Capital Gains Tax

Section 626B TCA 1997 - The Holding Company Regime. Meaning of ‘wholly or mainly’

Section 626B TCA 1997 provides an exemption from tax for certain capital gains arising on the disposal by a company of holdings in trading subsidiaries (investee companies). This exemption was introduced by Section 42 Finance Act 2004 and applies to disposals on or after 2 February 2004.

A condition of the relief is that, at the time of disposal of the shares, the business of the investee company or, in the case of a group, the business of the group taken together must consist wholly or mainly of the carrying on of a trade or trades.

For the purposes of Section 626B, ‘wholly or mainly’ means greater than 50%. The primary tests are the proportion of net trading profits and the proportion of net trading assets, though other factors may be taken into account. These lesser considerations would include trading turnover as a proportion of gross receipts and the proportion of employees’ time devoted to trading and non-trading activities.

In considering the test in the context of Section 626B(2)(c)(ii), intra-group transactions are excluded.