Finance Act 2004

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“Exemption from tax in the case of gains on certain disposals of shares.

626B.—(1) (a) In this section, section 626C and Schedule 25A—

‘investor company’ and ‘investee company’ have the meanings assigned by subsection (2);

‘relevant territory’ means—

(i) a Member State of the European Communities, or

(ii) not being such a Member State, a territory with the government of which arrangements having the force of law by virtue of section 826(1)(a) have been made;

‘relevant time’, in relation to a disposal by an investor company of shares in an investee company, means—

(i) for the purposes of subsection (2)(a)(i)(II), the time immediately before—

(I) that disposal, or

(II) any previous disposal—

(A) at a time within the period, or if there was more than one such period the most recent period, during which the investor company was a parent company of the investee company, or

(B) within the 2 year period beginning on the most recent day on which the investor company was a parent company of the investee company,

and

(ii) for the purposes of subsection (2)(a)(ii)(II), the time immediately before—

(I) that disposal, or

(II) any previous disposal—

(A) at a time within the period, or if there was more than one such period the most recent period, during which the investor company would have been a parent company of the investee company, or

(B) within the 2 year period beginning on the most recent day on which the investor company would have been a parent company of the investee company,

if in subsection (1)(b)(i) ‘5 per cent’ were substituted for ‘10 per cent’ in each place where it occurs;

‘tax’ in relation to a relevant territory other than the State means any tax imposed in that territory which corresponds to income tax or corporation tax in the State;

‘2 year period’ means a period ending on the day before the second anniversary of the day on which the period began.

(b) For the purposes of this section, section 626C and Schedule 25A—

(i) a company shall only be a parent company in relation to another company at any time if that time falls within an uninterrupted period of not less than 12 months throughout which it directly or indirectly holds shares in that company by virtue of which—

(I) it holds not less than 10 per cent of the company's ordinary share capital,

(II) it is beneficially entitled to not less than 10 per cent of the profits available for distribution to equity holders of the company, and

(III) it would be beneficially entitled on a winding up to not less than 10 per cent of the assets of the company available for distribution to equity holders,

and for the purposes of this subparagraph—

(A) subsections (2) to (10) of section 9 shall apply with any necessary modifications, and

(B) sections 413 to 419 shall apply as they apply for the purposes of Chapter 5 of Part 12 but as if ‘in a relevant territory’ were substituted for ‘in the State’ in subparagraph (iii) of section 413(3)(a) and as if paragraph (c) of section 411(1), other than that paragraph as it applies by virtue of subparagraphs (i) and (ii), were disregarded,

(ii) in determining whether the conditions in paragraph (a) of subsection (2) are satisfied, a company that is a member of a group shall be treated as holding so much of any shares held by any other company in the group and as having so much of the entitlement of any such company to any rights enjoyed by virtue of holding shares—

(I) as the company would not, apart from this paragraph, hold or have, and

(II) as are not part of a life business fund within the meaning of section 719,

and, for the purposes of this subparagraph, ‘group’ means a company which has one or more 51 per cent subsidiaries together with those subsidiaries,

(iii) in determining whether the treatment provided for in subsection (2) applies, the question of whether there is a disposal shall be determined without regard to section 584 or that section as applied by any other section: and, to the extent to which an exemption under subsection (2) does apply in relation to a disposal, section 584 shall not apply in relation to the disposal,

(iv) where assets of a company are vested in a liquidator under section 230 of the Companies Act 1963 or otherwise, the assets shall be deemed to be vested in, and the acts of liquidation in relation to the assets shall be deemed to be the acts of, the company (and acquisitions from, and disposals to, the liquidator shall be disregarded accordingly),

(v) section 616 shall not apply.

(2) A gain accruing to a company (in this section referred to as the ‘investor company’) on a disposal of shares in another company (in this section referred to as the ‘investee company’) is not a chargeable gain if—

(a)  (i)  (I) the disposal by the investor company is at a time—

(A) when the investor company is a parent company of the investee company, or

(B) within the 2 year period beginning on the most recent day on which the investor company was a parent company of the investee company,

and

(II) the aggregate market value of shares held at a time which is a relevant time by the investor company in the investee company is not less than €15,000,000,

or

(ii)  (I) the disposal by the investor company is at a time—

(A) when the investor company would have been a parent company of the investee company, or

(B) within the 2 year period beginning on the most recent day on which the investor company would have been a parent company of the investee company,

if in subsection (1)(b)(i) ‘5 per cent’ were substituted for ‘10 per cent’ in each place where it occurs, and

(II) the aggregate market value of shares held at a time which is a relevant time by the investor company in the investee company is not less than €50,000,000,

(b) the investee company is, by virtue of the law of a relevant territory, resident for the purposes of tax in the relevant territory at the time of the disposal, and

(c) at the time of the disposal—

(i) the investee company is a company whose business consists wholly or mainly of the carrying on of a trade or trades, or

(ii) the business of—

(I) the investor company,

(II) each company of which the investor company is the parent company, and

(III) the investee company, if it is not a company referred to in clause (II), and any company of which the investee company is the parent company,

taken together consists wholly or mainly of the carrying on of a trade or trades.

(3) The treatment of a gain, as not being a chargeable gain, provided by this section and section 626C shall not apply—

(a) to a disposal that by virtue of any provision relating to chargeable gains is deemed to be for a consideration such that no gain or loss accrues to the person making the disposal,

(b) to a disposal a gain on which would, by virtue of any provision other than this section or section 626C, not be a chargeable gain,

(c) to disposals, including deemed disposals, of shares which are part of a life business fund within the meaning of section 719,

(d) to a disposal of shares deriving their value or the greater part of this value directly or indirectly from assets specified in paragraphs (a) and (b) of section 29(3).

(4) Schedule 25A shall have effect for the purposes of supplementing this section and section 626C.

Treatment of assets related to shares.

626C.—(1) For the purposes of this section—

(a) an asset is related to shares in a company if it is—

(i) an option to acquire or dispose of shares in that company,

(ii) a security to which are attached rights by virtue of which the holder is or may become entitled, whether by conversion or exchange or otherwise, to acquire or dispose of—

(I) shares in that company,

(II) an option to acquire or dispose of shares in that company, or

(III) another security falling within this paragraph,

or

(iii) an option to acquire or dispose of any security within subparagraph (ii) or an interest in any such security,

(b) in determining whether a security is within paragraph (a)(ii), no account shall be taken—

(i) of any rights attached to the security other than rights relating, directly or indirectly, to shares of the company in question, or

(ii) of rights as regards which, at the time the security came into existence, there was no more than a negligible likelihood that they would in due course be exercised to a significant extent.

(2) A gain accruing to a company (in this subsection referred to as the ‘first-mentioned company’) on the disposal of an asset related to shares in another company is not a chargeable gain if—

(a)  (i) immediately before the disposal the first-mentioned company holds shares in the other company, and

(ii) any gain accruing to the first-mentioned company on a disposal at that time of the shares would, by virtue of section 626B, not be a chargeable gain,

or

(b)  (i) immediately before the disposal the first-mentioned company does not hold shares in the other company but is a member of a group and another member of that group does hold shares in the other company, and

(ii) if the first-mentioned company, rather than the other member of the group, held the shares, any gain accruing to the first-mentioned company on a disposal at that time of the shares would, by virtue of section 626B, not be a chargeable gain;

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

“Section 626B Section 626C

SCHEDULE 25A

Exemption from Tax in the Case of Gains on Certain Disposals of Shares

Effect of earlier no-gain/no-loss transfer

1. (1) For the purposes of this paragraph shares are ‘derived’ from other shares only where—

(a) one holding of shares is treated by virtue of section 584 as the same asset as another, or

(b) there is a sequence of 2 or more of the occurrences mentioned in paragraph (a).

(2) The period for which a company has held shares is treated as extended by any earlier period during which the shares concerned, or shares from which they are derived, were held—

(a) by a company from which the shares concerned were transferred to the company on a no-gain/no-loss transfer, or

(b) by a company from which the shares concerned, or shares from which they are derived, were transferred on a previous no-gain/no-loss transfer—

(i) to a company within clause (a), or

(ii) to another company within this clause.

(3) For the purposes of subparagraph (2) a ‘no-gain/no-loss transfer’ means a disposal and corresponding acquisition that, by virtue of the Capital Gains Tax Acts, are deemed to be for a consideration such that no gain or loss accrues to the person making the disposal.

(4) Where subparagraph (2) applies to extend the period for which a company (in this paragraph referred to as the ‘first-mentioned company’) is treated as having held any shares, the first-mentioned company shall be treated for the purposes of section 626B(2)(a) as having had at any time the same entitlement—

(a) to shares, and

(b) to any rights enjoyed by virtue of holding shares,

as the company (in this paragraph referred to as the ‘other company’) that at that time held the shares concerned or, as the case may be, the shares from which they are derived.

(5) The shares and rights to be attributed to the first-mentioned company include any holding or entitlement attributed to the other company under section 626B(1)(b)(ii).

Effect of deemed disposal and reacquisition

2. (1) In this paragraph—

‘deemed disposal and reacquisition’ means a disposal and immediate reacquisition treated as taking place under the Capital Gains Tax Acts;

‘derived’ has the same meaning as in paragraph 1.

(2) A company is not regarded as having held shares throughout a period if, at any time during that period, there is a deemed disposal and reacquisition of—

(a) the shares concerned, or

(b) shares from which those shares are derived.

Effect of repurchase agreement

3. (1) In this paragraph a ‘repurchase agreement’ means an agreement under which—

(a) a person (in this paragraph referred to as the ‘original owner’) transfers shares to another person (in this paragraph referred to as the ‘interim holder’) under an agreement to sell them, and

(b) the original owner or a person connected with him is required to buy them back either—

(i) in pursuance of an obligation to do so imposed by that agreement or by any related agreement, or

(ii) in consequence of the exercise of an option acquired under that agreement or any related agreement,

and for the purposes of paragraph (b) agreements are related if they are entered into in pursuance of the same arrangements (regardless of the date on which either agreement is entered into).

(2) Any reference in this paragraph to the period of a repurchase agreement is a reference to the period beginning with the transfer of the shares by the original owner to the interim holder and ending with the repurchase of the shares in pursuance of the agreement.

(3) This paragraph applies where a company that holds shares in another company transfers the shares under a repurchase agreement.

(4) In determining whether the conditions in paragraph (a) of section 626B(2) are satisfied but subject to subparagraph (5)—

(a) the original owner shall be treated as continuing to hold the shares transferred and accordingly as retaining entitlement to any rights attached to them, and

(b) the interim holder shall be treated as not holding the shares transferred and as not becoming entitled to any such rights,

during the period of the repurchase agreement.

(5) If at any time before the end of the period of the repurchase agreement the original owner, or another member of the same group as the original owner, becomes the holder—

(a) of any of the shares transferred, or

(b) of any shares directly or indirectly representing any of the shares transferred,

subparagraph (4) does not apply after that time in relation to those shares or, as the case may be, in relation to the shares represented by those shares; and for the purposes of this subparagraph ‘group’ means a company which has one or more 51 per cent subsidiaries together with those subsidiaries.

Effect of stock lending arrangements

4. (1) In this paragraph a ‘stock lending arrangement’ means arrangements between two persons (in this paragraph referred to as the ‘borrower’ and the ‘lender’) under which—

(a) the lender transfers shares to the borrower otherwise than by way of sale, and

(b) a requirement is imposed on the borrower to transfer those shares back to the lender otherwise than by way of sale.

(2) Any reference in this paragraph to the period of a stock lending arrangement is a reference to the period beginning with the transfer of the shares by the lender to the borrower and ending—

(a) with the transfer of the shares back to the lender in pursuance of the arrangement, or

(b) when it becomes apparent that the requirement for the borrower to make a transfer back to the lender will not be complied with.

(3) This paragraph applies where a company that holds shares in another company transfers the shares under a stock lending arrangement.

(4) In determining whether the conditions in paragraph (a) of section 626B(2) are satisfied but subject to subparagraph (5)—

(a) the lender shall be treated as continuing to hold the shares transferred and accordingly as retaining entitlement to any rights attached to them, and

(b) the borrower shall be treated for those purposes as not holding the shares transferred and as not becoming entitled to any such rights,

during the period of the stock lending arrangement.

(5) (a) If at any time before the end of the period of the stock lending arrangement the lender, or another member of the same group as the lender, becomes the holder—

(i) of any of the shares transferred, or

(ii) of any shares directly or indirectly representing any of the shares transferred,

subparagraph (4) does not apply after that time in relation to those shares or, as the case may be, in relation to the shares represented by those shares.

(b) For the purposes of this subparagraph ‘group’ means a company which has one or more 51 per cent subsidiaries together with those subsidiaries.

Effect in relation to investee company of earlier company reconstruction etc.

5. (1) In this paragraph ‘original shares’ and ‘new holding’ shall be construed in accordance with sections 584, 586 and 587.

(2) This paragraph applies where shares in one company (in this paragraph referred to as the ‘first company’)—

(a) are exchanged (or deemed to be exchanged) for shares in another company (in this paragraph referred to as the ‘second company’), or

(b) are deemed to be exchanged by virtue of section 587 for shares in the first company and shares in the second company,

in circumstances such that, under section 584 as that section applies by virtue of section 586 or 587, the original shares and the new holding are treated as the same asset.

(3) Where the second company—

(a) is an investee company, and is accordingly the company by reference to which the shareholding requirement under section 626B(2)(a) falls to be met, or

(b) is a company by reference to which, by virtue of this paragraph, that requirement may be met,

that requirement may instead be met, in relation to times before the exchange, or deemed exchange, by reference to the first company.

(4) If in any case that requirement can be met by virtue of this paragraph, it shall be treated as met.

Negligible value

6. A claim under section 538(2) may not be made in relation to shares held by a company if by virtue of section 626B any loss accruing to the company on a disposal of the shares at the time of the claim, or at any earlier time at or after which the value of the shares becomes negligible, would not be an allowable loss.

Degrouping: time when deemed sale and reacquisition treated as taking place

7. Where—

(a) a company, as a result of ceasing at any time (in this paragraph referred to as the ‘time of degrouping’) to be a member of a group, is treated by section 623(4) as having sold and immediately reacquired an asset, and

(b) if the company owning the asset at the time of degrouping had disposed of it immediately before that time, any gain accruing on the disposal would by virtue of section 626B not have been a chargeable gain,

then section 623(4) shall have effect as if it provided for the deemed sale and reacquisition to be treated as taking place immediately before the time of degrouping.

Appropriations to trading stock

8. (1) Where—

(a) an asset acquired by a company otherwise than as trading stock of a trade carried on by it is appropriated by the company for the purposes of the trade as trading stock (whether on the commencement of the trade or otherwise), and

(b) if the company had then sold the asset for its market value, a chargeable gain or allowable loss would have accrued to the company but for the provisions of section 626B,

then the company shall be treated for the purposes of the Capital Gains Tax Acts as if it had thereby disposed of the asset for its market value.

(2) Section 618 applies in relation to this paragraph as it applies in relation to section 596.”.