The High Court has found that the Tax Appeals Commissioner made material legal errors in ruling that financial transactions entered into by John Hegarty, David Geary and Martin Ward amounted to tax avoidance.
The dispute concerned transactions carried out in 2007 and 2008 involving government gilts and foreign exchange contracts for difference. The taxpayers claimed that gains on the gilts were exempt from Capital Gains Tax under section 607 of the Taxes Consolidation Act 1997, while losses on the foreign exchange contracts could be offset against other capital gains.
Revenue disagreed and issued opinions treating the arrangements as tax avoidance transactions under section 811. The Tax Appeals Commissioner upheld Revenue’s position in February 2023, finding that the transactions had been arranged primarily to secure a tax advantage and involved a misuse of the CGT loss provisions.
Mr Justice Oisín Quinn has now held that the Commissioner’s reasoning contained a series of legal errors.
The court found that the Commissioner had misinterpreted expert evidence concerning whether the transactions could operate as hedges against each other. Revenue’s own expert had accepted in cross-examination that one transaction could be regarded as hedging the other, but the determination recorded that he had been unwilling to accept that proposition.
The High Court also found that the Commissioner wrongly treated the taxpayers as bearing a positive obligation to prove that the relevant tax provisions had not been misused. The judge held that determining the purpose and meaning of those provisions was a legal task for the decision-maker.
The court further held that sections 31 and 607 had not been properly analysed before the Commissioner concluded they had been abused or misused. It stressed that the judgment does not decide whether the transactions were, in fact, tax avoidance arrangements; it decides that the Commissioner’s existing determination cannot stand because its reasoning was legally flawed.
The High Court upheld one part of the determination concerning adviser fees, finding that the taxpayers had not shown the necessary connection between those fees and the transactions. Final orders and costs were left for further submissions.