Cintra Infraestructuras v Revenue Commissioners

• Jurisdiction: Ireland
• Judge: Mr. Justice Twomey
• Judgment Date: 20 June 2016
• Neutral Citation: [2016] IEHC 349
• Docket Number: [2015 No. 697 JR]
• Court: High Court
• Date: 20 June 2016

BETWEEN:

CINTRA INFRAESTRUCTURAS INTERNACIONAL SLU

APPLICANT

-AND-

THE REVENUE COMMISSIONERS

RESPONDENT

[2016] IEHC 349

[2015 No. 697 JR]

THE HIGH COURT

JUDICIAL REVIEW

COMMERCIAL

Revenue – The Tax Consolidation Act, 1997 – Whether informal letters of the Revenue Commissioner would bind taxpayer – Judicial review – Certiorari – Legally sterile actions

Facts: The applicant being a non-resident taxpayer sought an order of certiorari for the quashing of the two letters sent to the applicant by the respondent informing that the applicant was not exempted from capital gains tax on the sale of an asset. The issue that arose was whether the opinion of the respondent contained in the letters was justiciable. The applicant contended that even if the letters had become legally sterile, they would still be subject to judicial review as the consequence of those letters would be to impose tax liability on the applicant, against which a legally enforceable right would ensue.

Mr. Justice Twomey refused to grant an order of certiorari to the applicant. The Court held that the letters sent by the respondent merely reflected an opinion for the purpose of ascertaining the correct amount of tax by the tax payer and thus, they were non-binding. The Court held that legally sterile action could be subject to judicial review but only if the probable consequences of those actions would result in a legally enforceable right. The Court found that even after the issuance of those letters, there had been no change in the legal position of the applicant as imposition of tax liability was consequent upon the fulfilment of the conditions precedent for the sales of shares and not the issuance of letters. The Court, however, cautioned about the wide implications that could emerge from its ruling as in future, it might be that the Revenue would cease to issue letters fearing that such letters would be subject to judicial review.

JUDGMENT of Mr. Justice Twomey delivered on the 20th day of June, 2016

Introduction

1 One of the key issues in this case is whether two letters, from the Revenue Commissioners to a taxpayer, in which the Revenue disagree with the taxpayer's interpretation of tax legislation, and thereby refuses to give the taxpayer confirmation that it is exempt from capital gains tax on the sale of an asset, are subject to judicial review. As a result of the interpretation in question, the taxpayer says that it is an inevitable next step of these letters that the Revenue Commissioners will make a determination that capital gains tax is owed by the taxpayer. On this basis, inter alia, the applicant seeks an order of certiorari from this Court quashing the letters in question. Accordingly, an issue for this Court to resolve is whether letters of opinion from the Revenue to a taxpayer in this these circumstances are subject to judicial review.

Background to proceedings

2 This case involves an application by Cintra Infraestructuras Internacional Slu ('Cintra'), a company which is incorporated and tax resident in Spain, for an order of certiorari of, what it says is, a decision contained in two letters to its solicitors, from the Revenue Commissioners dated 15th September, 2015 and 19th October, 2015.

3 Cintra sold its shares in Eurolink Motorway Operation Limited ('Eurolink'), which is incorporated and tax resident in Ireland, on the 25th February, 2016. Cintra is also seeking a declaration that the sale of these shares is not subject to capital gains tax as the shares do not derive their value or the greater part of their value directly or indirectly from land in the State.

4 Additionally, Cintra seeks an order for the repayment by the Revenue to Cintra of withholding tax in the sum of €1,384,365, paid by the purchaser of those shares in Eurolink. From Cintra's perspective, the case centres around the issue of whether Cintra's shares in Eurolink derived their value from land in the State and in particular whether the term "land", as used in s. 980 of the Taxes Consolidation Act, 1997 (the '1997 Act') is restricted to proprietary interests in land or whether it includes non-proprietary interests such as a licence to access land or other rights over land. This is because in this case the Revenue accept that Eurolink did not have any proprietary rights over the land in the State which it used for its business. However, Eurolink did have rights of access and other non-proprietary rights over land based in the State. The Revenue claims that these non-proprietary rights of Eurolink are sufficient for it to be said that shares in Eurolink constitute shares which derive their value directly or indirectly from land in the State.

5 On the 14th December, 2015, Humphreys J. granted Cintra leave to bring these judicial review proceedings and on the 11th January, 2016, McGovern J. admitted the proceedings into the Commercial List.

Relevant facts for this application

6 On the 24th March, 2013, the company in which Cintra was a shareholder, Eurolink, entered into a public private partnership ('PPP Contract') with the National Roads Authority, which is now known as Transport Infrastructure Ireland ('TII'). Under the terms of this contract, Eurolink agreed to design, construct, operate, maintain and finance the M4/M6 Kinnegad to Kilcock Motorway (the 'Motorway'). Under the PPP Contract, Eurolink has the right to collect tolls and retain the vast majority of the tolls for the duration of the 30 year contract. In these proceedings, Cintra has described Eurolink's role as providing financing for the Motorway. This is because it provided €322 million in capital to finance the construction of the roads and in return it receives, inter alia, the vast majority of the tolls over a 30 year period. As part of its rights under the PPP Contract, Eurolink has been granted by TII, the owner of the roads, a licence to access the roads in order to perform its toll collection, maintenance and other obligations under the TII Contract.

7 Since Eurolink has the right to retain the majority of tolls collected on the Motorway for the duration of the 30 year term, the shares which Cintra sold in Eurolink are of some considerable value. A contract for the sale by Cintra to DIF Infra M4 Ireland Limited ('DIF') of 45.99% of the issued share capital in Eurolink was signed on 14th Sepember, 2015, and the purchase price under that contract was €9,229,100. It is the withholding tax on that consideration, in respect of possible capital gains tax payable on the sale of those shares by Cintra, which is the subject of the dispute between the parties in these proceedings.

8 One of the conditions in the contract for the completion of the sale of the shares was the provision by Cintra to DIF of a completed Form CG50A or a letter from the Revenue confirming that the CG50A form was not required. This condition relates to capital gains tax that is payable on the sale of certain assets. In summary, in order to facilitate the collection of capital gains tax on the sale of certain assets for a consideration of €500,000 or more, the 1997 Act obliges the purchaser of certain assets to withhold 15% of the purchase price of the asset and remit this 15% (known as "withholding tax") to the Revenue. This sum is then used by the Revenue to offset the capital gains tax, if any, that is payable by the seller of the asset. In this context, a Form CG50A is a certificate to the effect that no deduction need be made by the purchaser. In this case, a Form CG50A, or a confirmation that the Form CG50A is not required, would enable DIF to pay the full consideration of €9,229,100 to Cintra without the deduction of 15% withholding tax of €1,384,365.

9 It is for this reason that on the 25th August, 2015, which was before the date of the signing of the contract for the sale of shares by Cintra and DIF (which was the 14th September, 2015), the solicitors to Cintra (William Fry) wrote to the Revenue requesting, instead of a Form CG50A, a confirmation from the Revenue that capital gains tax was not payable by Cintra on the grounds that the shares in Eurolink did not derive their value from land in the State.

Relevant statutory provisions

Sections 29 and 980 of the 1997 Act

10 It is relevant to set out, at this stage, some of the statutory provisions which are applicable to this case. Section 29(3) of the 1997 Act establishes the obligation of a non-resident taxpayer, such as Cintra, to pay capital gains tax:-

'Subject to any exceptions in the Capital Gains Tax Acts, a person who is neither resident or ordinarily resident in the State shall be chargeable to capital gains tax for a year of assessment in respect of the gains accruing to such person in that year on the disposal of –

(a) land in the State ...'

Section 29(1) establishes that s. 29 applies not just to disposals of land, but also to shares which derive their value from land:-

'In this section –

[...] references to the disposal of assets mentioned in paragraphs (a) and (b) of subsection (3) and in subsection (6) include references to the disposal of shares deriving their value or the greater part of their value directly or indirectly from those assets, ( emphasis added) other than shares quoted on a stock exchange. [...]'

The statutory provisions dealing with the retention of the withholding tax by the purchaser from the purchase price, its remittal to the Revenue and the fact that a purchaser who has been provided with a certificate i.e. a Form CG50A, does not have to deduct withholding tax are dealt with in s. 980, the relevant provisions being:-

''(2) This section shall apply to assets that are—

[...]

(d) shares in a company deriving their value or the greater part of their value directly or indirectly from assets specified in paragraph (a), (b) or (c), other than shares quoted on a stock...