Clarification regarding the operation of Section 175 TCA 1997

As a general rule a redemption or buy-back of shares by a company should be treated as a distribution to the extent that the payment made to the shareholders for the shares redeemed or bought back exceeds the consideration received by the company for those shares.

Revenue Tax Manual Part 06-09-02 (Purchase of own shares by quoted company) has been updated including clarification that a share scheme arrangement put in place by a quoted company, under which the company decides to make a return of value to shareholders which gives a choice to a shareholder to take a payment out of the profits of the company by way of dividend or by way of share redemption does not satisfy the condition inserted by section 34 Finance Act 2010 for the purposes of the application of section 175 to the share redemption payment.

Such an arrangement can only be viewed as 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 without receiving a dividend. For the purposes of the application of the condition imposed by section 34 Finance Act 2010 other issues that may occur at or around the time of the implementation of the optional share scheme, such as a reorganisation of the ordinary share capital of the company, will not be factors that would influence the application of the condition.

25 September 2015