from Directive 2008/07 and its predecessor Directive 69/335 that the clear objective was to remove barriers for the free movement of capital within the EU.

Directive 2008/07 does not consider a “restructuring operation” to be capital contributions and is therefore not subject to stamp duty. Article 4 of Directive 2008/07 defines what a “restructuring operation” is. In particular, Article 4(1)(b) deals with acquisitions and related capital structures as contemplated by the Appellant in its acquisition of the Target Company. If the Commissioner found that the transaction fell within Article 4(1)(b) then Article 5(1)(e) of Directive 2008/07 would automatically apply, and no charge to stamp duty would arise.

An interesting element of Revenue’s submission was the claim that Directive 2008/07 applied to mergers and acquisitions between two capital companies both of whom needed to be within Member States. The Commissioner dismissed this contention stating there was no evidence that Directive 2008/07 had to apply to companies in Member States only and that the purpose of the abolition of capital taxes as contended within Directive 2008/07 was to promote investment within the European Union.

The Commissioner found that the acquisition by the Appellant of the Target Company came within the definition of “restructuring operation” under Article 4 of the Directive 2008/07 and as such, the transaction could not be subjected to stamp duty at any rate. The Commissioner was obliged to read domestic legislation, section 31D SDCA, in conformity with Directive 2008/07 and if this could not be done, the Commissioner was obliged to disapply the domestic provision. Accordingly, the Commissioner disapplied section 31D SDCA.

Directive 2008/07 had not been transposed into Irish law by the time the appeal was heard but the deadline for its transposition had long since passed. EU Directives become directly effective where a Member State fails to transpose a Directive within the prescribed timeframe or if a Member State fails to transpose a Directive correctly. With regards to Directive 2008/07, Ireland failed to transpose this Directive in time. Consequently the Commissioner found that it did have direct effect as it applied to this case. Therefore whether section 31D SDCA was applied retrospectively or not became moot, as the finding that section 31D SDCA disapplied on foot of Directive 2008/07 resulted in the overall stamp duty assessment being reduced to nil.

The Commissioner considered but dismissed the purported infringement of any constitutional property rights as conferred by the Irish Constitution, The European Convention on Human Rights or the European Charter.

Conclusion

The Revenue Commissioners have appealed the decision by way of case stated to the High Court. The Appellant has sought a judicial review of the notice of assessment raised by the Revenue Commissioners. This was reported to have been brought in the event that the High Court hearing the case stated found the TAC did not have jurisdiction to hear the appeal, and such an appeal should have been brought by way of judicial review.10

The Commissioner’s determination in this case is significant. It provides a comprehensive analysis of the role of the TAC as an expert tribunal and its particular role in the area of EU law.

Gráinne Duggan Barrister & Andrew Moran Barrister