The High Court ruled that the Ireland–Italy double taxation convention applies to Irish capital gains tax (CGT), and that its 91-day residency test uses Ireland’s midnight rule. The judgment resolved two questions of legal interpretation in a dispute brought by Lorraine Kinsella against the Revenue Commissioners. It did not determine whether she owed Irish CGT on the share sale at issue.
The case concerned a 2003 transaction involving Ryanair Holdings shares. Kinsella bought shares from her husband, Shane Ryan, for more than €18 million, funded by a loan secured on the shares, and later sold them to a third party for more than €19 million. She reported a gain of €314,638 in Italy and paid less than €40,000 in Italian tax. Her Irish tax return claimed Italian residence for treaty purposes and included an expression of doubt. The Revenue had deferred deciding whether to assess Irish CGT pending the court action.
Justice Kelly first considered whether the convention, signed in 1971, covered CGT, which Ireland introduced in 1975. He held that it did. He relied on the treaty’s provisions covering taxes on income, including taxes on gains from the sale of property, and its provision extending coverage to later taxes that were identical or substantially similar to existing taxes. The judge concluded CGT fell within the treaty’s terms.
The second question was how to count days spent in Ireland under the treaty’s 91-day test for a person resident in both countries. Kinsella argued for the domestic “midnight test”: a person is present for a day only if physically in Ireland at the end of that day. The Revenue disputed that interpretation. The judgment said that under the alternative approach, counting any part of a day, Kinsella would have exceeded 91 days in Ireland; under the midnight test, she contended she had not.
The judge held that the treaty’s undefined terms should be read according to Irish tax law when Ireland applies the convention. He declared that the test in section 819(4) of the Taxes Consolidation Act 1997 governs, so presence is counted when a person is in the State at the end of the day.
The court made declarations on those two interpretive issues only. It did not decide whether Kinsella met the factual residence or day-count requirements, whether the transaction was effective to avoid Irish CGT, or whether the Revenue should issue an assessment. It also did not decide her claim of legitimate expectation. The Revenue remained free to take any further steps, subject to the court’s rulings and the statutory process for challenging any assessment.