Revenue Note for Guidance

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Revenue Note for Guidance

CHAPTER 9

Taxation of acquisition by a company of its own shares

Overview

Chapter 9 of Part 6 sets out the tax treatment of an acquisition by a company of its own, or its holding company’s, shares. Where the relevant conditions are satisfied, the sale of the shareholder’s shares is treated as subject to capital gains tax treatment rather than income tax treatment. Most of the conditions necessary for this treatment to apply are, however, waived where the acquisition of the shares is to fund the payment of inheritance tax on an inheritance of the shares and the payment of the inheritance tax would otherwise cause undue hardship. In these notes the term “buy back” is used to refer to the redemption, repayment or purchase by a company of its own or its holding company’s shares.

173 Interpretation (Chapter 9)

Definitions

(1) “chargeable period”, in the case of a company, is an accounting period and, in the case of other persons, is a year of assessment.

Section 11 is applied to give the meaning of “control” for this Chapter.

“group” is a company and its 51 per cent subsidiaries.

“holding company” is a company most of whose business, apart from any trading activities, consists of holding shares in 51 per cent subsidiaries. A company has a 51 per cent subsidiary where it owns, either directly or indirectly, more than 50 per cent of the ordinary share capital of the subsidiary company.

“inspector” is an inspector of taxes including such other officer as the Revenue Commissioners may appoint in that behalf.

“personal representatives” has the meaning given it in section 799.

“shares” includes stock.

“quoted company” is a company listed on the official list of a stock exchange and also companies whose shares are dealt in on an unlisted securities market.

“trade” excludes dealings in investment assets.

The business of a “trading company” must consist wholly or mainly of the carrying on of a trade. However, every company in a “trading group” need not be a trading company so long as the overall business of the group of companies taken together consists wholly or mainly of the carrying on of a trade or trades.

Beneficial ownership

(2) References to the owner of shares is to be treated as meaning the beneficial owner. However, references to the owner of shares held on trust, other than bare trusts, is treated as references to the trustees. In addition, references to the owners of shares comprised in the estate of a deceased person are treated as references to the deceased’s personal representatives.

Distributions

(3) References to a payment made by a company is to include anything else (for example, a payment in kind) which, but for sections 175 and 176, would be a distribution. For example, a transfer of assets by a company in redemption of its own shares would be treated as a distribution but is not to be so treated if the conditions set out in this Chapter apply.

Subsidiaries

(4) References to a company being unquoted are treated as references to a company which is neither a quoted company nor a 51 per cent subsidiary of a quoted company.

Relevant Date: Finance Act 2019