Posted: August 25th, 2015

Jack Dundon and the Data Magic Ltd :casestudy

Jack Dundon moved back to Ireland on the 20th April 2008 to take up employment with a high-tech start-up company, Data Magic Ltd. (Irish incorporated and resident), under a 4 year employment contract. He acquired a 5.01% shareholding in the company within 6 months of commencing employment costing €10,000.This represented an arm’s length consideration. Jack is Irish domiciled having Irish parents who were Irish domiciled.

After qualifying in software engineering from the University of Limerick Jack worked in the US with Micro Genius, a software development training organisation in Chicago, until he came to work in Ireland in April 2008.

Data Magic Ltd grew exponentially and had a market value of €35m in 2012. One of the large ICT companies in the US has suggested they may be willing to buy out the existing shareholders for a straight cash price. Jack decides to relocate overseas prior to the share sale in an attempt to mitigate his capital gains tax liability in Ireland. He ceased to be tax-resident in Ireland from the 29th January 2013, at which time the shares in Data Magic Ltd derived their value from the technology they owned. His shareholding was valued at €8.75m in January 2013; you can assume this was their value as of 31 December 2012. He has presented to you, his tax advisor, with a number of different scenarios on which he seeks your tax advice.

Requirement:

Write a letter to Jack setting out what his CGT position would be in the following situations:-

(a) If he sells the shares in July 2013 for €10m and returns to Ireland (and becomes tax resident) in a tax year before 2019.

(b) If he sells the shares in 2016 for €14m and :

(i) returns to Ireland (and becomes tax resident) in the 2018 tax year
(ii) returns to Ireland (and becomes tax resident) in the 2019 tax year.

(c) If it could be established that Jack was not domiciled in Ireland at any stage during his lifetime up to (and including) the time of the sale of the shares, would it make a difference to the outcomes of your advice in both (a) and (b) above. You are not required to recalculate the figures at (a) or (b).

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