Audit office questions cut-price property sale by ‘well-known businessman’

The audit office on Tuesday released a report questioning the validity of the sale of property by an unnamed “well-known businessman” for €8.5 million less than the property’s originally agreed value and demanded why the tax department did not investigate the matter at the time.

It stated that the property had been valued at €19.35m in 2015 when an initial sales agreement was produced and signed, but that six months later, in June 2016, that agreement was cancelled and a new agreement was signed with the property valued at €10.85m.

This, it said, constitutes a 44 per cent drop in price, with this reduction in the property’s value left “undocumented” as “there is no relevant information in the tax files of the companies involved”.

It pointed out that the property was never independently valued and that no reasoning was given for any “impairment of the value of it” or any “rapid change in the conditions of the real estate market in the specific area” between December 2015 and June 2016.

“Furthermore, the payment terms appear to have remained essentially the same in both agreements,” it said, before pointing out that “the sellers appear to be waiving the [€8.5m] without receiving any consideration or benefit”.

This, it said, “is an issue which in our opinion should have been investigated by the tax department due to the high risk involved in such transactions”.

It also pointed out that had the sale at the original €19.35m gone through, the selling party would have made a taxable gain of €760,000 on the recognised value of the property, which it stated was €18.59m.

Instead, it said, the cut-price transaction resulted in the selling party recording a loss of €7.74m against the value of the property, which was then utilised to write off €4.45m worth of taxable corporate profits for the year 2016.

It said that as such, the tax department’s failure to investigate the sale “may have led to” the government losing out on tax revenue and the “acceptance of a sale price which may not correspond to market purchase prices”, which is an offence.

Additionally, it said, the cut-price nature of the transaction may have led to the government losing out on the possible collection of value added tax on the sale.

To rectify this, it said it recommends that the tax department “secure independent valuation estimates of the property’s market value” in both December 2015 and June 2016.

Following on from this, it said, the department must “take into account any discrepancy between the estimated value and the agreed sale price” and then “conduct a revised tax audit for the two agreements”.

“Depending on the findings, where required, [it must] impose taxation, in accordance with the relevant legislation,” it said, before pointing out that this must be done before the 12-year statute of limitations on backdated tax collection is up.