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39 1997

TAXES CONSOLIDATION ACT, 1997

CHAPTER 9

Taxation of acquisition by a company of its own shares

Interpretation ( Chapter 9 ).

[FA91 s59; FA97 s39(1)(a)]

173. —(1) In this Chapter—

chargeable period” means an accounting period of a company or a year of assessment;

control” shall be construed in accordance with section 11 ;

group” means a company which has one or more 51 per cent subsidiaries together with those subsidiaries;

holding company” means a company whose business, disregarding any trade carried on by it, consists wholly or mainly of the holding of the shares or securities of one or more companies which are its 51 per cent subsidiaries;

inspector”, in relation to any matter, means an inspector of taxes appointed under section 852 , and includes such other officer as the Revenue Commissioners shall appoint in that behalf;

personal representative” has the same meaning as in section 799 ;

quoted company” means a company whose shares, or any class of whose shares, are listed in the official list of a stock exchange or dealt in on an unlisted securities market;

shares” includes stock;

trade” does not include dealing in shares, securities, land, futures or traded options, and

trading activities” shall be construed accordingly;

trading company” means a company whose business consists wholly or mainly of the carrying on of a trade or trades;

trading group” means a group the business of whose members taken together consists wholly or mainly of the carrying on of a trade or trades.

(2) References in this Chapter to the owner of shares shall be treated as references to the beneficial owner except where the shares are held on trusts other than bare trusts, or are comprised in the estate of a deceased person, and in such a case shall be treated as references to the trustees or, as the case may be, to the deceased's personal representatives.

(3) References in this Chapter to a payment made by a company include references to anything else that is, or but for section 175 or 176 would be, a distribution.

(4) References in this Chapter to a company being unquoted shall be treated as references to a company which is neither a quoted company nor a 51 per cent subsidiary of a quoted company.

Taxation of dealer's receipts on purchase of shares by issuing company or by its subsidiary.

[FA91 s60]

174. —(1) In this section—

fixed-rate preference shares” means shares which—

(a) were issued wholly for new consideration,

(b) do not carry any right either to conversion into shares or securities of any other description or to the acquisition of any additional shares or securities,

(c) do not carry any right to dividends other than dividends which are of a fixed amount or at a fixed rate per cent of the nominal value of the shares, and

(d) carry rights in respect of dividends and capital which are comparable with those general for fixed-dividend shares quoted on a stock exchange in the State;

new consideration” has the meaning assigned to it by section 135 .

(2) Where—

(a) a company purchases its own shares from a dealer, or

(b) a company, which is a subsidiary (within the meaning of section 155 of the Companies Act, 1963 ) of another company, purchases the other company's shares from a dealer,

the purchase price shall be taken into account in computing the profits of the dealer chargeable to tax under Case I or II of Schedule D, and accordingly—

(i) tax shall not be chargeable under Schedule F in respect of any distribution represented by any part of the price,

(ii) the dealer shall not be entitled to a tax credit in respect of the distribution under section 136 , and

(iii) sections 129 and 152 shall not apply to the distribution.

(3) For the purposes of subsection (2), a person shall be a dealer in relation to shares of a company if the price received on their sale by the person other than to the company, or to a company which is a subsidiary (within the meaning of section 155 of the Companies Act, 1963 ) of the company, would be taken into account in computing the person's profits chargeable to tax under Case I or II of Schedule D.

(4) Subject to subsection (5), in subsection (2)—

(a) the reference to the purchase of shares includes a reference to the redemption or repayment of shares and the purchase of rights to acquire shares, and

(b) the reference to the purchase price includes a reference to any sum payable on redemption or repayment.

(5) Subsection (2) shall not apply in relation to—

(a) the redemption of fixed-rate preference shares, or

(b) the redemption, on binding terms settled before the 18th day of April, 1991, of other preference shares issued before that date,

if in either case the shares were issued to and continuously held by the person from whom they are redeemed.

Purchase of own shares by quoted company.

[FA91 s60A; FA97 s39(1)(b) and (2)]

175. —(1) Notwithstanding Chapter 2 of this Part, references in the Tax Acts to distributions of a company shall be construed so as not to include references to a payment made on or after the 26th day of March, 1997, by a quoted company on the redemption, repayment or purchase of its own shares.

(2) References in subsection (1) to a quoted company shall include references to a company which is a member of a group of which a quoted company is a member.

Purchase of unquoted shares by issuing company or its subsidiary.

[FA91 s61]

176. —(1) Notwithstanding Chapter 2 of this Part, references in the Tax Acts to distributions of a company, other than any such references in sections 440 and 441 , shall be construed so as not to include references to a payment made by a company on the redemption, repayment or purchase of its own shares if the company is an unquoted trading company or the unquoted holding company of a trading group and either—

(a) (i) the redemption, repayment or purchase—

(I) is made wholly or mainly for the purpose of benefiting a trade carried on by the company or by any of its 51 per cent subsidiaries, and

(II) does not form part of a scheme or arrangement the main purpose or one of the main purposes of which is to enable the owner of the shares to participate in the profits of the company or of any of its 51 per cent subsidiaries without receiving a dividend,

and

(ii) the conditions specified in sections 177 to 181 , in so far as applicable, are satisfied in relation to the owner of the shares, or

(b) the person to whom the payment is made—

(i) applies the whole or substantially the whole of the payment (apart from any sum applied in discharging that person's liability to capital gains tax, if any, in respect of the redemption, repayment or purchase) to discharging—

(I) within 4 months of the valuation date (within the meaning of section 21 of the Capital Acquisitions Tax Act, 1976 ) of a taxable inheritance of the company's shares taken by that person, a liability to inheritance tax in respect of that inheritance, or

(II) within one week of the day on which the payment is made, a debt incurred by that person for the purpose of discharging that liability to inheritance tax,

and

(ii) could not without undue hardship have otherwise discharged that liability to inheritance tax and, where appropriate, the debt so incurred.

(2) Where subsection (1) would apply to a payment made by a company which is a subsidiary (within the meaning of section 155 of the Companies Act, 1963 ) of another company on the acquisition of shares of the other company if for the purposes of the Tax Acts other than this subsection—

(a) the payment were to be treated as a payment by the other company on the purchase of its own shares, and

(b) the acquisition by the subsidiary of the shares were to be treated as a purchase by the other company of its own shares,

then, notwithstanding Chapter 2 of this Part, references in the Tax Acts to distributions of a company, other than references in sections 440 and 441 , shall be construed so as not to include references to the payment made by the subsidiary.

Conditions as to residence and period of ownership.

[FA91 s62]

177. —(1) In this section and in sections 178 to 181

the purchase” means the redemption, repayment or purchase referred to in section 176 (1)(a);

the vendor” means the owner of the shares immediately before the purchase is made.

(2) The vendor shall be resident and ordinarily resident in the State for the chargeable period in which the purchase is made and, if the shares are held through a nominee, the nominee shall also be so resident and ordinarily resident.

(3) The residence and ordinary residence of trustees shall be determined for the purposes of this section as they are determined under section 574 for the purposes of the Capital Gains Tax Acts.

(4) The residence and ordinary residence of personal representatives shall be taken for the purposes of this section to be the same as the residence and ordinary residence of the deceased immediately before his or her death.

(5) The references in this section to a person's ordinary residence shall be disregarded in the case of a company.

(6) The shares shall have been owned by the vendor throughout the period of 5 years ending on the date of the purchase.

(7) Where at any time during that period the shares were transferred to the vendor by a person who was then the vendor's spouse living with the vendor, then, unless that person is alive at the date of the purchase but is no longer the vendor's spouse living with the vendor, any period during which the shares were owned by that person shall be treated for the purposes of subsection (6) as a period of ownership by the vendor.

(8) Where the vendor became entitled to the shares under the will or on the intestacy of a previous owner or is the personal representative of a previous owner—

(a) any period during which the shares were owned by the previous owner or the previous owner's personal representatives shall be treated for the purposes of subsection (6) as a period of ownership by the vendor, and

(b) that subsection shall apply as if it referred to 3 years instead of 5 years.

(9) In determining whether the condition in subsection (6) is satisfied in a case where the vendor acquired shares of the same class at different times—

(a) shares acquired earlier shall be taken into account before shares acquired later, and

(b) any previous disposal by the vendor of shares of that class shall be assumed to be a disposal of shares acquired later rather than of shares acquired earlier.

(10) Where for the purposes of capital gains tax the time when a person acquired shares would be determined under section 584 , 585 , 586 , 587 or 600 , then, unless the person is to be treated under section 584 (4) as giving or becoming liable to give any consideration, other than the old holding, for the acquisition of those shares, it shall be determined in the same way for the purposes of this section.

Conditions as to reduction of vendor's interest as shareholder.

[FA91 s63]

178. —(1) Where immediately after the purchase the vendor owns shares in the company, the vendor's interest as a shareholder shall, subject to section 181 , be substantially reduced.

(2) Where immediately after the purchase any associate of the vendor owns shares in the company, the combined interest as shareholders of the vendor and the vendor's associates shall, subject to section 181 , be substantially reduced.

(3) The question whether the combined interests as shareholders of the vendor and the vendor's associates are substantially reduced shall be determined in the same way as is (under subsections (4) to (7)) the question whether a vendor's interest as a shareholder is substantially reduced, except that the vendor shall be assumed to have the interests of the vendor's associates as well as the vendor's own interests.

(4) Subject to subsection (5), the vendor's interest as a shareholder shall be taken to be substantially reduced only if the total nominal value of the shares owned by the vendor immediately after the purchase, expressed as a percentage of the issued share capital of the company at that time, does not exceed 75 per cent of the corresponding percentage immediately before the purchase.

(5) The vendor's interest as a shareholder shall not be taken to be substantially reduced where—

(a) the vendor would, if the company distributed all its profits available for the distribution immediately after the purchase, be entitled to a share of those profits, and

(b) that share, expressed as a percentage of the total of those profits, exceeds 75 per cent of the corresponding percentage immediately before the purchase.

(6) In determining for the purposes of subsection (5) the division of profits among the persons entitled to them, a person entitled to periodic distributions calculated by reference to fixed rates or amounts shall be regarded as entitled to a distribution of the amount or maximum amount to which the person would be entitled for a year.

(7) In subsection (5), “profits available for distribution” has the same meaning as it has for the purposes of Part IV of the Companies (Amendment) Act, 1983, except that for the purposes of that subsection the amount of the profits available for distribution (whether immediately before or immediately after the purchase) shall be treated as increased—

(a) in the case of every company, by £100, and

(b) in the case of a company from which any person is entitled to periodic distributions of the kind mentioned in subsection (6), by a further amount equal to that required to make the distribution to which that person is entitled in accordance with that subsection,

and, where the aggregate of the sums payable by the company on the purchase and on any contemporaneous redemption, repayment or purchase of other shares of the company exceeds the amount of the profits available for distribution immediately before the purchase, that amount shall be treated as further increased by an amount equal to the excess.

(8) References in this section to entitlement are, except in the case of trustees and personal representatives, references to beneficial entitlement.

Conditions applicable where purchasing company is member of a group.

[FA91 s64]

179. —(1) Subject to subsections (2) to (4), in this section, “group” means a company which has one or more 51 per cent subsidiaries but is not itself a 51 per cent subsidiary of any other company, together with those subsidiaries.

(2) Where the whole or a significant part of the business carried on by an unquoted company (in this section referred to as “the successor company”) was previously carried on by—

(a) the company making the purchase, or

(b) a company which apart from this subsection is a member of a group to which the company making the purchase belongs,

the successor company and any company of which it is a 51 per cent subsidiary shall be treated as being a member of the same group as the company making the purchase, whether or not apart from this subsection the company making the purchase is a member of a group.

(3) Subsection (2) shall not apply if the successor company first carried on the business referred to in that subsection more than 3 years before the time of the purchase.

(4) For the purposes of this section, a company which has ceased to be a 51 per cent subsidiary of another company before the time of the purchase shall be treated as continuing to be such a subsidiary if at that time there exist arrangements under which it could again become such a subsidiary.

(5) Subject to section 181 , where the company making the purchase is immediately before the purchase a member of a group and immediately after the purchase—

(a) the vendor owns shares in one or more other members of the group, whether or not the vendor then owns shares in the company making the purchase, or

(b) the vendor owns shares in the company making the purchase and immediately before the purchase the vendor owned shares in one or more members of the group,

the vendor's interest as a shareholder in the group shall be substantially reduced.

(6) Subject to section 181 , where the company making the purchase is immediately before the purchase a member of a group, and at that time an associate of the vendor owns shares in any member of the group, the combined interests as shareholders in the group of the vendor and the vendor's associates shall be substantially reduced.

(7) Subject to subsection (8), in subsections (9) to (11), “relevant company” means the company making the purchase and any other company—

(a) in which the vendor owns shares, and

(b) which is a member of the same group as the company making the purchase,

immediately before or immediately after the purchase.

(8) The question whether the combined interests as shareholders in the group of the vendor and the vendor's associates are substantially reduced shall be determined in the same way as is (under this section) the question whether a vendor's interest as a shareholder in a group is substantially reduced, except that the vendor shall be assumed to have the interests of the vendor's associates as well as the vendor's own interests, and references in subsections (9) to (11) to a relevant company shall be construed accordingly.

(9) The vendor's interest as a shareholder in the group shall be ascertained by—

(a) expressing the total nominal value of the shares owned by the vendor in each relevant company as a percentage of the issued share capital of the company,

(b) adding together the percentages so obtained, and

(c) dividing the result by the number of relevant companies (including any in which the vendor owns no shares).

(10) Subject to subsection (11), the vendor's interest as a shareholder in the group shall be taken to be substantially reduced only if it does not exceed 75 per cent of the corresponding interest immediately before the purchase.

(11) The vendor's interest as a shareholder in the group shall not be taken to be substantially reduced where—

(a) the vendor would, if every member of the group distributed all its profits available for distribution immediately after the purchase (including any profits received by it on a distribution by another member), be entitled to a share of the profits of one or more or them, and

(b) that share, or the aggregate of those shares, expressed as a percentage of the aggregate of the profits available for distribution of every member of the group which is—

(i) a relevant company, or

(ii) a 51 per cent subsidiary of a relevant company,

exceeds 75 per cent of the corresponding percentage immediately before the purchase.

(12) Subsections (6) and (7) of section 178 shall apply for the purposes of subsection (11) as they apply for the purposes of subsection (5) of that section.

Additional conditions.

[FA91 s65]

180. —(1) In this section, “group” has the same meaning as in section 179 .

(2) Subject to section 181 , the vendor shall not immediately after the purchase be connected with the company making the purchase or with any company which is a member of the same group as that company.

(3) Subject to section 181 , the purchase shall not be part of a scheme or arrangement which is designed or likely to result in the vendor or any associate of the vendor having interests in any company such that, if the vendor or any associate of the vendor had those interests immediately after the purchase, any of the conditions in sections 178 and 179 and subsection (2) could not be satisfied.

(4) A transaction occurring within one year after the purchase shall be deemed for the purposes of subsection (3) to be part of a scheme or arrangement of which the purchase is also part.

Relaxation of conditions in certain cases.

[FA91 s66]

181. —Where—

(a) any of the conditions in sections 178 to 180 which are applicable are not satisfied in relation to the vendor, but

(b) the vendor proposed or agreed to the purchase in order to produce the result that the condition in section 178 (2) or 179 (6), which could not otherwise be satisfied in respect of the redemption, repayment or purchase of shares owned by a person of whom the vendor is an associate, could be satisfied in that respect,

then, if that result is produced by virtue of the purchase, section 176 (1)(a) shall apply, as respects so much of the purchase as was necessary to produce that result, as if the conditions in sections 178 to 180 were satisfied in relation to the vendor.

Returns.

[FA91 s67]

182. —(1) In this section, “appropriate inspector” and “prescribed form” have the same meanings respectively as in Part 41 .

(2) Where a company makes a payment which it treats as one to which subsection (1) or (2) of section 176 applies, the company shall make a return in a prescribed form to the appropriate inspector of—

(a) the payment,

(b) the circumstances by reason of which that subsection is regarded as applying to it, and

(c) such further particulars as may be required by the prescribed form.

(3) A company shall make a return under this section—

(a) within 9 months from the end of the accounting period in which it makes the payment, or

(b) if, at any time after the payment is made, the inspector by notice in writing requests such a form, within the time (which shall not be less than 30 days) limited by such notice.

(4) Section 1071 shall, with any necessary modifications, apply in relation to a return under this section as it applies in relation to a return under section 884 .

Information.

[FA91 s68(1) to (3)]

183. —(1) Where a company treats a payment made by it as one to which subsection (1)(a) or (2) of section 176 applies, any person connected with the company who knows of any such scheme or arrangement affecting the payment as is mentioned in section 180 (3) shall, within 60 days after that person first knows of both the payment and the scheme or arrangement, give a notice to the inspector containing particulars of the scheme or arrangement.

(2) Where the inspector has reason to believe that a payment treated by the company making it as one to which subsection (1)(a) or (2) of section 176 applies may form part of a scheme or arrangement of the kind referred to in that section or in section 180 (3), the inspector may by notice require the company or any person connected with the company to furnish to the inspector within such time, not being less than 60 days, as may be specified in the notice—

(a) a declaration in writing stating whether or not, according to information which the company or that person has or can reasonably obtain, any such scheme or arrangement exists or has existed, and

(b) such other information as the inspector may reasonably require for the purposes of the provision in question and the company or that person has or can reasonably obtain.

(3) (a) The recipient of a payment treated by the company making it as a payment to which subsection (1)(a) or (2) of section 176 applies shall, if so required by the inspector, state whether the payment in question is received on behalf of any person other than such recipient and, if so, the name and address of that person.

(b) Any person on whose behalf a payment referred to in paragraph (a) is received shall, if so required by the inspector, state whether the payment in question is received on behalf of any person other than that person and, if so, the name and address of that other person.

Treasury shares.

[FA91 s70]

184. —(1) For the purposes of the Tax Acts and the Capital Gains Tax Acts—

(a) any shares which are—

(i) held by the company as treasury shares, and

(ii) not cancelled by the company,

shall be deemed to be cancelled immediately on their acquisition by the company,

(b) a deemed or actual cancellation of shares shall be treated as giving rise to neither a chargeable gain nor an allowable loss, and

(c) a reissue by the company of treasury shares shall be treated as an issue of new shares by it.

(2) For the purposes of this section, a reference to treasury shares shall be a reference to treasury shares within the meaning of section 209 of the Companies Act, 1990 .

Associated persons.

[FA91 s71]

185. —(1) Any question whether a person is an associate of another person in relation to a company shall be determined for the purposes of sections 176 to 183 and section 186 in accordance with the following provisions:

(a) a husband and wife living together shall be associates of one another, a person under the age of 18 shall be an associate of his or her parents, and his or her parents shall be the person's associates;

(b) a person who has control of a company shall be an associate of the company and the company shall be the person's associate;

(c) where a person who has control of one company has control of another company, the second company shall be an associate of the first company;

(d) where shares in a company are held by trustees other than bare trustees, then, in relation to that company but subject to subsection (2), the trustees shall be associates of—

(i) any person who directly or indirectly provided property to the trustees or has made a reciprocal arrangement for another person to do so,

(ii) any person who is by virtue of paragraph (a) an associate of a person within subparagraph (i), and

(iii) any person who is or may become beneficially entitled to a material interest in the shares,

and any such person shall be an associate of the trustees;

(e) where shares in a company are comprised in the estate of a deceased person, then, in relation to that company, the deceased's personal representatives shall be associates of any person who is or may become beneficially entitled to a material interest in the shares, and any such person shall be an associate of the personal representatives;

(f) where one person is accustomed to act on the directions of another person in relation to the affairs of a company, then, in relation to that company, the 2 persons shall be associates of one another.

(2) Subsection (1)(d) shall not apply to shares held on trusts which—

(a) relate exclusively to an exempt approved scheme within the meaning of Chapter 1 of Part 30 , or

(b) are exclusively for the benefit of the employees, or the employees and directors, of the company referred to in subsection (1)(d) or of companies in a group to which that company belongs, or their dependants, and are not wholly or mainly for the benefit of directors or their relatives,

and for the purposes of this subsection “group” means a company which has one or more 51 per cent subsidiaries, together with those subsidiaries.

(3) For the purposes of paragraphs (d) and (e) of subsection (1), a person's interest shall be a material interest if its value exceeds 5 per cent of the value of all the property held on the trusts or, as the case may be, comprised in the estate concerned, excluding any property in which the person is not and cannot become beneficially entitled to an interest.

Connected persons.

[FA91 s72; FA96 s131(9)(a)]

186. —(1) Any question whether a person is connected with a company shall, notwithstanding section 10 , be determined for the purposes of sections 176 to 183 in accordance with the following provisions:

(a) a person shall, subject to subsection (2), be connected with a company if the person directly or indirectly possesses or is entitled to acquire more than 30 per cent of—

(i) the issued ordinary share capital of the company,

(ii) the loan capital and issued share capital of the company, or

(iii) the voting power in the company;

(b) a person shall be connected with a company if the person directly or indirectly possesses or is entitled to acquire such rights as would, in the event of the winding up of the company or in any other circumstances, entitle the person to receive more than 30 per cent of the assets of the company which would then be available for distribution to equity holders of the company, and for the purposes of this paragraph—

(i) the persons who are equity holders of the company, and

(ii) the percentage of the assets of the company to which a person would be entitled,

shall be determined in accordance with sections 413 and 415 , but construing references in section 415 to the first company as references to an equity holder and references to a winding up as including references to other circumstances in which assets of the company are available for distribution to its equity holders;

(c) a person shall be connected with a company if the person has control of the company.

(2) Where a person—

(a) acquired or became entitled to acquire loan capital of a company in the ordinary course of a business carried on by the person, being a business which includes the lending of money, and

(b) takes no part in the management or conduct of the company,

the person's interest in that loan capital shall be disregarded for the purposes of subsection (1)(a).

(3) References in this section to the loan capital of a company are references to any debt incurred by the company—

(a) for any money borrowed or capital assets acquired by the company,

(b) for any right to receive income created in favour of the company, or

(c) for consideration the value of which to the company was at the time when the debt was incurred substantially less than the amount of the debt, including any premium on the debt.

(4) For the purposes of this section—

(a) a person shall be treated as entitled to acquire anything which the person is entitled to acquire at a future date or will at a future date be entitled to acquire, and

(b) a person shall be assumed to have the rights or powers of the person's associates as well as the person's own rights or powers.