The Revenue Commissioners and Glenkerrin Homes Limited ([2007] IEHC 182)

Facts

The taxpayer purchased land in Palmerstown, Dublin for €31.6m. A deposit, equivalent to 10% of the purchase price, i.e. €3.16m, was payable in two tranches – €500,000 with the tender and the balance within five working days of the notice of acceptance of the tender. Completion took place on 24 June 2004. On completion, rather than being given the balance of the purchase price, the vendor was given two documents – an undertaking signed by the purchaser that a sum of €31.6m would be given to the vendor on 30 June 2004 and a guarantee from Allied Irish Banks plc in respect of a sum of €28,440,000.

The taxpayer presented the transfer, which bore the date 24 June 2004, for stamping. The Revenue assessed the stamp duty as €2.844m, i.e. 9% of the entire purchase price. The taxpayer appealed to the Appeal Commissioner on the basis that the stamp duty should only be chargeable on the deposit of €3.16m. The Appeal Commissioner found in favour of the taxpayer and the Revenue appealed to the High Court.

Issue

This case deals with construction of section 40 of the Stamp Duties Consolidation Act, 1999 (“SDCA 99”) which is reproduced below and, in particular, the meaning of “amount due”.

• “ Where the consideration, or any part of the consideration, for a conveyance on sale consists of any security not being a marketable security, the conveyance is to be charged with ad valorem duty in respect of the amount due [bold has been added for emphasis] on the day of the date of the conveyance for principal and interest on that security.”-s.40(2) SDCA 99

Decision

The decision of the High Court was delivered by Miss Justice Laffoy on 22 May 2007.

Taxpayer's Position

The taxpayer argued that the stamp duty should only be chargeable on the deposit of €3.16m. The basis for the taxpayer's argument was that there was no amount due on the security at the date of the transfer-the undertaking, which should be treated as a non-marketable security, and guarantee, resulted in the balance being payable to the vendor six days after the completion of the sale. Therefore, the undertaking had no value at the date of the transfer.

Revenue's Position

Revenue argued that stamp duty was due on the entire purchase price of €31.6m.

High Court Decision

The High Court ruled in favour of the Revenue that stamp duty was due on the entire purchase price of €31.6m.

Approach taken by a court in construing any taxation measure

The first issue considered was the approach taken by a court in construing any taxation measure. This approach is well settled – where there is any doubt/ambiguity in the meaning of a measure, it ought be construed in favour of the taxpayer, as a tax cannot be imposed without clear and express words for that purpose (from Gurr v Scudds (1855) [11 Exch 190]). Both counsel accepted that this principle has been applied by the Irish courts in construing taxation statute.

Meaning of “due”

Miss Justice Laffoy's view was that the ordinary and natural meaning of the word “due” in the context in which it was used in s.40(2) was clear, so that recourse to authorities was not really necessary. Having said that, there was a detailed discussion on the meaning of “due”.

Both counsels relied on an Irish case to support their argument – Irish Land Commission v Massereene [1904] 2 IR 502, and in particular the following passage:

• “The words ‘due’ and ‘accrued due’ must be interpreted in like manner according to the reason and context of the statute or document. ‘Due’ may mean immediately payable (its common signification), or a debt contracted, but payable in futuro:... Ex parte Kemp...”

• The taxpayer's counsel submitted that it was clear from the above passage that the common meaning of the term “due” is immediately payable.
• The Revenue's counsel submitted that the meaning of due, absent a context which indicated a different construction, was that it covered all sums for which there was legal liability, whether actually payable or not.
• Miss Justice Laffoy felt that what was significant from the passage was that the word “due” may have different meanings in different contexts.

Construction of s.40(2)

Up to this point, the case law dealt with debt due in relation to bankruptcy. In construing s.40(2), it was pointed out that the issue arises under the stamp duty code and that it is the instrument and not the transaction that is chargeable to stamp duty.

The following points were accepted by all parties:

• S.40(2) governs the position for non-marketable securities and it was accepted by all that the instrument was a non-marketable security.
• The net question in the case related to the proper construction of the phrase “the amount due on the day of the date of the conveyance for principal and interest on that security”. It was accepted that the date of conveyance was 24 June 2004.

The discussion then proceeded to consider the meaning that the legislature intended to ascribe to the words. Miss Justice Laffoy's view was that the type of non-marketable security comprehended by the legislature must have been one which secured future payment of principal and interest because that was the only type of security which, as a matter of both commercial sense and common sense, could have been envisaged as a substitute for money in a sale transaction. The following is quote from the case:

• “Therefore, in my view, the legislature must have intended that the ‘amount due’ on such security would include all sums, whether for principal or interest, in respect of which there was a legal liability on the material date even though such sums were payable in the future.”

– Miss Justice Laffoy:

The judge reached her conclusion by looking at the words in context of s.40(2) “without having to resort to any concept of legislative scheme, intendment or purposes”. It was decided that the linking of the “amount due” to a particular date was entirely neutral. Therefore the wording of the undertaking and the guarantee which specifically stated the value of the security at 30 June 2004 were not relevant to the decision.

Based on the above, it was held that stamp duty was chargeable on the full purchase consideration of €31.6m.

Intention of legislature

There was apparently significant emphasis placed on the intention of the legislature in order to reach the conclusion that stamp duty was chargeable on the entire purchase price of €31.6m. If the wording of s.40(2) achieved the intention, then the decision in the case could have been reached without using a purposive argument (and it is unclear if such an argument is possible in the circumstances).

It is difficult to see how the wording of s.40(2), in particular the linking of the amount due to a particular date, achieves what was intended by the legislature. Indeed, the section has since been amended (see addendum below) by removing “amount due”, and using “value of that property” instead, which might suggest that it had not succeeded in what had been originally intended.

However, this point was discussed in detail in court. Miss Justice Laffoy was satisfied that the legislature expressed the intention by equating the sum on which stamp duty is due on such security on the material date, and therefore did not need to use a purposive argument. It seems that the judge reached her conclusion by looking at the words in the context of s.40(2), she said, “without having to resort to any concept of legislative scheme, intendment or purposes”.

Linking of “amount due” to a date

It was also decided in court that the linking of the “amount due” to a particular date was entirely neutral.

The phrase “amount due” is less likely to be neutral because it is qualified. The qualifier, “on the day of the date of the conveyance” would not have been included if it was to be treated as neutral.

There is emphasis throughout the report of the meaning of “due” and the context in which it is used. The mention of a date puts the amount due in context, which would restrict its wider meaning.

However, the point was brought up in court (the Appeal Commissioner had based his decision on the point) and Miss Justice Laffoy was satisfied that the linking of the “amount due” to “the day of the date of the conveyance” was neutral. The judge stated that “the fact that the amount due is to be ascertained on a specific date is not in any way indicative of the expression ‘amount due’ meaning the amount payable on that date, rather than the amount for which legal liability exists on that date, given that either amount must be readily ascertainable on any date by reference to the security document.”

It should be noted that any decision by a court in Ireland becomes part of the tax law of Ireland unless either the decision is overruled by another decision on the same point, or the law is changed. Therefore, the issues highlighted above, in relation to intention of legislature and linking of amount due to a date, which were specifically dealt with in the High Court must take the meaning assigned to them by Miss Justice Laffoy unless an appeal is made to the Supreme Court or another case challenges the construction of s.40(2) prior to its amendment.

Addendum

As section 40 was amended by the Finance Act 2005 (see below) as respects instruments executed on or after 2 March 2005 and the case deals with the section 40 prior to the amendment, the judgement must be seen in this context.

• “ Where the consideration, or any part of the consideration, for a conveyance on sale of any property, consists of any security not being a marketable security, the conveyance shall be charged with ad valorem duty as a conveyance on sale of that property for a consideration equal to the value of that property on the date of execution of the conveyance.”

– Section 116 FA 05