Finance Act, 1965
Dispositions in favour of certain companies, etc.
20.—(1) In this section—
“company” means a body corporate (wherever incorporated)—
(a) in which the number of shareholders (excluding employees who are not directors of the company and any shareholder who is such as nominee of a beneficial owner of shares) is not more than fifty,
(b) which has not issued any of its shares as a result of a public invitation to subscribe for shares, and
(c) which is under the control of not more than five persons;
“company controlled by the deceased” means a company which was under the control of any one or more of the deceased, the relatives of the deceased, nominees of the deceased, or nominees of the relatives of the deceased—
(a) in a case in which the deceased died two years or more after the passing of this Act, within the period of five years before the death;
(b) in any other case, within the period commencing three years before the passing of this Act and ending at the death;
“control” means, in relation to a body corporate, the power of a person to secure, by means of the holding of shares or the possession of voting power in or in relation to that or any other body corporate, or by virtue of any powers conferred by the articles of association or other document regulating that or any other body corporate, that the affairs of the first-mentioned body corporate are conducted in accordance with the wishes of that person;
“deceased” means a person who dies after the passing of this Act;
“income” in relation to a company includes profits arising from trade;
“nominee” means a person (including a trustee) who may be required to exercise his voting power on the directions of, or holds shares directly or indirectly on behalf of, another person;
“non-trading company” means a company the income whereof in the twelve months preceding the death of the deceased consisted mainly of income which, if the company were an individual, would not be earned income as defined in subsection (3) of section 14 of the Income Tax Act, 1918;
“relative” means a husband or wife, ancestor, lineal descendant, or brother or sister or descendant of a brother or sister.
(2) For the purposes of this section—
(a) a company shall be deemed to be under the control of not more than five persons if any five or fewer persons together exercise, or are able to exercise, or are entitled to acquire, control, whether direct or indirect, of the company and for this purpose persons who are relatives of one another, persons who are nominees of any other person together with that other person, persons in partnership and persons interested in any shares or obligations of the company which are subject to any trust or are part of the estate of a deceased person shall respectively be treated as a single person, and
(b) a company which is controlled by any one or more of the deceased and relatives of the deceased shall be regarded as being itself a relative of the deceased.
(3) (a) Where the deceased has, either before or after the passing of this Act, made a disposition of property in favour of a company controlled by the deceased, the property shall, for all purposes of estate duty, be deemed to be property taken by the company under a disposition operating as an immediate gift inter vivos within the meaning of paragraph (c) of subsection (1) of section 2 of the Finance Act, 1894, and any consideration received by the deceased in relation thereto shall not be treated as consideration for the purpose either of section 3 of the Finance Act, 1894, or of subsection (1) of section 7 of that Act.
(b) Where the consideration received by the deceased for a disposition to which paragraph (a) of this subsection applies and which was made within five years of his death, or property representing such consideration, is liable to estate duty in connection with his death, the following provision shall have effect: In determining the value for estate duty purposes of the property taken under the disposition there shall be deducted, from the value which would be liable to duty if this paragraph had not been enacted, the value on which estate duty is payable of the consideration or of the property representing the consideration.
(4) (a) Where—
(i) the deceased had at any time, whether before or after the passing of this Act, made a disposition of property in favour of a company controlled by the deceased, and
(ii) he was at any time within five years of his death in receipt or enjoyment of income or benefits from the company other than dividends or interest on stock, shares, or debentures of the company,
he shall be deemed to have had an interest ceasing on his death in the net assets of the company within the meaning of paragraph (b) of subsection (1) of section 2 of the Finance Act, 1894, with the exclusion from that paragraph of the words “holder of an office, or”.
(b) The interest to which paragraph (a) of this subsection refers shall be deemed to be an annuity equivalent to the average annual amount received or enjoyed by way of income or benefits in the relevant period, that is to say, the period of five years immediately preceding the death of the deceased and in relation to the said interest the following provisions shall apply:
(i) where the benefits enjoyed consist of or include the occupation or possession of lands or chattels, the value of the occupation or possession shall be determined in the same manner as the value of similar benefits is determined under the provisions of subsection (5) of section 21 of this Act;
(ii) where the income or benefits purport to be or to include remuneration for services rendered by the deceased to the company, the Revenue Commissioners shall deduct from the said average annual amount such sum as appears to them to be reasonable remuneration in all the circumstances of the case.
(c) In the application of subsection (7) of section 7 of the Finance Act, 1894, to the cesser of an interest to which paragraph (a) of this subsection refers—
(i) the annual net income of the company shall be deemed to be the average of the total net income received in all accounting years or parts of accounting years falling within the relevant period referred to in paragraph (b) of this subsection;
(ii) the net value of the assets of the company shall be computed by deducting, from the principal value of the gross assets of the company at the date of death of the deceased, the liabilities of the company other than debts or liabilities due to a relative of the deceased which were not bona fide incurred for full consideration in money or money's worth given by the relative to the company.
(5) Where there pass on a death securities, whether stock or shares or debentures, in a non-trading company which is a company controlled by the deceased, the value, for all purposes of death duties, of the securities shall be such sum as would have been payable in respect of them to their owner if the company had been voluntarily wound up and all the assets realised on the date in relation to which the value is to be determined.
Where the assets of the company include securities of a second non-trading company, the value shall be ascertained on the basis that the second company is also voluntarily wound up and its assets realised on the relevant date, and if the assets of the second company include securities of a third non-trading company, the value shall be ascertained on the basis that the third company is also voluntarily wound up and its assets realised on the relevant date, and so on.
In determining such sum, no allowance shall be made for the costs of winding up any company or of realising its assets.
(6) Where any one or more of the deceased and relatives of the deceased had, directly or indirectly, control of a company by reason of the ownership of shares—
(a) in a case in which the deceased died two years or more after the passing of this Act, within the period of five years before the death,
(b) in any other case, within the period commencing three years before the passing of this Act and ending at the death,
the value of each such share passing or deemed to pass on the death of the deceased under his will or intestacy or by reason of a disposition made by him shall, for all purposes of death duties, be determined as if it formed part of a group of shares sufficient in number to give to the owner of the group control of the company.
(7) Where amongst the property passing on a death there is included a debt due to the deceased by a company controlled by the deceased, the value of the debt for all purposes of death duties shall be determined on the basis that the debt was immediately payable on the date in relation to which the value is to be ascertained.
(8) A disposition to or for the benefit of a relative of the deceased made by a company controlled by the deceased, where at the time of the disposition or at any time within a period of one year prior thereto the deceased alone had control of the company, shall, for all purposes of death duties, be deemed to be a disposition made by the deceased to or for the benefit of the relative, and any consideration for the disposition given to the company shall be deemed to be consideration given to the deceased in relation to the disposition so deemed to be made by him.