Public Private Partnership Contracts – Tax Appeals Commissioner's Recent Determination Provides Clarity For Foreign Shareholders

What was this tax dispute about?

The crux of this tax appeal concerned whether an EU company (ForeignCo) was within the charge to Irish capital gains tax (CGT) on the disposal of shares in an Irish company (IrishCo).  A non-Irish company is only within the charge to CGT on the sale of shares if the shares sold derive their value, or the greater part of their value, directly or indirectly from "land in the State".

ForeignCo, an EU incorporated and tax resident company, entered into a contract for the sale of shares in IrishCo, an Irish-resident company which designs, builds and operates toll booths on Irish motorways (Motorway) on behalf of the National Road Authority (NRA).  One of the completion deliverables included in the sale contract was that ForeignCo had to provide a CGT clearance certificate (Form CG50A) or a letter from Revenue confirming that a Form CG50A was not required concerning the sale of the shares. Prior to completion, Revenue contended that ForeignCo's proposed disposal of the IrishCo shares would be subject to CGT.  IrishCo's shares were sold and Revenue assessed ForeignCo to CGT on the chargeable gain. 

What were the main issues?

The Appeal Commissioner highlighted four key issues for consideration in determining the tax appeal:

The correct interpretation of the phrase 'land in the State' for the purposes of section 29(3)(a) of the Taxes Consolidation Act 1997 (TCA).

Did IrishCo have an interest in the land under and adjacent to the Motorway?

Did IrishCo's interest, if any, in the Motorway constitute 'land in the State' for the purposes of section 29(3)(a) TCA? and

Did IrishCo's shares derive their value from land in the State?


Revenue took a broad interpretation of what constituted land in the State and whether shares derived their value indirectly from Irish land.  In a considered determination running to 82 pages, the Appeal Commissioner found that Revenue's interpretation was "overly-broad" and was not prepared to stretch the meaning of these concepts. Whether acting for a foreign seller or a foreign purchaser of shares, this case highlights the importance of giving early consideration to whether shares derive their value, or the greater part of their value, directly or indirectly from Irish land. 

This is not the end of the matter as Revenue has sought to appeal the determination on a point of law to the High Court.  We will keep you apprised of developments.