Revenue Note for Guidance

180 Additional conditions

Summary

The vendor selling the shares to the company which issued them must not after the sale be connected with the company acquiring the shares or with any other company which is a member of a group of companies which includes the company acquiring the shares. Also, in order to exclude reductions in shareholdings which are substantial but merely temporary, the buy back of shares must not be part of a scheme or arrangement which is designed or likely to result in the vendor or any associate having an interest in the company such that if he/she had that interest in the company immediately after the buy back any of the other conditions would not be satisfied. Transactions carried out within 1 year after the purchase are presumed to form part of such a scheme.

Details

(1) & (2) The non-application of the distribution treatment does not apply if, immediately after a buy back by a company, the vendor is connected (see section 186) with the company or any company which is a member of its group (within the meaning of section 179). Essentially, a person is connected with a company if that person has control of it or has a 30 per cent interest in the capital, assets or voting rights in the company.

(3) The buy back of shares by a company must not be part of a scheme or arrangement which is designed, or is likely, to result in the vendor or his/her associates having interests in any company which, if he/she had such interests immediately after the purchase, would have broken the conditions requiring that there be a substantial reduction in the shareholding and profit holding of the vendor and his/her associates, and that the vendor should not be connected with the purchasing company.

(4) A transaction carried out within 1 year after the buy back which has, or would contribute, to such a result is treated as part of the same scheme or arrangement of which the buy back is also a part.

Example

A owns the following shares in B Ltd

	Total issued	Held by A
€1 ordinary	10,000	4,000
€1 preference	5,000	1,000
	15,000	5,000	(33.33%)

On 1 December, 2002, B Ltd purchases from A 2,000 ordinary shares and 1,000 preference shares, leaving A with 2,000 ordinary shares out of a total issued share capital of 12,000 (16.67%). The reduction qualifies for relief from the distribution charge.

On 1 March, 2003, B Ltd purchases from other shareholders the remaining preference shares and 2,000 ordinary shares. A then owns 2,000 ordinary shares out of a total issued share capital of 6,000 (that is, 33.33%). If A had held a 33.33% interest immediately after the purchase on 1 December, 2002, relief from the distribution charge would not have been due and will therefore be denied or withdrawn.

Relevant Date: Finance Act 2019