701 Transfer of shares held by certain societies to members of society

Summary

This section provides that where an agricultural or fisheries co-operative transfers shares it owns in a subsidiary company to the co-operative members in return for the cancellation of the members’ shares in the co-operative, the transfer is deemed not to be a distribution and the disposal of the shares is treated for capital gains tax purposes as not giving rise to a chargeable gain or an allowable loss. The co-operative members are treated as if the shares in the company which are transferred to them were acquired at the same price and at the same time at which they acquired their shares in the co-operative.

Details

Definitions

(1) “company” is linked back to the definition of that term in section 5. It covers all corporate bodies but does not include a European Economic Interest Grouping (EEIG) – see Part 43 for provisions relating to EEIGs.

“consideration” is consideration in money or money’s worth.

“control” is defined by reference to the rules set out in section 432.

“society” is a society registered under the Industrial and Provident Societies Acts, 1893 to 1978, which is an agricultural or fishing society within the meaning of section 133(1)(a).

(2)(a) “the appropriate number”, in relation to a member’s original shares in a society, is defined because the assets of the society may consist of more than just its shareholding in the subsidiary company. In such a case only that part of the society’s members’ shares (“the appropriate number”) referable to the assets of the society represented by its shareholding in the company are to be cancelled as part of the transfer arrangements. The appropriate number is determined by the formula —

Conditions

(2)(b) The conditions which must be met to avail of the relief are —

• the transfer of the shares in the company to the member must be in respect of and in proportion or as near as possible in proportion to that member’s holding of shares (the original shares) in the society,
• no consideration for the transfer must be given or received from a member other than the cancellation of the member’s shares in the society, and
• the members’ shares in the society must be cancelled on or as soon as possible after the transfer.

Tax treatment

(3) The transfer of shares is not treated as a distribution and is deemed to be made for an amount which results in a no gain/no loss for the society.

(4)(a) The cancellation of the members’ shares in the society is not treated as a disposal.

(4)(b) Each member is treated as if the shares transferred to him/her by the society were acquired at the same time and price at which he/she acquired the original shares (that is, his/her shares in the society). If the original shares were acquired at different times, provision is made for apportionment on a just and reasonable basis.

(5) The above tax treatment does not apply unless the transfer of shares is made for genuine commercial reasons and is not part of a tax avoidance arrangement.

Returns

(6) A society availing of this section must include details of the number of shares cancelled in its corporation tax return.

Relevant Date: Finance Act 2021