Pandion Haliaetus Ltd v Revenue Commissioners

• Jurisdiction: Ireland
• Judge: Mr. Justice Blayney
• Judgment Date: 01 January 1988
• Neutral Citation: 1987 WJSC-HC 2135
• Docket Number: [1986 No. 38 J.R.],No. 38JR 1986
• Court: High Court
• Date: 01 January 1988

1987 WJSC-HC 2135

No. 38JR 1986

PANDION HALIAETUS LTD v. REVENUE COMMISSIONERS

Judicial Review

BETWEEN

PANDION HALIAETUS LIMITED OSPREYCARE LIMITED OSPREY SYSTEMS DESIGN LIMITED

APPLICANTS

AND

THE REVENUE COMMISSIONERS

RESPONDENT

Citations:

RSC O.84

FINANCE ACT 1973 S34

CORPORATION TAX ACT 1976 S10

INCOME TAX ACT 1967 S161(1)

FURNISS V DAWSON 1984 1 AER 530

RSC O.84 r18(2)

INCOME TAX ACT 1967 S432(1)

Synopsis:

REVENUE

Corporation tax

Relief - Exemption - Patent - Income - Revenue Commissioners - Representation - Effect - Tax evasion - Test applicable - Whether inspector of taxes bound by prior opinion of Commissioners on prospective tax liability of taxpayer - Taxpayer acted in reliance upon views expressed by Commissioners - The first company licensed two other companies to use an invention which was the subject of patents held, or applied for, by the first company - The consideration for each licence was the licensee's promise to pay royalties at the rate of 6% of net receipts, and the payment of a substantial sum as advance royalties - Each licensee granted a sub-licence to a fourth company in consideration of (inter alia) a substantial payment of advance royalties - The fourth company arranged for the machinery, required for the use of the invention, to be manufactured by a fifth company - The fourth company was a wholly-owned subsidiary of the fifth company; the first company and the fifth company had common shareholders - The first company received from the licensees a net total of #702,000 as advance royalties, being a gross total sum of #1,080,000 less a total of #378,000 retained by the licensees in respect of the tax liability of the first company and forwarded to the respondent Commissioners - The first company used the sums it received as advance royalties for the purpose of lending to the fourth company a sum which was sufficient to enable that company to pay the licensees the amounts of the advance royalties payable pursuant to the sub- licences - Prior to the initiation of the above transaction, the first company had sought and obtained the agreement of the respondent Commissioners that the advance royalties to be obtained by the first company from the licensees would constitute "income from a qualifying patent" within the meaning of s.34(2) of the Act of 1973 and, accordingly, would be disregarded for the purposes of the Income Tax Acts and of the enactments relating to corporation profits tax - In further correspondence, certain advance rulings of the respondent Commissioners were given in relation to the prospective tax liability of the fourth company as the result of the transactions - Part only of the said sum of #378,000 was repaid by the respondent Commissioners to the first company - In proceedings for judicial review, the first company applied for an order declaring that the first company was entitled to be repaid by the respondent Commissioners the balance of the said sum of #378,000 - In the same proceedings the fourth company claimed an order quashing an assessment of #2,183 corporation tax on the ground that the assessment was made in breach of an advance ruling given by the respondent Commissioners - Held that the advance royalties to which the first company was entitled pursuant to the licences were "income from a qualifying patent" within the meaning of s.34(2) of the Act of 1973 - Held that the first company was entitled to be repaid by the respondent Commissioners the balance of the said sum of #378,000; and that it would be just and convenient to make an order, pursuant to order 84, r.18(2), to that effect - Held that each step in the transactions initiated by the first company had a commercial purpose and that the transactions were not vitiated on the ground of tax evasion - Held that when the respondent Commissioners had expressed their opinion on the prospective tax liability of the fourth company they had not been given complete information about the intended transactions and that, therefore, the fourth company's inspector of taxes was not bound by the views expressed by the respondents in relation to such liability - Held that, in any event, an inspector of taxes is not bound by a prior opinion of the Revenue Commissioners on the prospective liability of a taxpayer - Rules of the Superior Courts, 1986, order 84, r.18 - Finance Act, 1973, s.34 - (1986/38 JR - Blayney J. - 21/5/87) [1987] IR 309 [1988] ILRM 419

|Pandion Haliaetus v. Revenue Commissioners|

PRACTICE

Order

Declaration - Judicial review - Taxpayer - Refund - Taxpayer entitled to an order declaring that respondents were obliged to pay taxpayer specified amount - ~See~ Revenue, corporation tax - Rules of the Superior Courts, 1986, order 84, r.18 - (1986/38 JR - Blayney J. - 21/5/87) [1987] IR 309 [1988] ILRM 419

|Pandion Haliaetus v. Revenue Commissioners|

ORDER

Declaration

Propriety - Judicial review - Taxpayer - Refund - Taxpayer entitled to an order declaring that respondents were obliged to pay taxpayer specified amount - ~See~ Revenue, corporation tax - Rules of the Superior Courts, 1986, order 84, r.18 - (1986/38 JR - Blayney J. - 21/5/87) [1987] IR 309 [1988] ILRM 419

|Pandion Haliaetus v. Revenue Commissioners|

PATENT

Income

Tax - Exemption - Refund - Order - Declaration - Taxpayer entitled to an order declaring that respondents were obliged to pay taxpayer specified amount - ~See~ Revenue, corporation tax - Rules of the Superior Courts, 1986, order 84, r.18 - (1986/38 JR - Blayney J. - 21/5/87 [1987] IR 309 [1988] ILRM 419

|Pandion Haliaetus v. Revenue Commissioners|

JUDICIAL REVIEW

Order

Declaration - Propriety - Refund - Taxpayer - Entitlement - Taxpayer entitled to an order declaring that respondents were obliged to pay taxpayer specified amount - ~See~ Revenue, corporation tax - Rules of the Superior Courts, 1986, order 84, r.18 - (1986/38 JR - Blayney J. - 21/5/87) [1987] IR 309 [1988] ILRM

|Pandion Haliaetus v. Revenue Commissioners|

1 Judgment of Mr. Justice Blayney delivered the 21st day of May 1987.

2 By Order of D'Arcy J. made on the 24th November 1986 the Applicants were given liberty to apply by Originating Notice of Motion for Orders of Certiorari, Mandamus and an Injunction and damages in respect of the Applicants, and a declaration in respect of the first named Applicant, by way of Judicial Review, on the grounds set out in paragraph (e) of the Applicants' statement filed pursuant to Order 84 of the Rules of the Superior Courts.

3 The motion came before me on the 12th of March 1987 and was seven days at hearing. The Applicants' statement was verified by a lengthy affidavit made by Mr. Timothy O'Donoghue, the Secretary of the first named Applicant (Pandion) and the Managing Director of the second and third named Applicants (Ospreycare and O.S.D.L.). A statement grounding opposition to the application was filed on behalf of the Respondents and was verified by three affidavits made respectively by Mr. Frank Cassels, an Assistant Secretary, and Brendan Conway, a Higher Executive Officer, both in the employment of the Respondent, Secretary of Taxes Branch, and Mr. Eugene Dolan, Inspector of Taxes. Both sides served notice to cross-examine, and each of the deponents was cross-examined very fully on his affidavit. The evidence did not, however, disclose any real dispute as to the basic facts on which the application is based. The issue centres rather on the interpretation of those facts and the inferences to be drawn from them, and in particular on the interpretation of correspondence which passed between Mr. Timothy O'Donoghue and the Respondent.

4 The facts out of which the claim arises I find to be as follows. Pandion and Ospreycare are companies limited by shares and were incorporated on the 13th December 1983. O.S.D.L. is a company limited by shares which was incorporated on the 19th July 1982. Ospreycare is a wholly owned subsidiary of O.S.D.L. The principal shareholders in Pandion and O.S.D.L. are Mr. Timothy O'Donoghue; Mr. Patrick O'Donoghue, Mr. Thomas Flanagan, and Mr. Michael G. McGrath. The first three of the shareholders are the inventors of a hot car wash system and the three companies were formed with a view to the commercial exploitation of the invention. A provisional patent application in respect of the invention was filed in the Irish Patents Office on the 31st March 1983, and the final specification was filed on the 31st March 1984. A Belgian patent was granted on the 14th November 1983 and a British patent application was filed on the 29th March 1984. Both the Irish and British patent applications are currently proceeding.

5 On the 11th April 1983 Mr. Timothy O'Donoghue wrote to the Respondents asking for a ruling as to their agreement or otherwise with certain propositions outlined by him. These were concerned mainly with the interpretation of Section 34 of the Finance Act 1973, subsection (2) of which provides as follows:

"A resident of the State who makes a claim in that behalf and makes a return in the prescribed form of his total income from all sources, as estimated in accordance with the provisions of the Income Tax Acts, shall be entitled to have any income from a qualifying patent arising to him on or after the 6th day of April, 1973, disregarded for all the purposes of the Income Tax Acts, and of the enactments relating to corporation profits tax."

6 Income from a qualifying patent is defined in subsection (1) as meaning

"any royalty or any other sum paid in respect of the user of the invention to which the qualifying patent relates and includes any sum paid for the grant of a licence to exercise rights under such patent."

7 The Respondents replied to Mr. O'Donoghue's letter on the 21st July 1983 and confirmed their agreement with the following:

8 1. That until the final Irish patent was received, income from the Belgian patent would be income from a...