Cussens v Brosnan (Inspector of Taxes): new argument allowed on appeal where State refused to provide clarity on law

electronic-form-rss1Here, the Court allowed the Appellants to amend their notice of appeal to include reference to a derogation the State held to full implementation of an EU Directive on VAT, as the State had previously refused to provide the Appellants with the wording of the derogation, and as the new argument was closely related to the argument made in the High Court.


Cussens, Jennings and Kingston (Cussens) built a scheme of fifteen holiday homes in County Cork in 2001. In March 2002, they granted a lease of twenty years and one month for the properties to company that they owned (Shamrock Estates). On the same day they leased the properties back from Shamrock Estates for two years. Cussens paid the Revenue the VAT due on the creation of the twenty year lease. In April 2002, the two leases were extinguished by mutual consent, and Cusssens became the owner of the full freehold title again. In May 2002 (and soon after) they sold all of the properties for approximately €3 million in aggregate. Due to the Value Added Tax Act 1972, then in force, no VAT was due on the sale of the properties–because VAT had been paid on the creation of the twenty year lease.

In 2004, Revenue assessed that Cussens owed additional VAT on the sale of the properties. Revenue did so on grounds that the leases had no commercial reality and were created solely to reduce the tax burden. As such, the leases could be disregarded (subject to Sixth Council Directive 77/388/EEC of 17 May 1977) for the purposes of calculating the VAT due. Although the State had sought a derogation and had not fully implemented the Directive, Revenue argued that it had direct effect.

In July 2005 a Revenue Appeals Commissioner refused an appeal. Cussens brought a further appeal to the Circuit Court, which was rejected in October 2006. However, on request, the Circuit Court made a case stated to the High Court, dated October 2007: whether the creation of the lease, leaseback and surrender should be disregarded for the purposes of VAT as an abusive process as set out by the ECJ in the Halifax case?

In Case C – 255/02 Halifax Plc v Customs & Excise [2006]the ECJ held that:

For it to be found that an abusive practice exists, it is necessary, first, that the transactions concerned, notwithstanding formal application of the conditions laid down by the relevant provisions of the Sixth Directive and of national legislation transposing it, result in the accrual of a tax advantage the grant of which would be contrary to the purpose of those provisions. Second, it must also be apparent from a number of objective factors that the essential aim of the transactions concerned is to obtain a tax advantage.

Charleton J upheld the decision of the Circuit Court. Cussens appealed that decision to the Supreme Court.

Supreme Court

The issue in this judgment relates to an application to amend the notice of appeal to include an argument not made at trial. In the original notice of appeal Cussens argued that the Halifex decision did not have direct effect [14]. He sought to amend that to, that the State could not enforce the Halifex decision where the national legislation was retained due to the State having a derogation to full implementation of the provisions of the Direective.

The test as to whether a new argument will be allowed on appeal was set out by O’Donnell in  Lough Swilly Shellfish v Bradley [2013] 1 IR 227, quoted at [32]. One circumstance where an appellate court will allow a new argument to be advanced is where it is closely related to an argument made at trial.

Laffoy J held that, as Revenue had refused to provide Cussens with the wording of the derogation when requested [38], as the new argument was closely related to the argument made in the High Court, as the argument arose from the case stated, and as it would not prejudice Revenue [39], Cussens should be allowed to amend the notice of appeal.

O’Donnell Donal J, Clarke J, MacMenamin J and Dunne J concurred.


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