Revenue Commissioners v Hennessy & Anor (Approved)

Factual and Procedural Background

This appeal arises from a Case Stated by the Revenue Commissioners ("Revenue") against a Determination of the Tax Appeals Commissioner ("TAC") dated 18 April 2023. The TAC ruled in favour of the Respondents ("Taxpayers") that certain taxes were not due under section 825A of the Taxes Consolidation Act 1997 as amended ("TCA 1997"). The appeal, heard on 11 April 2024, concerned the interpretation of the statutory definition of a "proprietary director" in section 472(1)(a) of the TCA 1997.

The Taxpayers are directors, shareholders, and full-time employees of a Donegal company ("Company"). They performed employment duties exclusively in the UK and submitted Irish income tax returns for 2015-2017 claiming Transborder Workers Relief ("TWR") under section 825A TCA 1997. The Taxpayers are Irish residents living in County Donegal. Their UK employment income was subject to UK PAYE and National Insurance Contributions.

The Company’s ordinary share capital consisted of 5,000 shares: 1,000 "ordinary shares" held by the Taxpayers with voting rights, and 4,000 "A ordinary shares" held by the Taxpayers' brother, which carry no voting rights. The Taxpayers do not beneficially own more than 15% of the ordinary share capital. The key dispute relates to whether the Taxpayers are "proprietary directors" as defined by ownership or control of more than 15% of the ordinary share capital.

Legal Issues Presented

1. Did the Commissioner err in law in the interpretation of section 472(1)(a) TCA 1997, particularly regarding the meaning of "control more than 15% of the ordinary share capital of the Company"?
2. Did the Commissioner err in law in concluding that the Taxpayers were not proprietary directors of the Company, considering the shares and share rights held by the shareholders for the relevant tax years?
3. Did the Commissioner err in law in concluding that the Taxpayers were entitled to Transborder Workers Relief and that the Assessments under appeal should be reduced to nil, based on the definition of proprietary director and the provisions of section 825A TCA 1997?

Arguments of the Parties

Appellant's Arguments

• The key issue is "control" of the ordinary share capital, and the Taxpayers had control through ownership of voting shares.
• The owner of the non-voting "A ordinary shares" had no control, only limited rights such as receiving dividends.
• The purpose of section 825A(2)(c) is to exclude proprietary directors with real control over company shares from relief, reserving it for ordinary employees.
• The Taxpayers effectively controlled the "A ordinary shares" despite not owning them, thus should be considered proprietary directors.
• The statutory distinction between "ownership" and "control" must be meaningful, and any ambiguity in "control" permits purposive interpretation supporting Revenue's position.

Respondents' Arguments

• The TAC's determination was correct with no error of law.
• The Revenue conflated control of the business with control of the ordinary shares.
• The statutory provision concerns control of ordinary share capital, which includes non-voting shares.
• The Taxpayers did not control the non-voting "A ordinary shares" held by their brother.
• Control of shares must be distinguished from ownership; the Taxpayers did not have control over their brother’s shares or rights.

Table of Precedents Cited

Court's Reasoning and Analysis

The Court accepted the TAC's reasoning that the term "control" in the definition of "proprietary director" is linked specifically to control of the "ordinary share capital" of the company, not control of the company itself or its business. The statutory definition includes shares without voting rights, and control of such shares does not equate to controlling voting power.

The Court rejected the Revenue's argument that the Taxpayers controlled the non-voting "A ordinary shares" held by their brother. The rights attaching to those shares, including dividend rights and enforcement rights, were under the brother's control. The Taxpayers could not direct how those rights were exercised.

The Court emphasized the distinction between ownership and control as set out in the statute. Control may be direct or indirect, such as through a controlling interest in another company, but must relate to the ordinary share capital itself. The Taxpayers did not beneficially own or control more than 15% of the ordinary share capital, and thus did not meet the definition of proprietary directors.

The Court applied established principles of statutory interpretation, giving primacy to the plain and natural meaning of the statutory language, considering context, and avoiding interpretations that would rewrite the statute or lead to absurdity. The purposive approach was applied only within the limits of the statutory text.

Holding and Implications

The Court held that the Taxpayers were not proprietary directors within the meaning of section 472(1)(a) of the TCA 1997.

Accordingly, the Taxpayers were entitled to Transborder Workers Relief under section 825A of the TCA 1997, and the tax assessments under appeal were to be reduced to nil. The Court found no error of law in the TAC's determination. This decision clarifies the interpretation of "control" in relation to ordinary share capital for the purpose of defining proprietary directors and confirms that control of non-voting shares must be assessed by reference to the rights attached to those shares.

No new precedent was set beyond confirming the correct application of established statutory interpretation principles to the facts of this case.