The stamp duty self-assessment system went live with effect from 7 July 2012. This article proposes to reflect on the impact of self-assessment in the context of claiming certain reliefs for companies which were formerly subject to mandatory adjudication under the old non self-assessment regime1. The concept of self-assessment was given teeth in the number of measures introduced to counter the submission of incomplete or inaccurate stamp duty returns2 within a regime where Revenue would no longer adjudicate instruments. These provisions impose penalties on both the accountable person and in certain circumstances, the practitioner as the filer of the return.

Therefore, what impact have these changes had on claims for relief under the Stamp Duties Consolidation Act 1999 (“SDCA”)?

In contrast to the old adjudication regime where the taxpayer could rely on Revenue’s examination of instruments, in a self-assessment regime the taxpayer must rely on the correctness of his/her own self-assessment. Notwithstanding self-assessment, all claims are open to Revenue scrutiny and the consequences of failing to take reasonable care in assessing the accuracy of a return are onerous.

Therefore, the onus is on the taxpayer to satisfy himself/herself that the conditions of the relief are met at the date of execution of the stampable instrument. In this context, it is necessary to consider the standard of documentation which should be created to support a claim for self-assessed relief and this should be measured in light of Revenue’s increased level of audit activity. Furthermore, as Finance Act 2013 abolished Revenue’s ability to seek a statutory declaration to evidence claims for certain reliefs, this also impacts on the type and level of documentation created to support a claim. We have considered below the conditions which the taxpayer must satisfy in assessing the accuracy of a claim for both “Reconstruction and Amalgamation of Companies Relief” and “Associated Companies Relief”.

Reconstruction and Amalgamation of Companies Relief (“RACR”) – Section 80 SDCA

In determining whether RACR relief can be validly claimed, the accountable person must firstly assess whether there is a scheme for the bona fide reconstruction of any company or companies or the amalgamation of companies and secondly, assess whether the specific conditions within Section 80 SDCA have been satisfied. Also the bona fides of the scheme must be assessed. This is, the scheme must be effected for bona fide commercial reasons and must not form part of a scheme or arrangement of which the main purpose, or one of the main purposes, is tax avoidance.

Scheme of Reconstruction or Amalgamation

There is no definition of “reconstruction” or “amalgamation” in the SDCA or other tax legislation and therefore the definitions are derived from case law.

The most recent decision on the term “reconstruction” in either the UK or Ireland is the judgment of Edwards J in the Irish case of Keane v Revenue Commissioners3 (“Keane”). In Keane Edwards J analysed, applied and expressly approved the English cases of Brooklands Selangor Holdings Limited v. Inland Revenue Commissioners4 (“Brooklands Selangor”) and Re South African Supply and Cold Storage Company5 (Re South African Supply”).

In the case of Brooklands Selangor it was held:

“In ordinary speech the word reconstruction is, I think, used to describe the refashioning of any object in such a way as to leave the basic character of the object unchanged. In relation to companies, the word ‘reconstruction’ has a fairly precise meaning which corresponds, so far as the subject matter allows, to its meaning in ordinary speech. It denotes the transfer of the undertaking or part of the undertaking of an existing company to a new company with substantially the same persons as members as were members of the old company”.

In the case of Re South African Supply it was held:

“What does ‘reconstruction’ mean?... It involves, I think, that substantially the same business shall be carried on and substantially the same persons shall carry it on.”

Buckley J. in Re South African Supply also discussed the concept of “amalgamation”.

“An amalgamation involves, I think, a different idea. There you must have the rolling, somehow or other, of two concerns into one. You must weld two things together and arrive at an amalgam – a blending of two undertakings”.

Edwards J in Keane made a further qualification to the term “reconstruction” when he held:

“While I agree with the statement of Buckley J in Re South African Supply and Cold Storage Company that in their common commercial usage neither of the word ‘reconstruction’ nor the word ‘amalgamation’ has any definite legal meaning, it does seem to me that they must nevertheless be construed in a manner that is consistent with the objective of the statutory provision under consideration. Having carefully considered s80 of the Stamp Duties Consolidation Act, 1999….I am satisfied that the apparent purpose of s80 is to grant relief against stamp duty charges where the underlying ownership of the undertaking transferred remains substantially unaltered……

… I consider that to avail of the s. 80 exemption the quality of ownership enjoyed by a party claiming that exemption must be real and meaningful and not merely technical”.

Therefore, the basic philosophy underlying schemes of reconstruction or amalgamation is that the original shareholders keep an interest in the original business and the approach under Irish law in determining whether a transaction is a “reconstruction” or “amalgamation” can be summarised as:

• The word “reconstruction” denotes the transfer of an undertaking or part thereof, of an existing company to a new company with substantially the same persons as members as were members of the old company.
• The word “amalgamation” denotes the blending of two or more undertakings into one, the shareholders of each blending company becoming substantially the shareholders in the company which carries on the blended undertaking.
• For a reconstruction to occur, the quality of ownership of the undertaking must be real and meaningful and not merely technical. In applying the real and meaningful test, the shares must have valuable rights, e.g. an entitlement to distributable profits and the original shareholders must keep an interest in the original business, i.e. the shareholders must have a right at least to some extent to deal with the property as one’s own. This is commonly referred to as the “substantial identity of shareholding” test. Notwithstanding that a reconstruction is frequently carried out with a view to hiving off a business for sale, if there is a pre-existing contract in place for the sale of the consideration shares then a reconstruction will not exist as the substantial identity of shareholding test will not be met. The Revenue Commissioners have confirmed in Tax Briefing 48/2002 that whilst the reconstruction may be carried out with a view to the sale of the consideration shares, the reconstruction cannot be contingent on a subsequent sale and there cannot be a binding contract in existence for the onward transfer of the consideration shares at the time of the reconstruction.
• The word “reconstruction” must be construed in a manner that is consistent with the objective of the statutory provision under consideration.

Other specific conditions in Section 80 SDCA

1. There must be a bona fide commercial rationale for the reconstruction or amalgamation and the scheme must in fact be effected for bona fide commercial purposes and not for tax avoidance purposes.
2. The acquiring company must be a company with limited liability incorporated in an EU Member State or in an EEA State6.
3. The acquiring company must be incorporated, or if a pre-existing company have its nominal share capital increased, with a view to the acquisition of:
   • 90% of the issued share capital of the target company; or
   • the undertaking or part of the undertaking of the target company.
4. The consideration for the acquisition (other than any consideration comprising the discharge by the acquiring company of liabilities of the target company) must consist of not less than 90% in the issue of shares in the acquiring company to:
   • the shareholders in the target company (where shares are being acquired), or
   • the target company or the holders of shares in the target company (where an undertaking is being acquired).
5. The target company can be incorporated anywhere in the world and it may be limited or unlimited.
6. The stampable instrument must be executed within 12 months of the date of incorporation of the acquiring company or the date of the resolution increasing the nominal share capital of the acquiring company.
7. Whilst there is no legislative requirement to document a claim for relief, it is suggested that the best method to foolproof a claim against a possible Revenue audit is to document the fact that the conditions of the relief have in fact been satisfied. This could take the form of a statement similar to the statutory declaration under the old adjudication regime which essentially mirrors the provisions of the relieving section. It would be preferable to have this statement signed by a director of the acquiring company. Copies of the board minutes and all other relevant documents should also be retained on file. The bona fide commercial rationale for the scheme should also be evident from the documentation.

Associated Companies Relief (“ACR”) – Section 79 SDCA

In determining whether ACR can be validly claimed, the accountable person must self-assess and be satisfied that the relevant conditions of the relief have been met. Specifically:

1. The effect of the stampable instrument must be to transfer a beneficial interest in property from one body corporate to another.
2. One body corporate must be beneficially entitled to not less than:
   1. 90% of the ordinary share capital,
   2. 90% of the distributable profits, and
   3. 90% of the assets available for distribution on a winding up,
   of the other body corporate or a third body corporate must hold these entitlements in relation to each. Beneficial entitlement may be direct, through another body corporate or other bodies corporate, or part direct and partly through another body corporate or other bodies corporate.
3. There must be no arrangement in place under which:
   1. the consideration for the transfer was to be provided or received directly or indirectly by a person who was not “associated” with the transferor or transferee at the time of execution of the stampable instrument. For example, a pre–sale reorganisation funded indirectly by a third party ultimate purchaser could disqualify the availability of ACR;
   2. the beneficial interest was previously conveyed or transferred by such a person;
   3. the transferor and the transferee were to cease to be associated. In certain circumstances, e.g. where the association will cease due to the liquidation of either the transferor or transferee, it may be possible to obtain Revenue confirmation that the relief can in fact be claimed notwithstanding the liquidation.
   There should be appropriate documentation on file to support the self-assessed claim for relief. Again the documentation should confirm that the conditions of the relief were satisfied at the time of execution of the stampable instrument. It is suggested that the documentation should be similar in form to the standard of documentation sought by Revenue under the old adjudication regime.

Corporate Reliefs – Compliance

Filing Returns

Both RACR and ACR must be claimed by filing an electronic return. The return should be filed within 44 days of executing the stampable instrument7. However, as there is no statutory timeline within which these reliefs must be claimed they can in fact be claimed at any time.

A stamp duty return filed later than 44 days is treated as filed late. Section 14A SDCA imposes a late filing surcharge8. However, as the surcharge is charged as a percentage of the stamp duty liability, no surcharge liability would in fact be payable where full relief is available. Nevertheless, there is value to filing on time. For example, if it is found that the relief claimed was not properly due9 and stamp duty becomes payable, then no late filing surcharge could be imposed if the original return was filed on time and provided the taxpayer was neither deliberate nor careless in making the return. Therefore, where a relief is claimed, it is good practice to file the return on time in order to protect against a possible late filing surcharge.

The SDCA does contain a penalty of €3,000 for failing to deliver a return within the specified period10. To date Revenue have not imposed the penalty in circumstances where claims for relief have been filed late, however this is not to say that Revenue will never impose the penalty and practitioners should be cognisant of the statutory provision.

Tax Reference Numbers

In order to file the return and claim relief, a tax reference number for each party to the instrument must be provided.

A company that is Irish tax resident must provide its Irish tax reference number regardless of its place of incorporation.

A non-Irish incorporated and non-Irish tax resident company would not have an Irish tax reference number. In such circumstances Revenue on application issue to the company a customer number (the “Stamp Duty” number)11. The Stamp Duty number is allocated solely for e-stamping purposes and it cannot be used in returns for any other tax type. To obtain a stamp duty number, Revenue require documentary evidence to establish that the company is non- Irish incorporated, e.g. a copy of the company’s certificate of incorporation12.

In the case of an Irish incorporated but non–Irish tax resident company, Revenue on a case by case basis also provide a stamp duty number where it is shown to Revenue’s satisfaction that the company is in fact non-Irish tax resident.

Traps for the Unwary

• The accountable person must self-assess that the conditions of the relief were satisfied as at the time of execution of the stampable instrument.
• If Revenue confirmations are required to assist a self-assessment then such confirmations should be obtained prior to the date of execution of the instrument.
• The self-assessment should be documented and appropriate evidence retained on file to establish beyond doubt that the relief was properly claimed.
• It is good practice to file the return and claim the relief within 44 days of execution of the instrument.
• Time lines for obtaining tax numbers should be considered to ensure that a return is filed on time.

Margaret Coleman is a Tax Manager with EY.
Email: margaret.coleman@ie.ey.com

Ingrid O’Gorman is also a Tax Manager with EY.
Email: ingrid.ogorman@ie.ey.com