Revenue Note for Guidance

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Revenue Note for Guidance

138 Treatment of dividends on certain preference shares

Summary

This section seeks to remove certain tax advantages attaching to certain artificial preference share arrangements. Under such arrangements what is in reality loan interest payable by a company is receivable by the lending company (normally a bank) in the form of dividends on a class of specially created preference shares. Unlike interest on a normal loan, such dividends received by a bank from another Irish company are under normal rules exempt from corporation tax. In addition, the full cost of funding the loans is deductible for tax purposes by the banks. In order to prevent the loss of corporation tax resulting from such artificial arrangements, this section provides that, in respect of dividends paid in respect of such shares the actual amount of the dividend is chargeable to corporation tax when received by a company liable to that tax.

Details

Definitions

(1) Excluded from the meaning of “preference shares” are preference shares (including preference stock) which —

  • are quoted on a stock exchange in the State,
  • are unquoted but which carry similar rights, as to dividends and capital, to those generally found in the case of fixed-dividend shares quoted on a stock exchange in the State, or
  • are non-transferable shares issued on or after 6 April, 1989 by a company carrying on a financial service trade in the Custom House Docks Area (that is, in the International Financial Services Centre – IFSC) or in the Shannon Customs-Free Airport Area to a company —
    • none of whose shares are owned directly or indirectly by a person resident in the State, and
    • which (if this provision had not been enacted) would not be chargeable to corporation tax in respect of any profits other than dividends on those preference shares which would be so chargeable by virtue of this section.

Application

(2) The section applies to preference share dividends paid to a company within the charge to corporation tax (that is, an Irish resident company or a foreign company carrying on trade in the State through a branch or agency).

Tax treatment

(3) Preference share dividends to which this section applies are chargeable to corporation tax under Case IV of Schedule D in the hands of the recipient company.

This treatment takes precedence over any other provision to the contrary in the Tax Acts.

Saver provision

(4) Where shares issued by a company would not be preference shares for the purposes of this section then, notwithstanding the deletion of sections 445 and 446, such shares shall continue to be treated as not being preference shares.

Relevant Date: Finance Act 2021