InDisputes: CAT Business Property Relief on Cash Assets

In a recent Tax Appeals Commission ("TAC") determination, the Commissioner held that Business Property Relief ("BPR") (for Capital Acquisitions Tax purposes) was correctly claimed on the cash balances of a group of companies (the "Group"), as they were used "wholly or mainly for the purposes of the business" in the relevant period.

The Substantive Point at Issue

• The Appellant received a gift of shares in the Group and claimed BPR on the gift.
• Revenue argued that 75% of the Group's cash reserves were 'excepted assets' under section 100 of the Capital Acquisitions Tax Consolidation Act 2003 (as amended) ("CATCA"), as they were excessive, and as such, could not qualify for BPR.
• The Appellant had two main arguments:
  • (i) The definition of "excepted assets" in section 100 CATCA was clear and unambiguous, and it did not contain qualifications such as 'excess', 'necessary' or 'required'; and
  • (ii) The level of cash was required to run the Group's business.
• The Appellant, who was also Group Finance Director, gave comprehensive evidence that the cash was used "wholly or mainly for business purposes". For example, significant cash assets were required to (i) hedge against foreign exchange risk; (ii) fund capital intensive projects with large initial outlays; (iii) provide comfort to certain of the Group's clients that would only deal with "asset-strong" entities after the economic crisis; and (iv) provide liquidity as the Group's fixed assets were not readily convertible into cash.

The Determination

The following are a few points of note from the Commissioner's determination:

• Revenue sought to rely on Barclays Bank Trust Limited v Inland Revenue Commissioners (1998 Sp C 158) arguing that the Appellant needed to have a concrete use for the cash reserves. The Commissioner refused to attach any weight to these submissions noting that (i) the UK case is not binding on the Irish courts; and (ii) the wording of the UK legislation differed to the Irish equivalent legislation.  While both the UK and Irish legislation requires that the assets are "used wholly or mainly for the purposes of the business concerned", the UK legislation has an additional requirement that the assets should be "required at the time of the transfer for future use". Arguably, the present case could be distinguished in any event, given the list of uses for the cash provided by the Appellant in the case.
• Both the Appellant and Revenue opened a previous determination of the TAC (132TACD2021) before the TAC (the "Prior Case"). The Appellant's Counsel submitted that based on the Prior Case, it must only be established that the assets of the Group did not contain any personal assets such as a yacht or a holiday home. Revenue disagreed stating that the TAC carried out a detailed review of the use of the assets in the Prior Case. The Commissioner noted that while a detailed analysis of the assets was undertaken in the Prior Case, he did "not consider such an analytical approach is necessary." While the facts of the Prior Case may be distinguished (ie, there was clearly some level of business assets mixed together with investment assets), the Commissioner appeared to rely on the Appellant's evidence.

Key Takeaways

1. The Commissioner referred to the Appellant as an "honest and diligent witness", and placed significant weight on the evidence given by the Appellant. It was clear that a significant amount of supporting documentation was provided to the TAC in support of the various arguments made by the Appellant. This was vital in discharging the burden of proof on the taxpayer.
2. To avail of BPR on cash assets it must be possible to highlight the general business use for the cash assets. However, the Irish legislation, unlike the UK legislation, does not require a person to pinpoint an exact future use for the cash in their business. 
3. While the Commissioner did not require a concrete use for the cash reserves, Revenue, in their guidance notes, appear to adopt a narrower view of the legislation in the context of "surplus cash" noting:[1]
   
   "This does not preclude taking into account the need for sufficient liquidity to cover the payment of liabilities in determining what constitutes an excepted asset in the first place - particularly as regards the amount to be treated as surplus cash"
   
4. A taxpayer must be satisfied that the assets are not excepted assets under section 100 CATCA generally, including under section 100(7) CATCA (ie, that the asset is not used wholly or mainly for the personal benefit of the disponer or a relative of theirs) and they must satisfy the more general "wholly or mainly for business purposes" test under section 100(2) CATCA.