Revenue Note for Guidance

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Revenue Note for Guidance

PART 28

Purchase and Sale of Securities

CHAPTER 1

Purchase and sale of securities

Overview

Chapter 1 of Part 28 is primarily directed against a practice known as “bond washing” which could otherwise be practised by dealers in securities or exempt bodies. Without these provisions, a “loss” could be created by the purchase of a security “cum div” (where the price reflects the accumulated interest payable on the security) and its subsequent sale “ex div” (where the price does not reflect the accumulated interest on the securities). Shortly before interest on a security is paid the security goes “ex div”. The register of the security is closed and the person who was the registered owner immediately before that time receives the interest payment. The person who purchases the security in the “ex div” period does not receive the interest payment and the purchase price reflects this.

The Chapter also provides for specific tax treatment for exchanges of shares held as trading stock as well as securities exchanged under the Exchange Programme in Irish Government bonds, initiated by the National Treasury Management Agency.

748 Interpretation and application (Chapter 1)

Summary

This section contains definitions used in Chapter 1 and Schedule 21. It also provides that, subject to a number of exceptions, the provisions apply to a person who purchases a security “cum div”, sells it “ex div” and receives the interest/distribution from the security. The provisions do not apply where the securities have been held, generally for over 6 months, and in certain limited circumstances, with the agreement of the Revenue Commissioners, a period of over 1 month will suffice.

Details

(1) “distribution” has the same meaning as in the Corporation Tax Acts.

“interest” includes distributions and other dividends.

“gross interest” means the distribution together with the tax credit

“net interest” means the distribution without the tax credit.

“person” includes a body of persons and trustees of a trust or fund.

“securities” includes stocks and shares. Securities are similar if they have the same rights and entitlements as the originals.

These definitions apply also for the purposes of Schedule 21.

(2) This Chapter applies to the purchase of securities by a person (in the Chapter called the “first buyer”) and their subsequent sale by the first buyer, where the transaction results in interest being paid to the first buyer.

(3) The Chapter does not apply if the securities are held for over —

  • 6 months (the reference in the provision is to the first buyer “taking steps to dispose of the securities” – see below), or
  • 1 month and in the opinion of the Revenue Commissioners the sale and purchase are at market price and no prior arrangement or agreement for the sale is in place.

(5) The reference to “taking steps to dispose of the securities” in subsection (3) is to be construed as a reference to —

  • the acquisition of an option to sell the securities, if the securities were sold as a result of the exercise of such an option, and
  • the sale of the securities, in any other case.

(6) The order in which securities acquired at different times are sold is determined on a “last in, first out” (LIFO) basis. It is also provided that the person selling similar securities cannot be under any greater liability to tax than if the original securities were sold.

(7) At the commencement of a trade securities are deemed to be sold by the previous owner at market price and acquired by the new owner at the same price. Where participants in a trade change but the trade itself continues, the new participants are deemed to have done all the actions that the predecessors did.

Relevant Date: Finance Act 2019