Business Taxes

10.3.Outline which companies are specifically excluded from being close companies

Certain companies are specifically excluded from close company status:

1) Companies not resident in Ireland (Section 430(1)(a) TCA 1997).

2) Registered industrial or provident societies (Section 430(1)(b) TCA 1997). However, these may be considered close in the case of loans to participators (Section 438(8) TCA 1997).

3) Building societies and life assurance companies (Section 430(1)(c) TCA 1997).

4) Companies controlled by or on behalf of the State which would not be close if the State’s interest were ignored i.e. must include interest of State in ‘control’ assessment. This also includes companies controlled by EU Member States or states with which Ireland has a double tax agreement (Section 430(1)(d) and (da) TCA 1997).

5) Any public/quoted companies which satisfy certain conditions outlined in next section (Section 430(1)(e) TCA 1997).

6) Companies controlled by one or more other companies which are ‘open companies’ (not close companies) provided they cannot be treated as ‘close’ except by including as one of the ‘five’ or fewer participators’ a company which is not close (Section 430(4) TCA 1997). In determining whether a company is controlled by companies which are not close companies, a non-resident company which holds shares in the company in question is deemed to be a close company for the purpose of this analysis if it would be a close company if it were Irish resident (Section 430(5) TCA 1997).

7) Companies which would not be regarded as close except by including non close loan creditors as one of the ‘five or fewer participators’ entitled to the greater part of the assets for distribution on a notional winding up and accordingly are regarded as controlling the company (Section 430(4)(b) TCA 1997).

10.3.1.Public companies (Section 431 TCA 1997)

Quoted companies which satisfy a number of conditions are not to be regarded as close even if they are under the control of five or fewer participators or of participators who are directors regardless of the number.

To qualify for this exception the following three conditions must be satisfied:

a) at least 35% of the voting power in the company is owned unconditionally by the “public” (Section 431(3) TCA 1997) and

b) these shares giving the voting power are listed on a recognised stock exchange and there have been dealings in these shares within the preceding twelve months (Section 431(3) TCA 1997) and

c) the “principal members” of the company do not possess over 85% of the total voting power (Section 431(4) TCA 1997).

10.3.2.Public (Section 431(6) and 431(7) TCA 1997)

Under Section 431(7), the shares will not be treated as beneficially held by the “public” if they are held by:

a) any director of the company or his/her associates

b) any company which is controlled by such a director(s) and their associates

c) any associated company

d) principal members (with the exception of open companies and approved pension or superannuation funds which are not for the benefit of past or present employees or directors).

Shares held by nominees for a person will be treated as held by that person in determining whether they fall into any of the above exclusions (Section 431(7)(b) TCA 1997 which applies Section 432(5) TCA 1997 – note the limited application of Section 431(7)(b) TCA 1997).

Under Section 431(6) TCA 1997, shares are deemed to be beneficially held by the public if:

a) they are held by a resident company which is an open company

b) they are held by a non-resident company which if resident would be an open company

c) they are held by an approved superannuation fund which is not for the benefit of past or present employees or directors of the company

d) they are not part of a principal member’s holding (except those noted in the d exceptions above)

10.3.3.Principal member (Section 431(2) TCA 1997)

If the principal members of a company hold greater than 85% of the total voting power then the quoted company is not exempt from close company status.

A person is a principal member of a company if he possesses more than 5% of the voting power and is one of the top five such persons (with associates and nominees rights included) who hold the greatest percentage of the voting power.

If two or more persons tie for fifth place, they all qualify as principal members. If less than five participators each hold more than 5% of the votes then there are less than 5 principal members.

Figure 10.1. Determine whether close company qualifies for public company exemption