Revenue Note for Guidance

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Revenue Note for Guidance

119 Reconstructions or amalgamations of capital companies

Summary

(1) Companies capital duty is not payable in the case of certain reconstructions and amalgamations10.

Details

A reduced rate of zero per cent applies to transactions whereby an existing company or a company which is in the process of being formed (the acquiring company) acquires either—

  • the whole or part of the undertaking of another capital company (the target company), or
  • share capital of another company (the target company).

(1), (2) Where share capital is being acquired the acquiring company must own, after the transaction but not necessarily as a result of the transaction, at least 75% of the issued share capital of the target company. While the acquiring company may previously have acquired shares in the target company, it is only the transaction which brings the shareholding of the acquiring company to 75% or over of the issued share capital of the target company (and any subsequent qualifying transactions) which is entitled to the relief provided for in this section.

Example

A Ltd acquired 95% of the shares in B Ltd in 4 separate transactions as follows:

Transaction

(1) On 1 February, 1999, A Ltd purchased 30% of the shares in B Ltd for cash.

(2) On 15 March, 1999, it acquired a further 20% of the shares in consideration of the shares in A Ltd.

(3) On 1 May, 1999, it acquired a further 30% also in consideration of shares in A Ltd.

(4) On 10 May, 2001, it acquired 15% of the shares in B Ltd in consideration of shares in A Ltd.

Companies capital duty is chargeable on transactions (1) and (2). The zero rate of duty applies to transaction (3) because after transaction (3) A Ltd holds over 75% of the shares in B Ltd. The zero rate of duty will also apply to any transactions subsequent to transaction (3) where the consideration is the issue of shares.

(3) The consideration for the acquisition must consist of—

  • the issue of shares in the acquiring company,
  • the transfer to or discharge by the acquiring company of liabilities of the target company, or
  • cash provided the cash element does not exceed 10% of the nominal value of the shares in the acquiring company which are comprised in the consideration.

Example

A Ltd (the acquiring company) holds 25% of the issued share capital of B Ltd (the target company). A Ltd acquires a further 60% of the issued share capital of B Ltd, the consideration being the issue of 100,000 x €1 shares in A Ltd and the payment of €5,000 in cash by A Ltd.

Following the acquisition A Ltd holds 85% of the issued share capital of B Ltd. As the cash payment amounts to 5% of the nominal value of the shares issued it does not prejudice the claim for relief.

(3) Shares in the acquiring company must be issued—

  • where the whole or part of the undertaking of the target company is being acquired, either—
    • to the target company itself, or
    • to the shareholders of the target company, and
  • where shares in the target company are being acquired, to the shareholders of the target company in exchange for shares held by them in the target company.

(4) The relief will be clawed back in 2 situations i.e.

  • if the acquiring company disposes of any of the shares within a period of 5 years from the date of the transaction in respect of which relief was granted, or
  • if the acquiring company does not retain at least 75% of the issued share capital of the target company and all the shares which it held following that transaction for a period of 5 years from the date of the transaction in respect of which relief was granted.

Example

In the first example in the commentary on this section A Ltd held, after transaction (3), 80% of B Ltd’s shares. If A Ltd disposes of any of these shares before 1 May, 2004, the full amount of duty will be payable in respect of the shares acquired in transaction (3). If it sells any of the shares it held after transaction (4) (i.e. any of the then total of 95%) before 10 May, 2006, it will be liable for the duty not paid on transaction (4). This is because the 5-year period runs from the date of the transaction which last benefited from the zero rate i.e. after transaction (4) the 5 year period starts afresh for all 95% from 2001.

The reduced rate will also cease to apply if, notwithstanding the retention of all the shares which the acquiring company acquired, it does not retain 75% of the issued share capital of the target company. This could come about if the issued share capital of the target company were increased, thus reducing the acquiring company’s 75% stake.

(5) However, the reduced rate will continue to apply in certain circumstances notwithstanding that the shares were not held for the requisite 5 years i.e. the reduced rate will continue to apply if the shares were transferred in the course of—

  • a transaction which took place prior to 7 December 2005 which would of itself qualify for a reduced rate, or a transaction which takes place on or after 7 December 2005 which would of itself qualify for a reduced rate had that transaction taken place prior to 7 December 2005 e.g. another merger whereby the acquiring company itself was taken over, or
  • the liquidation of the acquiring company.

(6) In a clawback situation the statement which was delivered in respect of the transaction to which the reduced rate applied will be charged with the stamp duty which would have been charged in the first instance if the relief had not applied to the transaction. The duty will become chargeable on the date the clawback event occurred.

(7) The relief will only apply if the target company has its effective centre of management or its registered office in a Member State. By definition, the acquiring company must have its effective centre of management or registered office in the State. The relief, therefore, applies only where an Irish capital company takes over another Irish capital company or a capital company which is in a Member State.

(8) The relief will also apply to transactions where the entity being acquired is regarded as a capital company in another Member State although it does not qualify as such under the definition of capital company in section 114.

10 The terms of the relief, which were originally set out in Council Directive 73/79/EEC, are continued by virtue of Article 1(2) of Council Directive 85/303/EEC.

Relevant Date: Finance Act 2014