A bank that liquidated an Irish borrower’s €12m share investment in a French firm to enforce debt obligations must pay the capital gains tax due on the share sale, not the borrower, the Tax Appeals Commission has ruled.
either the individual nor the bank are named in the determination.
The Irish resident had been hit with a €1.6m capital gains tax demand by the Revenue Commissioners.
The Tax Appeals Commission heard that the Irish resident borrowed €4.3m from the Irish unit of a French bank in October 2007 to buy shares in a rights issue by a French firm listed on the stock market. As security, the bank took a charge over 155,000 shares owned by the Irish resident.
In May 2008, an additional €7.7m loan agreement with the Irish unit of the French bank was secured by the Irish resident, of which €7.4m was drawn down. The bank took a charge over more than 366,000 shares owned by the Irish resident in the French firm as security for that loan.
But between October 2008 and 2011, the bank undertook forced sales of the borrower's shares in the listed firm. The proceeds were used to repay the loans the borrower had with the bank.
The Irish resident’s tax agent was not aware of the circumstances of the enforcement of the bank’s security in 2008 and 2010, but a total of just over €196,000 was paid in capital gains tax in respect of the share sales.
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In 2015, the tax agent wrote to the Revenue Commissioners, reminding them that under the Taxes Consolidation Act (TCA), capital gains tax on the forced sales of the shares should be assessed on and collected from the bank. The agent also sought a refund of the capital gains tax that had been paid by their client in respect of the share sales.
The Revenue Commissioners disagreed with that position and issued amended notices of assessments for capital gains tax, which were the subject of the appeal.
The Irish resident maintained that the TCA placed an onus on the bank as the “accountable person” to discharge the capital gains tax arising on those disposals while the Revenue Commissioners was of the view that the resident, as the chargeable person, was accountable for the capital gains tax on the forced sale.
The Commission noted that unlike provisions in the Capital Acquisitions Tax Consolidation Act, there is “no provision” in the Taxes Consolidation Act “or indeed any other legislative provision” opened by the Revenue Commissioners that permits the Irish resident in the case to be pursued for a secondary liability to the capital gains tax on the forced sale of the shares.
The Tax Appeals Commission found in favour of the Irish resident, noting that the amended and disputed assessments raised against them “should be reduced to nil”.
However, the Commission noted that it is a decision for the bank whether it intends to pursue the Irish resident for the reimbursement of the so-called “referrable capital gains tax” in the case in accordance with the contractual undertakings specified in the pledge agreements.
“The Tax Appeals Commission has been requested to state and sign a case for the opinion of the High Court in respect of this determination,” it noted.