With his trademark bow tie, hangdog expression and erudite disposition, Stephen Shay looks every inch the Ivy League professor. A former tax partner with the prestigious east coast law firm Ropes & Grey, Shay has moved seamlessly between politics, academic and private practice.

An International Tax Counsel with the US Department of the Treasury in the 1980s, he returned to the political sphere during the Obama administration, holding the rather officious title of deputy assistant secretary for international tax affairs. These days, he is a senior lecturer at the Harvard law School, specialising in global tax policy.

Professor Stephen Shay

In recent times, however, Shay has been retained the Irish authorities to help with a simmering tax dispute between the Revenue Commissioners and Susquehanna International Group, a global quantitative trading firm with 15 offices around the world – one of which is located in Dublin’s financial district.

With his years of tax knowhow, Shay was recruited by the Irish tax authorities to help answer a seemingly innocuous set of questions centring on whether a limited liability company in the US state of Delaware is regarded as a company under Irish tax law. And if it is, does it qualify under the Double Taxation Agreement that governs the tax paradigm between Ireland and the US?

It might seem a trifling academic question. But for Susquehanna and the Irish Revenue Commissioners, it has big financial consequences. The global trading operation wants to be allowed offset more than $50 million in tax losses against its tax bill in Ireland and is counting on the double taxation agreement applying between its US owners and its Irish operations  to make it happen.

The Revenue, meanwhile, have a different interpretation. And so, to prove it, they picked up the phone to the distinguished Harvard professor and recruited him to prepare – and then stand over – a detailed report on Delaware company and tax structures.

The battle between Susquehanna and the Revenue has moved through the Tax Appeals Commission and is now before the High Court. At stake is a hefty disputed tax payment, and also new international tax precedent involving Delaware and tax losses.  


Before you even get to the dispute, it is crucial to understand both the role of Delaware within the US tax system and also the business model of Susquehanna.

A recent report by the Institute on Taxation and Economic Policy called “Delaware: An Onshore Tax Haven” noted that the state’s lack of transparency combined with an enticing loophole in its tax code “makes it a magnet for people looking to create anonymous shell companies, which individuals and corporations can use to evade an inestimable amount in federal and foreign taxes.”

Delaware allows companies to shift royalties and similar revenues where they actually do business to holding companies in Delaware, where they are not taxed.

There is no grand mystery. More than one million companies have been incorporated in the US state, enticed by its offer of business friendly regulations and attractive tax structures.

Take 1209 North Orange Street, a normal office building that is actually the legal address of no fewer than 285,000 separate businesses. Its occupants, on paper, include giants like American Airlines, Apple, Bank of America, Berkshire Hathaway, Cargill, Coca-Cola, Ford, General Electric, Google, JPMorgan Chase, and Wal-Mart.

As the New York Times reported: “These companies do business across the nation and around the world. Here at 1209 North Orange, they simply have a dropbox.” Most of the businesses incorporated in Delaware are legitimate and many are using all legal means to reduce their tax bills — something that most stockholders applaud.

But within the current climate, where nation states are growing increasingly agitated at the tax structures being utilised by multinationals and financial operators, locations such as Delaware have come into sharp focus.

Like many, Susquehanna has registered a number of entities in Delaware, all used to manage part of its trading and securities business and provide additional service also.

It also had a substantial presence in Ireland. This is not a brass plate operation; the company has 560 people on the ground here. We hear lots about companies with huge revenues and little staff. Susquehanna does not fit that bill.

Susquehanna International Group is the main vehicle here. Company filings show it had assets of $4.1 billion, including $2.6 billion in marketable securities – financial instruments that can be easily converted to cash such as government bonds, common stock or certificates of deposit. The company had retained losses of $589 million at the end of 2018.

Other group companies include Susquehanna Atlantic and Susquehanna International Securities. The ownership of the three companies traces back to Susquehanna International Holdings LLC. And where is this company based? Delaware.


The tax play

With the huge losses on its books in Ireland, the varying subsidiaries transferred losses between them. One subsidiary transferred losses to another subsidiary, and that subsidiary likewise transferred losses to another subsidiary.

The transfers occurred between 2010 and 2012 and involved a total loss of  $46.6 million. Using the Double Taxation Agreement between Ireland and the US, Susquehanna sought to mitigate that against profits within other members of the group.

Essentially, using intergroup losses, the investment house sought to reduce the wider tax bill. Unfortunately for the company, the Revenue cried foul.

Revenue refused the claims to group relief on the basis that the Delaware corporation, under the Delaware Limited Liability Company Act, was not a company and in particular is not a company for Irish tax purposes. Revenue also asserted that Susquehanna was not resident in the US for tax purposes and denied relief accordingly.

Documents lodged with both the High Court and the Tax Appels Commission, as well as reports prepared by Stephen Shay and other experts, explain the backstory to the case. It also sheds a light on the contested and complicated nature of international taxation.

Unlocking the dispute

At the Tax Appeals Commission, the two sides distilled down the dispute to two essential questions:

Question One:  Is a limited liability company (LLC) in the United States incorporated under the law of Delaware, a ‘company’ for the purposes of Irish tax law?

Section 411 TCA allows for group relief of tax losses permitting a loss making company in a group to surrender the losses to another group company. That latter company pays, then, less corporation tax arising from the losses transferred in.  Group relief is commonly used and normally raises little controversy provided the companies involved are related to each other and the losses are real. In Susquehanna’s case, the group involved a US LLC as the linking owner of the Irish entities, potentially putting a fly in the ointment. Was this permissible?

Only “companies” qualify for group relief.  It’s not the case, to paraphrase Shakespeare, that which we call a company by any other name would smell as sweet for corporation tax planning purposes.

What is a “company” for the purposes of Section 411 though?  Here in Ireland, we know the characteristics of a company. Usually there is “Ltd” or “plc” at the end of its name. The company’s trade and assets belong to the company and not to the shareholders.  The company, and not the shareholders, are taxed on the company’s profits. 

For some kinds of foreign companies, its not easy to categorise them. In some places, for example Luxembourg, there are oodles of types of commercial entities and some look like our concept of a limited company and others have the qualities of an Irish partnership. Sometimes these are known as ‘hybrid entities’. International tax advisers have been familiar with the word hybrid long before Toyota began making its Prius.

The Tax Appeals Commission had to decide whether or not a Delaware Limited Liability Company (LLC) qualified as a company, or more specifically, a “body corporate” for the purposes of Irish law. That’s where Professor Shay and the other expert witnesses stepped in.  Their job was to give expert evidence to the TAC of the legal and factual characteristics of an LLC. 

During the hearing, it was accepted by both Revenue and Susquehanna that the LLC had an existence separate to its owners who, in turn, had limited liability for the LLC’s debts just like an Irish company. While there was disagreement as to whether the LLC had a perpetual existence, the Appeals Commissioner found in favour of Susquehanna that point and, so, the US conglomerate entered the second half of the tax appeal one nil up.

In the round, and going back over the years, LLC’s were usually considered to be an equivalent of an Irish or UK limited company and it can’t have been a big surprise to the parties to the case that the TAC so found. 

Question 2: If such an entity is to be regarded as a ‘company’, is it resident in the US for the purposes of tax?

An LLC isn’t usually taxed itself. Its profits, instead, are taxed in the hands of the LLC’s owners.  That’s what’s known as a ‘transparent entity’ in international tax parlance. Revenue made the point that because the LLC didn’t pay tax, it couldn’t have been resident in the US for tax purposes. The appellants battled this argument on the basis that, even though the LLC didn’t pay tax in the US, it was still within the scope of US tax and was “liable to US tax” according to the wording in the double tax treaty

The Appeal Commissioner agreed with Revenue that on a literal reading of the Irish tax code, the LLC was not tax resident in the US.  However, international tax treaties – like all treaties e.g. the Nuclear Test Ban Treaty – have to be interpreted widely.  This is so that national courts cannot defeat the aim of treaties by fixing upon narrow interpretations.   

In the end, and with reference to an earlier Canadian tax case dealing with the same point, the Appeal Commissioner found that the Irish/US tax treaty could be interpreted widely enough so that the LLC could indeed be “liable to tax” in the US even without a requirement to pay any.

Thankfully, for Susquehanna, and indeed for companies doing business in both Ireland and the US, the Appeal Commissioner based his decision partly on a finding that the Irish/US Double Tax Treaty has as one of its aims the fostering of international trade and so the treaty ought to be interpreted so as to “mitigate the administrative complexities arising from having to comply with two uncoordinated taxation systems”.  

High Court Case 

Having lost at the Tax Appeals Commission, Revenue duly appealed the case to the High Court.  According to High Court filings, Revenue lodged its appeal documents twice – firstly on 2 May 2019 and again on 20 June 2019, creating potentially two High Court cases on the same point. 

SIG applied on 16 March 2020 for both cases to be admitted to the High Court’s fast-track commercial list.  Although Revenue’s case lodged in May 2019 was withdrawn, Revenue’s second appeal (the one lodged in June 2019) remains live and will be further considered by the High Court in November.  By taking the initiative to fast track the appeal brought by Revenue, Susquehanna has signified its confidence in its own position

Revenue faces an uphill battle to overturn the TAC’s ruling. In January 2020, the High Court considered an appeal by Dominos Pizza of a TAC decision that its delivery drivers were employees rather than contractors, exposing the company to a big employment tax liability.  In that case, Judge Tony O’Connor considered that, in High Court appeals of TAC decisions, the “burden of proof on the appellant is indeed onerous” and upheld the TAC finding that Dominos ought to have applied PAYE on the earnings of its delivery drivers.

This time it’s Revenue who is on the back foot and, with over one million Delaware LLCs in existence and many of these forming part of commercial groups with Irish companies, the Susquehanna case will be watched with interest.