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

Summary

This section makes provision to prevent persons avoiding capital gains tax by transferring property to controlled companies abroad. It enables Revenue to look through the non-resident controlled company to its resident participators and, subject to certain exceptions, to assess them to capital gains tax on their share of the gains made by the company. The exceptions are gains distributed to shareholders within 2 years of the relevant disposal, gains on the disposal of assets where it is shown to the satisfaction of the Revenue Commissioners that the disposal was made for bona fide commercial reasons and not for the purpose of the avoidance of tax, gains on tangible property or on a lease of such property or specified intangible assets used only for the purposes of a trade carried on abroad, gains on the disposal of foreign currency or a credit in a foreign bank if used for a trade carried on wholly outside the State, gains chargeable on the company itself as, for instance, gains on the disposal of land or mineral rights in the State.

Details

(1) & (2) For the purposes of the section —

• participator in relation to a company has the same meaning as in section 433(1);
• a person’s interest as a participator in a company means the interest in the company which is represented by all the factors by reference to which the person falls to be treated as such a participator;
• the extent of such an interest means the proportion of the interests as participators of all the participators in the company which on a just and reasonable basis is represented by that interest;
• where the interest of any person in a company is wholly or partly represented by an interest which the person has under any settlement and the person’s beneficial interest is a factor by reference to which the person would otherwise be treated as having an interest as a participator in the company, then the interest of the person as participator in the company is deemed to be the interest of the trustees of the settlement, and not an interest of the person concerned.

(3) & (15) The section has application as respects chargeable gains accruing to a company on or after 11 February, 1999 where the company is not resident in the State and if it were so resident, it would be a close company. The amount of the gain is computed as if the company were resident in the State.

(4), (5) & (6) Every person who at the time when the gain accrues to the company is resident or ordinarily resident in the State, who, if an individual is domiciled in the State, and who is a participator in the company, is treated for capital gains tax purposes as if part of the chargeable gain had accrued to him or her. The part of the chargeable gain is the proportion of the gain that corresponds to the extent of the participator’s interest as a participator in the company. A chargeable gain is not treated as accruing to a participator if the aggregate of the amount which would be so treated as so accruing, and the amount which is treated as accruing to persons connected with the participator does not exceed one twentieth of the gain accruing to the company.

(7) The section does not apply in relation to —

• a gain accruing on the disposal of tangible property (or a lease thereof) or specified intangible assets within the meaning of section 291A(1) used solely for a trade carried on by the company, or by a company which is a member of the same group (within the meaning of subsection (16)), wholly outside the State;
• a gain on the disposal of assets where it is shown in writing or otherwise to the satisfaction of the Revenue Commissioners that, at the time of the disposal, the company is carrying on genuine economic activities in a relevant Member State (within the meaning of section 806(11)(a)).
• a gain on the disposal of foreign currency or of a debt, within section 541(6) where the currency or debt is or represents money used for the purposes of a trade carried on by the company wholly outside the State; or
• a gain chargeable in the State by virtue of section 29 or section 25(2)(b).

(8) & (10) Where any amount of capital gains tax is paid by a participator as a result of the charge to tax arising under this section, and an amount in respect of the gain charged is distributed (either by way of capital or on the dissolution of the company) within 2 years from the time when the gain accrued to the company, that amount of tax (so far as neither reimbursed by the company nor applied as a deduction under subsection (9)) can be used to reduce or eliminate any liability to tax in respect of the distribution. Where income tax is due in respect of the distribution, the distribution is treated as forming the highest part of the income of the person.

(9) Any capital gains tax paid by a participator in a non-resident company under this section (so far as neither reimbursed by the company, nor used to reduce a liability to tax on a distribution) is treated as allowable expenditure in the capital gains tax computation of the gain arising on the disposal of the asset representing the participator’s interest in the company.

(11) Any loss arising on the disposal of assets by the non-resident company can be treated as accruing to participators but only insofar as the loss reduces or extinguishes gains accruing in the same year of assessment to the company, which gains are charged on participators.

(12) Where the participator in the non-resident company is itself a non-resident company (which would be a close company if it were resident), an amount equal to the amount of gain apportioned to the participator is further apportioned among the participators of the participator, and so on through a chain of companies.

(13) The persons treated by the section as if part of a chargeable gain accruing to a non-resident company (or any company in the chain referred to above) had accrued to them expressly include trustees who are participators, if when the gain accrues to the company, the trustees are neither resident nor ordinarily resident in the State. Such gain can then be attributed to beneficiaries of the trust under section 579A.

(14) Where any tax payable by a participator as a result of the charge under this section is paid by the non-resident company or a company in the chain referred to above, the payment is not subject to tax.

(16) For the purposes of the section, group treatment is allowed in relation to transfers of assets between non-resident companies which are members of the same non-resident group.

(16)(a) The term “group” is to be construed in accordance with subsections (1) (apart from paragraph (a)), (3) and (4) of section 616 which define “a group of companies” for the purposes of Part 20 (Companies Chargeable Gains). A “non-resident group” is essentially the members of a group that are not resident in the State.

(16)(b)(i) Sections 617 to 620, which respectively deal with transfers of assets, other than trading stock, within a group, transfers of trading stock with a group, disposals or acquisitions outside a group and the replacement of business assets by members of a group, are to apply to a non-resident company which is a member of a non-resident group as they apply to a company resident in the State which is a member of a group. However, requirements in those sections for a company to be EU resident before it can be considered as a member of a group are inappropriate in the context of a non-resident group and, accordingly, are disapplied for the purpose of this section.

(16)(b)(ii) For the same purposes, sections 623 (company ceasing to be a member of group) and 625 (shares in subsidiary member of group) are to apply as if the references in those sections to companies and a group of companies were references to non-resident companies and a non-resident group of companies. This is done to prevent non-resident companies disposing of assets entirely out of the non-resident group in such a way that any gain arising on the disposal would escape a charge to capital gains tax.

This provision does not apply where —

• the chargeable company is resident in the State at the time of acquisition of the asset, or the asset is a chargeable asset in relation to that company immediately after that time, and
• the other company is resident in the State at the time of that acquisition, or the asset is a chargeable asset in relation to that company immediately before that time.

Relevant Date: Finance Act 2021