The Supreme Court has referred eight questions to the Court of Justice of the European Union in a dispute over €85,746 in VAT assessments on the sale of 15 holiday homes in Baltimore, County Cork. The referral seeks guidance on whether an EU principle against abusive tax practices could apply when the transactions, under the Irish VAT law then in force, did not give rise to the disputed tax liability.
The appeal was brought by Edward Cussens, John Jennings and Vincent Kingston against T. G. Brosnan, an Inspector of Taxes. The Revenue Commissioners were the real respondent. The dispute concerns assessments raised in August 2004 for VAT periods from January 2002 to June 2004. After crediting €40,000 already paid on an initial lease, the Commissioners claimed a further €85,746 was due on the property sales.
The three appellants had developed 15 homes on a site they jointly owned. In March 2002 they leased the properties for just over 20 years to Shamrock Estates Limited, a company associated with them, then took a two-year leaseback. Both leases were surrendered by mutual agreement in April. The homes were later sold freehold to purchasers for a combined total of about €3 million. The judgment says the appellants acknowledged entering the arrangements on tax advisers’ advice to reduce VAT on the sales.
Applying the VAT Act provisions as they stood in 2002, the initial lease was treated as a taxable supply and €40,000 VAT was paid. The later property sales were exempt under section 4(9), read with section 4(6). The Commissioners nevertheless assessed additional VAT, arguing that the lease and leaseback were artificial arrangements without commercial reality, created to make the later sales appear exempt. They said the arrangements should be disregarded under the EU abuse-of-rights principle recognised in the 2006 Halifax judgment.
The Circuit Court dismissed the appellants’ appeal and found that neither lease had commercial reality and that the arrangements were entered into to reduce VAT. The High Court later upheld the assessments, finding the arrangements abusive and that national legislation was not needed to apply the EU principle. The appellants appealed to the Supreme Court.
The Supreme Court’s decision is a reference for a preliminary ruling, not a ruling on whether the assessments are valid. It said it was bound by the Circuit Court’s finding about the transactions’ commercial reality. Its questions ask whether the abuse principle could impose liability without a national measure, whether it was sufficiently clear to apply to transactions completed before Halifax, and how any resulting tax liability could be assessed and collected. The court also asked how to assess the purpose of the transactions and whether section 4(9) was compatible with the EU directive.
The judgment records that the Commissioners made no allegation of fraud. It does not resolve the appeal; the EU court was asked to provide guidance on the questions referred.