The High Court has upheld a Tax Appeals Commission (TAC) determination that Brendan Thornton was not trading in financial instruments through his participation in Liberty Syndicates 1 and 2. It also ruled that section 812 of the Taxes Consolidation Act 1997 deemed dividend income from the scheme to be that of the share owner, Candle Maze Limited, a British Virgin Islands company.
The appeal was brought by way of case stated under section 949AQ. Thornton was one of 32 people who had appealed amended tax assessments for 2009 and 2010 to the TAC. The High Court said its decision on his appeal would govern the appeals of those who proceeded to court.
Thornton claimed the syndicates’ purchase of dividend rights generated trading losses he could offset against other taxable income. The dividend payment was roughly equivalent to the purchase cost. He argued that section 812 deemed the dividend income to belong to the owner of the shares, rather than to him as recipient.
The TAC had found the syndicate participants were investors, not traders, and that the arrangements lacked a commercial rationale and were designed to generate tax losses. The High Court did not revisit the TAC’s underlying factual findings. It rejected the argument that considering a tax-advantage motive was legally impermissible outside the general anti-avoidance process under section 811. It held that motive was relevant among the factors used to assess whether the arrangements amounted to trade, and found no legal error in the TAC’s conclusion that they did not.
On section 812, the court disagreed with the TAC. It held that the provision applied to deem the dividend income to be Candle Maze’s income, even though the company was not chargeable to Irish tax on it. The court said this interpretation did not itself impose Irish tax on the BVI company. Because Thornton was found not to be trading, the section 812 ruling did not give him the tax benefit he sought; the judge described that issue as largely moot.
The court also upheld the TAC’s conclusion that Thornton’s expression of doubt in his 2009 tax return did not meet section 955’s requirement to specify the doubt. The return said he had been advised that a transaction treated as part of a Schedule D Case I trade could fall within section 812. The court accepted that a tax adviser’s doubt can be sufficient if brought to the taxpayer’s attention, but found the return did not explain the essential issues giving rise to the doubt. It was therefore unnecessary to decide whether the TAC was right that the doubt was not genuine and Thornton was acting to avoid tax.
The court answered the case-stated questions: I and II yes; III not necessary; IV no; V no in light of IV; VI yes; VII not necessary; and VIII yes. The judgment does not state a separate order for costs.