Four shareholders of a liquidated company must now pay a combined income tax bill of €1.56 million.
This follows the four losing at the Tax Appeals Commission (TAC) an 11-year long tax battle with Revenue Commissioners concerning a €7.59 million payout arising from the voluntary liquidation of the company.
Arising from the payout in February 2008, three of the four each had €2.449 million transferred to their AIB bank accounts from the liquidator’s account with the fourth shareholder receiving €244,966.
The four received the pay-out after the company was placed into voluntary liquidation on December 21st, 2007.
The voluntary winding-up came nine days after the company passed a special resolution on December 12th giving the four ‘A’ ordinary shareholders the right that in the event of a winding up, any remaining surplus of assets was to be distributed to them.
The transfer of the shareholders’ share rights was the focus of Revenue’s investigation which commenced in 2011 with Revenue stating that the transfer was chargeable to income tax under Section 130 of the Tax Consolidation Act.
The four contended that no income tax liability arose from the €7.59 million capital distribution.
However, the TAC has upheld the €1.56 million income tax assessment issued by Revenue in December 2012 with three of the four parties each now left with a €499,993 income tax bill.
Commissioner, Claire Millrine found that the provisions of a Revenue anti-tax avoidance measure, Section 130 of the Tax Consolidation Act 1997 applied to the transfer of the share rights from the shareholder to the “A” ordinary shareholders.
The 40 page TAC report states that Section 130 is in part an anti-avoidance provision against attempts to withdraw funds from a company otherwise than through its share capital or securities.
Section 130 treats a transfer of an asset from a company to its members to be a distribution for income tax purposes.
The four argued that the provisions of Section 130 did not apply as it was a liquidation case.
However, Ms Millrine stated that the taxable event was not the €7.59 million distribution made in the winding up, but rather the earlier transfer of share rights from the holder of the ordinary shares to the “A” ordinary shareholders.
Ms Millrine found that the transfer of share rights constituted a transfer of assets.
Ms Millrine stated that she appreciates the decision “will be disappointing for the Appellants”.
The ruling added: “However, the Commissioner is charged with ensuring that the Appellants pay the correct tax.”
The ruling confirms that the TAC has been requested to state and sign a case for the opinion of the High Court in respect of its determination.
