The High Court has ruled that Revenue must pursue a bank for capital gains tax arising from its forced sale of a taxpayer’s shares held as security for loans. The court upheld an Appeal Commissioner’s determination that the tax could not be assessed on or recovered from the taxpayer for those disposals.
The judgment, delivered by Ms Justice Butler on 10 October 2022, concerned an appeal by way of case stated. Revenue asked the High Court to consider whether section 571 of the Taxes Consolidation Act 1997 gave it a choice between recovering the tax from the bank and pursuing the taxpayer directly.
The taxpayer borrowed approximately €7.4 million from Société Générale to buy shares in the French company Veolia. After he fell into arrears, the bank enforced its security and sold shares in 2008, 2010 and 2011. The sales generated capital gains tax liabilities. The taxpayer had paid some tax on the 2008 and 2010 disposals, but the amounts were lower than the tax Revenue later calculated was due. Revenue retained those payments and issued amended assessments in 2016. The bank had not withheld or paid tax from the sale proceeds, and Revenue had not sought to recover the tax from it.
The Appeal Commissioner reduced the amended assessments on the taxpayer to nil, finding that section 571 required the tax to be assessed on and recovered from the bank as the “accountable person”. Revenue appealed that determination to the High Court.
Revenue argued that the taxpayer remained liable under the general assessment and recovery provisions of the Act if the tax was not collected from the bank. The taxpayer accepted that he remained the person chargeable to tax and that his circumstances determined the amount due, but argued that section 571 shifted formal assessment and recovery to the bank.
Justice Butler concluded that section 571 created a mandatory recovery mechanism for these circumstances. The tax remained calculated by reference to the taxpayer’s gains and circumstances, but the accountable person became the person to be assessed and from whom recovery could be made. The section did not give Revenue discretion to choose between pursuing the bank and the taxpayer.
The court answered the questions of law in favour of the Appeal Commissioner and said he had not erred in his interpretation of sections 537 and 571 or in applying section 571(9). It also answered “No” to the broader question of whether he erred in finding that the taxpayer was not liable to capital gains tax on the relevant disposals. The ruling concerns the identity of the person from whom the tax could be recovered; the judgment did not determine any issue about the bank’s liability in separate proceedings.