The High Court has overturned a Tax Appeals Commissioner’s ruling that a €6,043,555 loan release to Arlum Limited should be treated as a taxable trade receipt.
In a judgment delivered on 3 July 2024, Mr Justice Oisín Quinn answered “No” to both questions of law referred to the court in a Case Stated appeal. He held that writing down the value of land bought with a loan, and carrying forward losses arising from those write-downs, did not mean the company had been allowed a tax deduction for the debt under section 87(1) of the Taxes Consolidation Act 1997.
Arlum borrowed €9.5 million in 2006 to buy a site of just under 23 acres near Tuam, County Galway, for a planned residential development. The project did not proceed after the financial crisis. By 2016, more than €6 million remained due to the bank. After a failed auction, the company paid €250,000; the bank released its security and waived the remaining €6,043,555.
From 2010, Arlum had written down the land’s value as property prices fell. The judgment records that the accounting treatment was accepted as proper and that the resulting losses were carried forward. The loan balance was reduced through payments funded principally by sales from another development, not through the land write-downs.
The company did not include the debt release as taxable income in its 2016 corporation tax return. Revenue later determined that it was taxable, a position upheld by the Tax Appeals Commissioner in May 2023. The company argued that section 87(1) applied only where a deduction had previously been allowed for the debt itself, not where an asset purchased with borrowed money had lost value.
Mr Justice Quinn said the land and the debt were legally separate. He found that the company had not claimed, and had not been allowed, a deduction for the loan. Treating the land write-down as a deduction for the debt would stretch the statutory wording and create uncertainty in other lending arrangements, he said.
Revenue also argued that the release was taxable under section 76A(1), which concerns the accounting basis for computing company profits. The judge held that this point fell outside the Case Stated because it had not been decided by the Tax Appeals Commissioner or addressed in the stated questions. He added that, even if the court had jurisdiction to consider it, the argument was incorrect: section 76A(1) was not itself a charging provision, and the agreed accounts treated the release as a credit below the gross profit line rather than trading profit.
The court therefore reversed the Tax Appeals Commissioner’s determination on the section 87(1) issue. The judgment’s answers establish that, on the facts and legal questions before it, the land write-downs did not trigger taxation of the released loan as a trade receipt.