The dispute was relatively simple. Mr Flaherty sold a fishing vessel and related rights for €5m. A Memorandum of Agreement (MOA) was signed in October 2015. Further regulatory steps and formalities continued into early 2016.
The case focused on a single question. Was the MOA a binding contract in 2015, or a conditional arrangement that only took effect in 2016? If the MOA was a binding contract in 2015 the date of disposal for Capital Gains Tax (CGT) purposes would be the date of signing the MOA in 2015. If the MOA was conditional, for the purposes of Section 542(1)(b) of the TCA 97, the date of disposal for CGT purposes would be the date where the condition was satisfied.
Entrepreneur relief came into effect on 1 January 2016. If the disposal occurred in 2016, the taxpayer would benefit. If it occurred in 2015, he would not.
Four decision-makers: the Tax Appeals Commission, the High Court, the Court of Appeal and the Supreme Court, all reached the same conclusion. The contract was binding in 2015. The relief did not apply.
In many transactions there can be a gap between signing and completion. During that gap the parties can deal with all manner of formalities such as regulatory approvals, licensing issues, financing, and technical conditions. Commercially, and even legally, the deal feels incomplete. For tax purposes, it may already be done.
The Supreme Court drew a clear line between:
- conditions precedent that prevent contractual obligations from being legally binding; and
- conditions or steps required to perform an existing contract (i.e. completion).
Only the first category can delay the “date of disposal” for CGT purposes. Only contracts subject to a true condition precedent to contract formation fall within the scope of the conditional requirement. Procedural steps, promissory conditions, or conditions subsequent, do not.
This distinction is easy to overlook in practice and can be expensive to get wrong.
We often assume that timing for tax purposes aligns with timing for business purposes. It doesn’t. In many deals memoranda of agreement are drafted quickly, with limited tax input. The focus of the business can be on closing the deal, not on when tax liabilities crystallise.
The Supreme Court has effectively said that if you want a contract to be conditional, say so clearly, explicitly, and legally. This emphasises the need for clear “subject to” contractual language to defer contract formation, if that is the intention.
The wording of a clause, the absence of specific language, or the sequencing of obligations can determine whether a tax relief will apply or not and either cost or save material amounts of tax.
In an environment where tax reliefs are increasingly targeted, conditional and time-bound, this is not an isolated issue. It is a structural risk.
This poses a question for businesses. Are we treating contract drafting as a tax-critical exercise, or just a legal formality?
What are the take aways from this ruling for businesses and advisors.
- Integrate tax thinking at the drafting stage. Tax advisors should be involved before contracts are signed, not after.
- Treat conditionality as a strategic tool. If timing matters, conditionality must be engineered deliberately, not assumed.
- Stress-test transaction timelines. If a deal straddles tax changes, relief holding periods, or regulatory deadlines, timing should be treated as a core commercial variable.
In tax, there is no such thing as “almost done”. Either a contract exists, or it doesn’t. Once it exists, the tax consequences may already be locked in, often long before the deal feels complete or any money changes hands.
