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InDisputes: No CGT on Shares Deriving Value from Licence Over Land?

AUTHORs: Vahan Tchrakian co-author(s): Chloe Power Services: Tax, M&A and Transaction Taxes DATE: 27/02/2023

In the recent case of Cintra v Revenue Commissioners, the High Court upheld a Tax Appeals Commission (“TAC”) determination that the sale of shares in a company which built and operated an Irish motorway (and received a portion of the toll revenue) by a non-resident company was not subject to Irish capital gains tax ("CGT").


In 2016, Revenue raised a CGT assessment on Cintra, a Spanish resident company, for the sale of shares in an Irish company ("Eurolink").  Eurolink built and operated a tolled motorway in exchange for a significant percentage of the toll revenue for 30 years.  Revenue asserted that the shares derived the greater part of their value from land in the State.  Cintra successfully appealed the assessment to TAC.

A non-Irish tax resident company is only within the charge to CGT on the sale of shares which derive the greater part of their value, directly or indirectly, from certain assets (most notably, Irish land).

A number of issues were put to the High Court including (1) the meaning of 'land' for CGT purposes; and (2) whether the shares' value derived 'indirectly' from land.

Definition of 'land'

On this 'central issue', dismissing each of Revenue's arguments, the High Court determined that the meaning of 'land' for CGT purposes:

  • should be determined by reference to the specific definition in the CGT rules, not by reference to other legal definitions;
  • should not include a 'licence' to use land (noting that the relevant contract conferred a licence in favour of Eurolink); and
  • should be limited to a freehold or leasehold estate in land, or a lesser interest specifically identified in legislation. 

Value derived 'indirectly' from land

On the question of whether the Eurolink shares derived their value 'indirectly' from land, the court interestingly noted that "just because the value of the shares derives from … contractual rights [it does not necessarily follow] that it is not also at least indirectly attributable to 'land in the State'". 

A key aspect of Revenue's argument was that the payment of tolls by motorists was linked to the 'use of' the motorway and thus, the 'use of' land – and that this was an example of an 'indirect' derivation of value from land.  The court rejected this argument though, noting that it would require the interposing of additional words into the legislation – ie, shares deriving value not simply from land but 'the use of' land – which it described as 'impermissibly vague and indeed almost completely open-ended'. 

Takeaway for clients

The case is positive in that it provides some guidance to taxpayers with similar fact patterns by placing some boundaries around the meaning of 'land' for the purposes of CGT and clearance certificates requirements.  However, the analysis of the word 'indirectly' suggests there will still be difficult cases in assessing 'land' value in the context of share disposals. In particular, for taxpayers who own real estate, the case may have made the position even more uncertain.