First Previous (Chapter VII Urban Renewal: Temple Bar and Other Areas) Next (PART II Customs and Excise)

13 1991

FINANCE ACT, 1991

Chapter VIII

Taxation of Acquisition by a Company of its Own Shares

Interpretation ( Chapter VIII ).

59. —(1) In this Chapter—

the Act of 1975” means the Capital Gains Tax Act, 1975 ;

the Act of 1976” means the Corporation Tax Act, 1976 ;

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

control” has the meaning given by section 158 of the Act of 1976;

holding company” means a company whose business, disregarding any trade carried on by it, consists wholly or mainly of the holding of 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 161 of the Income Tax Act, 1967 , and includes such other officer as the Revenue Commissioners shall appoint in that behalf;

personal representatives” has the meaning assigned to it by section 450 (2) (a) of the Income Tax Act, 1967 ;

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;

relevant day” means the day on which Part XI of the Companies Act, 1990 , comes into operation by order of the Minister for Industry and Commerce under section 2 of that Act;

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

(2) References in this Chapter to the owner of shares are 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 are 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 would but for section 61 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.

60. —(1) Where on or after the relevant day—

(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 in respect of the distribution to a tax credit under section 88 of the Act of 1976, and

(iii) sections 2, 5 and 83 (5) of the Act of 1976 shall not apply to the distribution.

(2) For the purposes of subsection (1) a person is a dealer in relation to shares of a company if the price received on their sale by him otherwise 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 his profits chargeable to tax under Case I or II of Schedule D.

(3) Subject to subsection (4), in subsection (1)—

(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.

(4) Subsection (1) 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.

(5) In this section—

fixed-rate preference shares” means shares which—

(a) were issued wholly for new consideration, and

(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, and

(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 given by section 87 of the Act of 1976.

Purchase of unquoted shares by issuing company or its subsidiary.

61. —(1) Notwithstanding any provision of Part IX of the Act of 1976, references in the Tax Acts to distributions of a company, other than any such references in sections 101 and 162 of the Act of 1976, shall be construed so as not to include references to a payment made on or after the relevant day 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 62 to 66 , 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 his 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 of a taxable inheritance of the company's shares taken by him, 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 him for the purpose of discharging the said 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 on or after the relevant day 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 all 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 any provision of Part IX of the Act of 1976, references in the Tax Acts to distributions of a company, other than references in sections 101 and 162 of the Act of 1976, shall be construed so as not to include references to the payment made by the subsidiary.

(3) In subsection (1) (b) (i)valuation date” has the meaning assigned to it by section 21 of the Capital Acquisitions Tax Act, 1976 .

Conditions as to residence and period of ownership.

62. —(1) In this section and sections 63 to 66

the purchase” means the redemption, repayment or purchase referred to in section 61 (1) (a);

the vendor” means the owner of the shares immediately before the purchase, so defined, 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 15 of the Act of 1975 for the purposes of that Act.

(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 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 with the date of the purchase.

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

(b) that subsection shall have effect 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 him of shares of that class shall be assumed to be a disposal of shares acquired later rather than of shares acquired earlier.

(10) If for the purposes of capital gains tax the time when a person acquired shares would be determined under any provision of Schedule 2 to the Act of 1975, then unless the person is to be treated under subparagraph (3) of paragraph 2 of the said Schedule as giving or becoming liable to give any consideration, other than the old holding, for his acquisition of those shares it shall be determined in the same way for the purposes of this section.

Reduction of vendor's interest as shareholder.

63. —(1) If immediately after the purchase the vendor owns shares in the company, then, subject to section 66 , the vendor's interest as a shareholder must be substantially reduced.

(2) If immediately after the purchase any associate of the vendor owns shares in the company then, subject to section 66 , the combined interests as shareholders of the vendor and his associates must be substantially reduced.

(3) The question whether the combined interests as shareholders of the vendor and his associates are substantially reduced shall be determined in the same way as is (under the following subsections of this section) 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 his associates as well as his own.

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

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

(a) he 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 fraction of the total of those profits, exceeds 75 per cent. of the corresponding fraction 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 he 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 he 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 group.

64. —(1) Subject to section 66 , 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 he 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 he owned shares in one or more other members of the group,

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

(2) Subject to subsection (4), in subsections (5) to (7)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.

(3) Subject to section 66 , 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 his associates shall be substantially reduced.

(4) The question whether the combined interests as shareholders in the group of the vendor and his associates are substantially reduced shall be determined in the same way as is (under the following subsections of 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 his associates as well as his own, and references in subsections (5) to (7) to a relevant company shall be construed accordingly.

(5) 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 him in each relevant company as a fraction of the issued share capital of the company,

(b) adding together the fractions so obtained, and

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

(6) Subject to subsection (7), the vendor's interest as a shareholder in the group shall be taken to be substantially reduced if and only if it does not exceed 75 per cent. of the corresponding interest immediately before the purchase.

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

(a) he 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 of them, and

(b) that share, or the aggregate of those shares, expressed as a fraction 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 fraction immediately before the purchase.

(8) Subsections (6) and (7) of section 63 shall apply for the purposes of subsection (7) as they apply for the purposes of subsection (5) of that section.

(9) Subject to subsections (10) to (12), 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.

(10) Where the whole or a significant part of the business carried on by an unquoted company (hereafter 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 is, apart from this subsection, 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.

(11) Subsection (10) shall not apply if the successor company first carried on the business there referred to more than three years before the time of the purchase.

(12) 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.

Additional conditions to those otherwise provided for.

65. —(1) Subject to section 66 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.

(2) In subsection (1)group” has the same meaning as it has for the purposes of section 64 .

(3) Subject to section 66 , 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 his having interests in any company such that, if he had those interests immediately after the purchase, any of the conditions in sections 63 and 64 and subsection (1) 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.

66. —Where—

(a) any of the conditions in sections 63 to 65 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 63 (2) or 64 (3), which could not otherwise be satisfied in respect of the redemption, repayment or purchase of shares owned by a person of whom he is an associate, could be satisfied in that respect,

then, if that result is produced by virtue of the purchase, section 61 (1) (a) shall have effect, as respects so much of the purchase as was necessary to produce the said result, as if the conditions in sections 63 to 65 were satisfied in relation to the vendor.

Returns.

67. —(1) (a) Where a company makes a payment which it treats as one to which subsection (1) or (2) of section 61 applies, it shall make a return in a prescribed form to the appropriate inspector of the payment, the circumstances by reason of which that subsection is regarded as applying to it and such further particulars as may be required by the prescribed form.

(b) In this subsection “appropriate inspector” and “prescribed form” shall have the meanings which are assigned to them, respectively, in Chapter II of the Finance Act, 1988 .

(2) 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.

(3) The provisions of subsection (8) of section 143 of the Act of 1976 shall, with any necessary modifications, apply in relation to a return under the provisions of this section, as they apply in relation to a return under the provisions of the said section 143.

Information.

68. —(1) Where a company treats a payment made by it as one to which subsection (1) (a) or (2) of section 61 applies, any person connected with the company who knows of any such scheme or arrangement affecting the payment as is mentioned in section 65 (3) shall, within 60 days after he 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 61 applies may form part of a scheme or arrangement of the kind referred to therein or in section 65 (3), he may by notice require the company or any person who is connected with the company to furnish him within such time, not being less than 60 days, as may be specified in the notice with—

(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) The recipient of a payment treated by the company making it as one to which subsection (1) (a) or (2) of section 61 applies, and any person on whose behalf such a payment is received, shall if so required by the inspector state whether the payment received by him or on his behalf is received on behalf of any person other than himself and, if so, the name and address of that person.

(4) Schedule 15 to the Income Tax Act, 1967 , is hereby amended by the insertion in column 2 of “Finance Act, 1991, section 68”.

Advance corporation tax.

69. —Chapter VII of Part I of the Finance Act, 1983 , is hereby amended, as respects distributions made on or after the relevant day,

(a) by the insertion after subsection (8) of section 45 of the following subsection:

“(9) References in this section to dividends shall be construed as including references to distributions on the redemption, repayment or purchase by a company of its own shares or on the acquisition of those shares by another company which is a subsidiary (within the meaning of section 155 of the Companies Act, 1963 ) of the company, and references to the payment of dividends shall be construed accordingly.”,

and

(b) by the addition to subsection (1) of section 47 of the following paragraph after paragraph (b):

“(c) For the purposes of paragraph (a) the reference to a dividend paid by a company shall be construed as including a reference to a distribution made by the company on the redemption, repayment or purchase of its own shares or by another company which is a subsidiary (within the meaning of section 155 of the Companies Act, 1963 ) of the company on the acquisition of those shares.”.

Treasury shares.

70. —(1) For all 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 upon 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 re-issue 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.

71. —(1) Any question whether a person is an associate of another in relation to a company shall be determined for the purposes of sections 61 to 68 and section 72 in accordance with the following provisions, that is to say:

(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 parents, and his parents are his associates;

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

(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 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 in relation to the affairs of a company, then in relation to that company, the two 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 as defined in Chapter II of Part I of the Finance Act, 1972 , or

(b) are exclusively for the benefit of the employees, or the employees and directors, of the company referred to in the said 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 is 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 he is not and cannot become beneficially entitled to an interest.

Connected persons.

72. —(1) Any question whether a person is connected with a company shall, notwithstanding section 33 of the Act of 1975 and section 157 of the Act of 1976, be determined for the purposes of sections 61 to 68 in accordance with the following provisions, that is to say:

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

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

(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 he 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 him 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 109 and 111 of the Act of 1976, but construing references in the said section 111 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 he has control of it.

(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 him, being a business which includes the lending of money, and

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

(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 thereon.

(4) For the purposes of this section a person shall be treated as entitled to acquire anything which he is entitled to acquire at a future date or will at a future date be entitled to acquire.

(5) For the purposes of this section a person shall be assumed to have the rights or powers of his associates as well as his own.