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InDisputes Series: Interpreting Tax Terms – A Recent Illustration

The High Court of Ireland (the "Court") recently provided a very useful illustration of how the principles of statutory interpretation can apply in tax cases.  In Thornton v Revenue Commissioners, the Court was presented with significantly different interpretations of the relevant Irish tax provision.  Although not central to the ultimate decision in this case, the Court applied the relevant principles in a clear and coherent manner to resolve the uncertainty. 


The case before the Court broadly concerned whether the taxpayer was entitled to an allowable trading loss for the purchase of a dividend right in respect of a British Virgin Islands company.  As part of the dispute, the Court was asked to consider whether the term 'income' in a particular tax provision should be interpreted as only referring to income that was chargeable to Irish tax.

Interpreting Tax Statutes

At the outset, the Court reaffirmed the principles on statutory interpretation as articulated in a number of recent tax cases including Perrigo Pharma and Bookfinders.  The Court applied those principles to interpret the term 'income' as extending beyond income chargeable to Irish tax. 

In reaching this conclusion, the Court had regard to the following factors:

  • Literal interpretation: The starting point, in the absence of a specific statutory definition, was to consider the ordinary meaning of the term 'income', which the Court noted does not mean "income chargeable to Irish tax".  The Court then asked whether there was any particular reason why the word should be given a broader meaning in this case.
  • Contextual approach: The Court then considered the wider context for the meaning of the word by reference to the Irish tax code more generally.  Looking at the language used in the provision as a whole, and considering the term in its wider context, demonstrated that the legislature had specifically considered that income may not be chargeable to tax but still fall within the provision. In particular, a comparative analysis showed many different examples within the code where the term 'income' is explicitly stated to be confined to income chargeable to Irish tax.  The absence of such an explicit limitation in the provision relevant to this case therefore supported the adoption of the plain and ordinary meaning of the word. 
  • Extra territorial effect: The Court accepted that the presumption against extra-territorial effect applied to taxing statutes but noted that, as this was only a presumption, it needed to give way to the explicit language of the relevant provision.
  • Absurdity: The Court highlighted that a literal interpretation should be rejected if it produces an absurdity.  Although the interpretation proposed by the taxpayer produced a consequence which may not have been intended by the legislature when it introduced the relevant provision, it did not go so far as to produce an absurd result.  The bar to reach absurdity went beyond simply an unexpected result.
  • Inserting words: The Court rejected Revenue's attempt to read additional words into the legislative provision, concluding that this would "trespass" into the legislative function rather than simply giving effect to the intention of the legislature.

Takeaway for Clients

This decision provides a very useful insight into the application of the principles of statutory interpretation to tax disputes.  It is clear from this case that, although the principles are now relatively settled in an Irish tax context, the interpretation of tax law requires a highly fact-specific analysis. 

Taxpayers should therefore ensure that, when considering the application of Irish tax law in any circumstances, specific consideration is given to how a court would interpret the relevant law in the event of a dispute, in particular to ensure traditional presumptions or generalised interpretations are stress-tested.