Revenue Tax Briefing Issue
48, June 2002
Exemption from Section 623 TCA 1997 for Certain Mergers (Section 624 TCA 1997)
Section 623 TCA 1997 sets out the charge to tax, on one or more group members leaving a group of companies, in respect of assets the company leaving the group acquired from other group companies within a period of 10 years immediately preceding the time the company leaves the group. The charge deferred under Section 617 TCA 1997 is effectively reinstated.
Section 624 TCA 1997 provides that in order to facilitate company mergers, Section 623 TCA 1997 is not to apply if all the following conditions are satisfied, when a company leaves the group as part of a merger
- There are bona fide commercial reasons for the merger
- Avoidance of tax is not the main or one of the main purposes
- The merger is within the definition in Section 624(2).
For the purposes of this section a merger is an arrangement whereby:
- A company(ies) outside a group of companies acquires an interest in the whole or part of the business carried on by the company leaving the group (Company X) and
- The group of companies of which Company X was a member acquires an interest in the business carried on by each acquiring company or, in the case of a consortium operating through a joint operating company, by a company 90 per cent or more of whose ordinary share capital is owned by the acquiring companies.
- Not less than 25 per cent by value of the interests acquired by each party are to be by way of ordinary share capital, the balance (as regards the acquisition by Company X or its group) being by way of debentures or shares
- The value or aggregate values of the interests acquired by both parties to the merger are to be substantially of the same value
- The consideration received by the group of companies of which Company X ceases to be a member is to be applied in the acquisition of the interest in the other group of companies. The words of the Act ensure that the consideration may be wholly in shares or partly in cash and partly in shares provided that the part in cash is applied to purchase the relevant shares.
- The acquisition must be otherwise than with a view to disposal
- For the purposes of Section 624 a member of a group can be treated as carrying on as one business, the activities of the group
- In Section 624 the word “company” can include a company not resident in the EU.
In any situation where you are in doubt about whether the particular provisions of either Sections 586, 587 or 624 TCA apply, Revenue will, on request, give an opinion on whether the proposed transaction comes within the legislation. (See pages 11 to 14.)
Requests, with full details, should be sent to:
Office of the Chief Inspector of Taxes,
Technical Services, CGT Unit,