Cintra Infraestructureas Internacional SLU v The Revenue Commissioners

• Jurisdiction: Ireland
• Judge: Ms. Justice Butler
• Judgment Date: 14 February 2023
• Neutral Citation: [2023] IEHC 72
• Court: High Court
• Docket Number: Record No. 2021/33 R

Between

Cintra Infraestructureas Internacional SLU

Appellant

and

The Revenue Commissioners

Respondent

[2023] IEHC 72

Record No. 2021/33 R

THE HIGH COURT

Case stated – Statutory interpretation – Taxes Consolidation Act 1997 s. 29(3) – Respondent requesting that the Appeal Commissioner state a case for the opinion of the High Court – What is the meaning of the phrase “land in the State” in s. 29(3)(a) of the Taxes Consolidation Act 1997?

Facts: The appellant, Cintra Infraestructureas Internacional SLU (Cintra), until 2016, was the majority shareholder in Eurolink Motorway Operations Ltd (Eurolink). In 2003, Eurolink entered into a PPP Contract (Public-Private Partnership) with the National Roads Authority (NRA) in respect of a project which comprised the design, construction, operation, maintenance and finance of a road scheme known as the M4/M6 Kinnegad to Kilcock motorway. Prior to the sale of Cintra’s shares in Eurolink, the intending purchaser sought a CG50 from Cintra. In the course of an exchange of correspondence, the respondent, the Revenue Commissioners (Revenue), refused to provide the requested CG50 on the basis of its view that the transaction was subject to capital gains tax (CGT). This led to litigation between the parties. Although Cintra sought a declaration that the sale of the shares was not subject to CGT, the judicial review proceedings were disposed of on a narrower ground, namely, that the letters in which the opinion of Revenue as to the liability of the transaction to CGT was set out were non-binding and, thus, not judiciable: [2016] IEHC 349. On 11th October, 2016, Revenue served a notice of assessment to CGT on Cintra in an amount of just over €868,000 reflecting an alleged chargeable gain of €2.6m on the sale of the shares. On 7th November, 2016, Cintra appealed against that assessment. The Appeal Commissioner delivered his determination on 18th February, 2021 in which he found that Cintra did not come within the charge to Irish CGT and, therefore, allowed the appeal. Revenue then requested that the Appeal Commissioner state a case for the opinion of the High Court under s. 949AQ of the Taxes Consolidation Act 1997 (TCA 1997) which he duly did on 8th July, 2021.

The Appeal Commissioner posed the following questions for the opinion of the High Court: “(i) Was I correct in finding or inferring that a proprietary interest in land was necessary for non-residents to be charged to tax pursuant to s. 29(3) of TCA 1997? (ii) Was I correct in finding that when construing the word “land” for the purposes of s. 29(3)(a), I should confine myself to considering the meaning given to that word by s. 5 of the TCA 1997? (iii) Was I correct in finding that “land” for the purposes of s. 29(3)(a) means a freehold or leasehold estate in land or one of the lesser interests in land formerly recognised by the common law and now codified in s. 11(4) of [the Land and Conveyancing Law Reform Act 2009]? (iv) Was I correct in finding that Eurolink had a limited and non-exclusive contractual licence to use the lands under and adjacent to the motorway? (v) Was I correct in finding that the PPP Contract between the NRA and Eurolink did not confer or grant to Eurolink estate in land and was not an interest in land? (vi) Was I correct in finding that the value of the Eurolink shares sold by the appellant derived their value with a greater part thereof from Eurolink’s rights under the PPP Contract between the NRA and Eurolink, and not directly or indirectly from land in the State?”

Butler J held that the answer to each question posed in the case stated was “Yes” and that the appeal should be dismissed.

Appeal dismissed.

Judgment of Ms. Justice Butler delivered the 14 ^th day of February 2023

Introduction

1 . This is an appeal by way of case stated under s. 949AQ of the Taxes Consolidation Act, 1997 (“ TCA 1997”) which raises a net issue of statutory interpretation, namely what is the meaning of the phrase “ land in the State” in s. 29(3)(a) of the TCA 1997. This issue arises in the context of the disputed liability of a non-resident company to pay capital gains tax (also “CGT”) on profits accruing on the disposal of shares in another, Irish, company. That liability in turn depends on whether the shares in the Irish company derive their value from “ land in the State”. The Appeal Commissioner held that they did not as the Irish company did not have an estate or proprietorial interest in the land in question.

2 . The respondent succeeded in its appeal before the Appeal Commissioner such that the Revenue is now the appellant before the High Court. As the identity of the appellant has switched as between the two, for ease of reference I shall refer to the parties as “Cintra” and “Revenue”.

Factual Background

3 . Cintra is a company incorporated in Spain and resident in that jurisdiction for tax purposes. Until 2016 it was the majority shareholder in an Irish company, Eurolink Motorway Operations Limited (“Eurolink”). In 2003 Eurolink entered into what is commonly known as a PPP Contract (Public-Private Partnership) with the National Roads Authority (“NRA”) in respect of a project which comprised the design, construction, operation, maintenance and finance of a road scheme known as the M4/M6 Kinnegad to Kilcock motorway (“the Project”). Since the contract was entered into, the NRA was merged with the Railway Procurement Agency in 2015 to become Transport Infrastructure Ireland (“TII”) and I shall refer to both the NRA and TII interchangeably depending on the timeframe under discussion.

4 . Public-private partnership agreements of this type facilitate the construction of public infrastructure through a significant element of private financial investment. Generally, PPP agreements provided a number of mechanisms through which the private partner, in this case Eurolink, will recoup its investment and make a profit. Most significantly here the road was subject to a toll scheme under s. 63 of the Roads Act, 1993 and the PPP contract provided that Eurolink was entitled to retain a significant proportion of the toll charges which it would collect on behalf of NRA/TII over the 30 year duration of the contract. I will look in more detail at some of the provisions of the PPP contract in due course. What is important at present is the broad contractual scheme under which Eurolink built the motorway on behalf of NRA/TII and, then, when the motorway was open to the public, was obliged to collect the tolls which NRA/TII is entitled to charge, retains a portion of the amount collected and remits the remainder to TII. Ownership of the road and of the land on which it is built remains vested in TII and under the PPP contract Eurolink was granted rights of access “ for the purposes of carrying out the project.” Given that the road is now constructed, the continuing access is for the purpose of Eurolink performing toll collection, maintenance and other obligations under the PPP contract.

5 . Under s. 980 of the TCA 1997 the purchaser of an asset the disposal of which gives rise to a liability to capital gains tax is obliged to deduct withholding tax in an amount of 15% of the purchase price and to pay this sum to the Revenue Commissioners. However, if a Revenue Inspector is satisfied that no CGT is in fact payable in respect of the disposal a certificate, known as a CG50, is issued by him with the effect that withholding tax does not have to be deducted by the purchaser from the proceeds of sale. Prior to the sale of Cintra's shares in Eurolink, the intending purchaser sought a CG50 from Cintra. In the course of an exchange of correspondence, Revenue refused to provide the requested CG50 on the basis of its view that the transaction was subject to capital gains tax. This led to earlier litigation between the same parties. Although Cintra sought a declaration that the sale of the shares was not subject to capital gains tax, the judicial review proceedings were disposed of on a narrower ground, namely, that the letters in which the opinion of Revenue as to the liability of the transaction to capital gains tax was set out were non-binding and, thus, not judiciable (see judgment of Twomey J. [2016] IEHC 349).

6 . Given the opinion expressed by Revenue in the correspondence the subject of Cintra's unsuccessful judicial review, it is not surprising that matters then proceeded along entirely predictable lines. On 11 ^th October, 2016 Revenue served a notice of assessment to CGT on Cintra in an amount of just over €868,000 reflecting an alleged chargeable gain of €2.6m on the sale of the shares. On 7 ^th November, 2016 Cintra appealed against that assessment. The Appeal Commissioner delivered his determination on 18 ^th February, 2021 in which he found that the appellant ( i.e., Cintra) did not come within the charge to Irish capital gains tax and, therefore, allowed the appeal. Revenue then requested that the Appeal Commissioner state a case for the opinion of this court under s. 949AQ of the TCA 1997 which he duly did on 8 ^th July, 2021.

7 . I will consider both the Appeal Commissioner's determination and the case stated in more detail in due course. At this stage it is sufficient to set out the questions of law posed by the Appeal Commissioner for the opinion of this court although it might be noted that the legal arguments advanced by the parties were more general in nature and did not focus specifically on the answers to these questions. Needless to say, given that the questions were posed using a formula whereby the Appeal Commissioner asked if he was correct in making certain findings, Revenue submitted that all of the questions should be answered “ no” whereas Cintra responded by submitting that all of the questions should be answered “ yes”. The questions are as follows:-

• “(i) Was I correct in finding or inferring that a proprietary interest in land was...