The latest determination published by the Tax Appeals Commission (TAC) on Wednesday may be its highest-stake one to date. The dispute between a taxpayer and the Revenue Commissioners over the imposition of stamp duty on a share cancellation scheme in October 2019 affect some of the most high-profile corporate deals of the past two years. Hundreds of millions of euros are at stake, representing over one third of the Exchequer’s total stamp duty take last year.

The document runs to 82 pages. “The multi-faceted nature of the appeal, the response and the debates that ensued (which included interpretation of the meaning of “interpretation”) has meant that brevity became a casualty,” TAC chairperson Marie-Claire Maney writes at the start of the decision made on December 8.

The case also raises the very nature of the Tax Appeals Commission and tests the limits of its power in interpreting national and EU law. It goes as far as examining the constitutionality of Budget Day legislative measures and their compatibility with European human rights provisions. 

Although the details of the appellant identity are redacted, the sequence of events described and multiple references to the company being based outside the EU leave no doubt: the disgruntled taxpayer is the US pharmaceutical group AbbVie, and it is challenging its the €580 million stamp duty bill imposed on the acquisition of Irish-headquartered Allergan last year.

Coincidentally, judicial review proceedings pitting AbbVie against the Revenue Commissioners were issued in the High Court on the same day the TAC determination was published. The dispute reaches beyond AbbVie itself – it could have implications for the sale of Green Reit to Henderson Park during the same period, which was similarly affected by the stamp duty rule change. It also has the potential to re-open tax-exempt share cancellation schemes.

By taking on AbbVie’s appeal personally just three weeks after moving from her previous position as Revenue solicitor, Maney put herself in the spotlight. Could she remain independent from her previous employer of nine years? This is how she adjudicated on the case after examining the “voluminous documentation” filed by the parties, conducting several days of oral hearings and reviewing case law stretching from Spain to Finland.

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In June 2019, AbbVie announced to the New York stock exchange that it had agreed to acquire Allergan PLC, another pharmaceutical multinational best known for manufacturing Botox. Allergan was headquartered in Ireland and the deal was to be completed through the cancellation of its existing shares and the issuing of new ones to AbbVie.

Laying out the context of the dispute, the TAC determination notes that “in Ireland cancellation schemes of arrangement were utilised by those in the corporate mergers and acquisitions arena, as no stamp duty was payable on the issue of the new shares” –among other advantages such as an easier process to squeeze out unwilling shareholders of the target company. “However, a scheme was less flexible than an ‘offer’, largely because three separate Court hearings were required,” Maney adds.

The timeline emerging from the document shows that the Oireachtas passed a financial resolution on October 8, 2019, which entered into force immediately. The legislation modified Section 31D of the Stamp Duty Consolidation Act so that a cancellation scheme would become “chargeable with the same stamp duty as if it were a conveyance or transfer on sale of those shares,” i.e. 1 per cent. Crucially, this would apply “in relation to a scheme order made on or after 9 October 2019” – that is, when the High Court gives the green light for the deal to conclude.

Later that year, the High Court cleared a shareholders’ meeting due to formalise the AbbVie-Allergan deal. Then in 2020, a final court order rubberstamped the scheme of arrangement and the share transactions took place. At that point, AbbVie filed an electronic stamping return “with an expression of doubt” and paid the corresponding duty. The TAC remarks:

“The Payment was made by the Appellant to Revenue on the basis that it:

• Was without prejudice to the fact that any duty imposed was unlawful;
• Could not be construed as an acceptance or agreement that duty could be lawfully levied in the circumstances or as a waiver of any rights; and
• Was made solely for the purpose of protecting the position in respect of interest arising if stamp duty was ultimately determined to arise in the circumstances.”

Revenue later confirmed in a tax assessment that it considered the stamp duty was due, and the company appealed this to the TAC on July 20. Although the amount is redacted from the published determination, it later emerged from Exchequer returns that it was around €580 million.

The company made two groups of arguments against its tax bill. On the one hand, it said that the imposition of stamp duty on cancellation schemes violated EU law: “The assessment is in breach of Revenue’s EU law obligations to interpret domestic legislation in light of the wording and purpose of Council Directive 2008/7/EC concerning indirect taxes on the raising of capital (the “2008 Directive”) in order to achieve the results pursued by that Directive.”

In addition, the particular application of the Budget Day measure to AbbVie’s Allergan deal was a violation of its property rights under the EU Charter of Fundamental Rights and the Irish Constitution because it was retroactive and “extremely targeted and discriminatory”, the company said.

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After examining the legislation and documents published by Revenue for its implementation, the TAC first confirmed that AbbVie had been taxed according to the letter of the new law:

“There are no transitional arrangements to cancellation scheme arrangements already announced and the effective date of change is in relation to any scheme order made on or after 9 October 2019. So, any transactional agreement entered into before 9 October 2019 but which completes through the necessary court order (known as a scheme order) is chargeable to stamp duty of 1 per cent of the value of the consideration. The Irish legislative change on cancellation schemes of arrangement provides no exemptions for any previously announced mergers or takeovers or those proceeding through the necessary conditions, such as the anti-trust provisions, the shareholders vote or the court order process.”

The question was then whether the law itself was legal. To answer this question, the TAC first examined whether Ireland’s budget legislation conformed with EU law.

New chair Maney asserts TAC’s power

Tax Appeals Commission Chairperson Marie-Claire Maney’s decision to adjudicate on this case was not only an opportunity to establish her position as the first-ever holder of the office, or related to the hundreds of millions at stake. It was also a chance to widen the TAC’s reach into uncharted territory.

The Revenue’s defence of its stamp duty assessment in the AbbVie-Allergan deal rested almost entirely on arguments restricting the Commission’s jurisdiction. When the company challenged the validity of the assessment rather than its amount, the tax authority argued that “these grounds are directed to a matter (i.e. legality of an assessment) which is outside the jurisdiction of the Commission and is reserved to the courts”.

While Revenue acknowledged that the TAC had the authority to interpret tax law, AbbVie’s effort to bring the dispute on constitutional and human rights ground was outside this scope – and even if the TAC found that a national measure was in breach of EU law, “the Commission does not have a jurisdiction to disapply national law,” tax officials added.

They lost on all grounds.

Maney found that her commission was fully qualified to interpret EU law, having interacted with the Court of Justice of the EU in previous cases without objection from Revenue. Her determination scours the entire continent for cases where tax tribunals in other countries successfully took up this role. Based on the most recent example involving Spanish bank Santander just one year ago, she asserted: “The Commissioner has no doubt that it must apply EU law to ensure the effectiveness of EU law”.

Within Ireland, she “assessed in detail” a case involving the Workplace Relations Commission, where it was recognised that a national body established by law “must be able to disapply a rule of national law that is contrary to EU law”. Similarly, she referred to last year’s Supreme Court decision in an environmental law dispute, in which the judge found that An Bord Plenála had the power to disapply national law if inconsistent with EU provisions and noted that the same would apply to the Tax Appeals Commission.

The TAC also rejected Revenue’s suggestion that it should refer to the Court of Justice of the EU before making any such decision: “The Commissioner is satisfied that its considerable appraisal of the law to the facts in this case and consideration of the EU Directives and jurisprudence across Member States lead it to the conclusion that a referral for a preliminary ruling is not necessary and a measure of self-restraint, as referred to above is prudent.”

Having focused on opposing the TAC’s jurisdiction to examine the legality of its stamp duty assessment, Revenue did not appear to put forward a strong case to defend it in light of EU directives. “They chose not to disclose any considerations in respect of the amendment in section 31D SDCA in respect of that conformity. They had the right to do so but again the Commissioner cannot assume any considerations, where none are put forward,” Maney remarks.

Attention then turns to Directive 2008/7, the latest in a series of European legislative moves initiated in 1969 to remove indirect taxes on the raising of capital in the interest of the “free movement of capital”.

AbbVie pleaded that its deal with Allergan was a “contribution of capital”, which is specifically exempt from stamp duty under the directive, and not a “transfer”, where derogations allow member states to levy taxes up to a maximum of 1 per cent. The company also claimed that the transaction met the definition of a “restructuring operation,” another case where EU law bans national authorities from charging stamp duty on capital moves.

Maney agreed:

“The Commissioner has examined Article 4(1)(b) of the 2008/7 Directive and finds that the Transaction comes within the definition of restructuring operation. It includes the acquisition by a capital company (i.e. the Appellant and its subsidiary […]) which is already in existence, of shares representing the majority of the voting rights of another capital company ([…]), provided the consideration for the shares acquired consists at least in part of securities representing the capital of the former company (shareholders received cash and some shares in the Appellant). So, based on the definition of restructuring operation, under Article 5(1)(e) no form of indirect tax should be levied.”

The fact that acquisition was partly paid for in AbbVie shares, and not an all-cash deal, is important here and will come up again later.

The Tax Appeal Commissioner went further, citing the history of EU law in this area to conclude: “It is evident in the widening of the definition of restructuring operations, the EU chose not to exclude cancellation of share schemes in the definition of restructuring operations”.

Revenue argued that Directive 2008/7 applies only to “mergers” and that both companies involved should be based in the EU to benefit from the directive’s protection, but the TAC rejects both points outright:

“Revenue suggested that as this Transaction does not come within Directive 2008/7 as it only applies to mergers within two Member States. The Commissioner finds no basis for such a conclusion. The Directive 2008/7 has no definition of “merger” within it. Directive 2008/7 relates to contributions of capital and it is in that context that restructuring operations is defined. It is not applicable to read across a definition of mergers from another directive on “Mergers within the European Union into another Directive” to Directive 2008/7 which does not contain that definition.”

Maney’s determination adds: 

“Free movement of capital has never been limited to movement of capital within the EU. Article 63 of the TFEU provides the framework and ‘all restrictions on the movement of capital between Member States and between Member States and third countries shall be prohibited’.”

“In the case of Directive 2008/7, Ireland has not transposed this directive into domestic law. The deadline for transposition has long since passed.”

TAC determination

Having established that EU law does not allow Ireland to levy stamp duty on the AbbVie-Allergan deal, the TAC moves on to see if the changes introduced in Irish legislation in October 2019 can be interpreted in a way that would make them compliant with Ireland’s European obligations.

Maney first takes a swipe at Irish lawmakers, remarking: “In the case of Directive 2008/7, Ireland has not transposed this directive into domestic law. The deadline for transposition has long since passed.” Based on case law in multiple countries, she concludes that this duty falls on her.

Revenue’s submissions are that the Commission “would have to find that a Conforming Interpretation was not possible,” but the TAC sees things differently: “The Commissioner considers that it is possible to insert wording into Section 31D which considers both the objectives of Directive 2008/7 and the objectives of domestic legislation” – that is, to shield eligible transactions from stamp duty, while recognising the Government’s objective to “prevent tax avoidance with the use of cancellation schemes whereby companies are utilising cancellation schemes to avoid stamp duty”.

Drawing directly from language suggested by AbbVie, the TAC accepts that new stamp duty liability should apply specifically when “the shareholders of the target company receive consideration which does not consist, even in part, of shares for the cancellation of those shares held by them”. By adding the emphasised words, the legislation would protect those transactions falling under the EU’s definition for duty-exempt “restructuring operations”, while continuing to hit all-cash deals.

To pre-empt a counter-appeal, the determination adds if this interpretation was rejected, the TAC “would be able and could disapply section 31D SDCA” entirely. The outcome is the same in that the assessment is reduced to nil and the appeal is allowed.”

At this point, AbbVie has won the case. Yet Maney goes further again to ensure her determination stands when it is no doubt taken to court later, and decides to examine the company’s claim that the stamp duty change breached its property right because it was retroactive.

The determination cites ample case law relating to the Article 15.5.1 of Bunreacht na hÉireann, which provides: “The Oireachtas shall not declare acts to be infringements of the law which are not so at the date of their commission”.

The TAC also examines other Budget measures introduced in October 2019, especially the much-publicised increase in the rate of stamp duty on sales of commercial property. In that case, the legislation did provide for deals that were already agreed, exempting transactions where taxpayers can produce “a statement, in such form as the Revenue Commissioners may specify, certifying that the instrument was executed solely in pursuance of a binding contract entered into before 9 October 2019.”

The determination accepts AbbVie’s submission that the agreement entered before Budget Day was binding. “As such, the Commissioner must read that any reference to scheme orders and the date of application of the stamp duty and the agreement, as taking place after 9 October 2020, so there is no retrospective effect. In that case, the Assessment should never have been raised and therefore is reduced to nil. Again, this is consistent with the earlier findings of the Commissioner with respect to the previous grounds of appeal.”

The only stone left unturned by the TAC is AbbVie’s recourse to the European Charter of Human Rights, for which the determination concludes there is insufficient case law to rule on its relevance in this case without referring to the Court of Justice of the EU.

Maney’s final determination is that the stamp duty assessment raised by the Revenue was “prohibited” by the EU directive and must be refunded. “In addition and alternatively, section 31D in accordance with the Constitution could not have been drafted to have retrospective effect,” she adds.

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A note to the determination indicates that the TAC has been requested to state and sign a case for the opinion of the High Court, indicating that a counter-appeal has been in preparation.

Following the publication of the determination and the launch of a separate judicial review involving AbbVie and the Revenue Commissioners before the High Court on Wednesday, a Revenue spokeswoman declined to confirm any connection between the two developments because the tax authority is “legally precluded from commenting on interactions with, or the tax affairs of, any individual, business or entity”. The Currency was not able to contact a solicitor for AbbVie through its law firm Matheson on Thursday.