Direct Tax Acts, Finance Act 2018

626B Exemption from tax in the case of gains on certain disposals of shares
FA04 s42; FA05 s54(1); FA06 s64(1); FA07 s35 and Sch2; F(No. 2)A08 s33(g); FA09 s12; F(No. 2)A13 s84 and Sch(1)(g); FA14 s44(1); FA17 s27(1); FA17 s82 and Sch2(1)(ai)

[(1) (a) In this section, section 626C and Schedule 25A

investor company” and “investee company” have the meanings assigned by subsection (2);

relevant territory” means –

(i) a Member State of the European Communities, […]2

(ii) not being such a Member State, a territory with the government of which arrangements having the force of law by virtue of [section 826(1)]3 [have been made, or]4

[(iii) not being a territory referred to in subparagraph (i) or (ii), a territory with the government of which arrangements have been made which on completion of the procedures set out in section 826(1) will have the force of law;]5

[…]6

tax” in relation to a relevant territory other than the State means any tax imposed in that territory which corresponds to income tax or corporation tax in the State;

2 year period” means a period ending on the day before the second anniversary of the day on which the period began.

(b) For the purposes of this section, section 626C and Schedule 25A

(i) a company shall only be a parent company in relation to another company at any time if that time falls within an uninterrupted period of not less than 12 months throughout which it directly or indirectly holds shares in that company by virtue of which –

(I) it holds not less than [5 per cent]7 of the company’s ordinary share capital,

(II) it is beneficially entitled to not less than [5 per cent]8 of the profits available for distribution to equity holders of the company, and

(III) it would be beneficially entitled on a winding up to not less than [5 per cent]9 of the assets of the company available for distribution to equity holders,

and for the purposes of this subparagraph –

(A) subsections (2) to (10) of section 9 shall apply with any necessary modifications, and

(B) sections 413 to 419 shall apply as they apply for the purposes of Chapter 5 of Part 12 but as if “in a relevant territory” were substituted for “in the State” in subparagraph (iii) of section 413(3)(a) and as if paragraph (c) of section 411(1), other than that paragraph as it applies by virtue of [clauses (I) and (II) of subparagraph (i)]10, were disregarded,

(ii) in determining whether the conditions in paragraph (a) of subsection (2) are satisfied, a company that is a member of a group shall be treated as holding so much of any shares held by any other company in the group and as having so much of the entitlement of any such company to any rights enjoyed by virtue of holding shares –

(I) as the company would not, apart from this paragraph, hold or have, and

(II) as are not part of a life business fund within the meaning of section 719,

and, for the purposes of this subparagraph, “group” means a company which has one or more 51 per cent subsidiaries together with those subsidiaries,

(iii) in determining whether the treatment provided for in subsection (2) applies, the question of whether there is a disposal shall be determined without regard to section 584 or that section as applied by any other section: and, to the extent to which an exemption under subsection (2) does apply in relation to a disposal, section 584 shall not apply in relation to the disposal,

(iv) where assets of a company are vested in a liquidator under [section 614 of the Companies Act 2014]11 or otherwise, the assets shall be deemed to be vested in, and the acts of liquidation in relation to the assets shall be deemed to be the acts of, the company (and acquisitions from, and disposals to, the liquidator shall be disregarded accordingly),

(v) section 616 shall not apply.

(2) A gain accruing to a company (in this section referred to as the “investor company”) on a disposal of shares in another company (in this section referred to as the “investee company”) is not a chargeable gain if –

[(a) the disposal by the investor company is at a time –

(i) when the investor company is a parent company of the investee company, or

(ii) within the 2 year period beginning on the most recent day on which the investor company was a parent company of the investee company,]12

(b) the investee company is, by virtue of the law of a relevant territory, resident for the purposes of tax in the relevant territory at the time of the disposal, and

(c) at the time of the disposal –

(i) the investee company is a company whose business consists wholly or mainly of the carrying on of a trade or trades, or

(ii) the business of –

(I) the investor company,

(II) each company of which the investor company is the parent company, and

(III) the investee company, if it is not a company referred to in clause (II), and any company of which the investee company is the parent company,

taken together consists wholly or mainly of the carrying on of a trade or trades.

(3) The treatment of a gain, as not being a chargeable gain, provided by this section and section 626C shall not apply –

(a) to a disposal that by virtue of any provision relating to chargeable gains is deemed to be for a consideration such that no gain or loss accrues to the person making the disposal,

(b) to a disposal a gain on which would, by virtue of any provision other than this section or section 626C, not be a chargeable gain,

(c) to disposals, including deemed disposals, of shares which are part of a life business fund within the meaning of section 719,

(d) to a disposal of shares deriving their value or the greater part of this value directly or indirectly from assets specified in [paragraphs (a) and (b) of subsection (3) of section 29 and subsection (6) of that section]13[, ]14

[(e) to deemed disposals under section 627.]15

[(3A) (a) In this subsection “relevant treatment of a gain” means the treatment, provided by this section or section 626C, of a gain as not being a chargeable gain.

(b) Notwithstanding any provision of section 590, the relevant treatment of a gain shall not apply for the purposes of section 590, but this is subject to paragraph (c).

(c) The relevant treatment of a gain shall apply for the purposes of section 590 where the participator (within the meaning of that section) is a company.]16

[(3B) (a) In this subsection—

“arrangement” includes any agreement, understanding, scheme, transaction or series of transactions;

“relevant assets” means the assets specified in subsection (3)(d).

(b) In calculating the portion of the value of shares attributable directly or indirectly to relevant assets, account shall not be taken of any arrangement that—

(i) involves a transfer of money or other assets (apart from relevant assets) from a person connected with the company in which those shares are held,

(ii) is made before a disposal of relevant assets, and

(iii) the main purpose or one of the main purposes of which is the avoidance of tax.]17

(4) Schedule 25A shall have effect for the purposes of supplementing this section and section 626C.]1

Go to Revenue Guidance Notes on TCA

Amendments

1 Section inserted by FA04 s42 to take effect by Ministerial Order. S.I. No. 551/04 appointed 2 February 2004 as date of coming into operation

2 Deleted by F(No. 2)A08 s33(g)(i) and deemed to have come into force and takes effect as on and from 1 January 2009

3 Substituted by FA07 s35 and Sch2 with effect as on and from passing of FA07 – 2 April 2007

4 Substituted by F(No. 2)A08 s33(g)(i) and deemed to have come into force and takes effect as on and from 1 January 2009

5 Inserted by F(No. 2)A08 s33(g)(ii) and deemed to have come into force and takes effect as on and from 1 January 2009

6 Deleted by FA05 s54(1) and applying as on and from 2 February 2004

7–9,12 Substituted by FA05 s54(1) and applying as on and from 2 February 2004

10 Substituted by F(No. 2)A13 s84 and Sch(1)(g) and having effect on and from the passing of F(No. 2)A13 – 18 December 2013

11 Substituted by FA17 s82 and Sch2(1)(ai) and deemed to have come into operation on 1 June 2015

13 Substituted by FA09 s12(1) and applying to disposals made on or after 7 May 2009

14 Inserted by FA06 s64(1) and applying to deemed disposals on or after 2 February 2006

15 Inserted by FA06 s64(1) and applying to deemed disposals on or after 2 February 2006

16 Inserted by FA14 s44(1) and applying as respects disposals on or after 18 November 2014

17 Inserted by FA17 s27(1) and applying to disposals made on or after 19 October 2017

Case Law

Whether consideration paid under non-competition agreement deemed disposal of goodwill and so taxable as a chargeable gain or as part of share transaction - Williamson Tea Holdings Ltd v R&CC [2010] SFTD 1101

Finnish law providing transfer of shares not taxable if acquiring company registered in Finland or another member state and whether effect of national law contrary to freedom of establishment. Veronsaajien oikeudenvalvontayksikkö v A Oy - [2012] STC 2338

Revenue Guidance

Section 626B - The holding company regime - meaning of “wholly or mainly” - TB66, July 2007

Exemption from tax on gains accruing on certain disposal of shares (S626B TCA 1997) – eBrief No. 36/15

Irish Tax Review Articles

Ireland as a Holding Company Location. Petrina Smyth and Anthony Walsh, Irish Tax Review, July, 2004

Protecting and Enhancing Our Attractiveness for Foreign Direct Investment. Noel Cunningham, Irish Tax Review, November, 2007

Going International With Your Business: Some Tax Considerations to be Addressed. Marie Bradley, Irish Tax Review, January, 2010

Taxing Income - Looking Abroad to Answer that Domestic Question. Tom Maguire, Irish Tax Review, Issue 3, 2012

The Irish Holding Company Regime. Padraig Daly, Irish Tax Review, Issue 4, 2013

Sections referred to in text

section 9 [Subsidiaries]

section 29 [Persons chargeable]

section 411 [Surrender of relief between members of groups and consortia]

section 413 [Profits or assets available for distribution]

section 419 [The relevant accounting period, etc.]

section 584 [Reorganisation or reduction of share capital]

section 590 [Attribution to participators of chargeable gains accruing to non-resident company]

section 616 [Groups of companies: interpretation]

section 626C [Treatment of assets related to shares]

section 627 [Deemed disposal of assets]

section 719 [Deemed disposal and reacquisition of certain assets]

section 826 [Agreements for relief from double taxation]

Sch 25A [Exemption from Tax in the Case of Gains on Certain Disposals of Shares]

Part 12 (ss 381429) [Principal provisions relating to loss relief, treatment of certain losses and capital allowances, and group relief]

Cross references

21B Tax treatment of certain dividends

249 Rules relating to recovery of capital and replacement loans

481 Relief for investment in films

626B Exemption from tax in the case of gains on certain disposals of shares

626C Treatment of assets related to shares

627 Charge to exit tax

Sch 25A Exemption from Tax in the Case of Gains on Certain Disposals of Shares