Revenue Note for Guidance

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Revenue Note for Guidance


Purchases of shares by financial concerns and persons exempted from tax, and restriction on relief for losses by repayment of tax in case of dividends paid out of accumulated profits


Chapter 2 of Part 28 is directed against a tax avoidance scheme involving a device commonly known as “dividend stripping” by which a profit is made out of tax —

  • through the acquisition of shares in companies which have accumulated reserves, and
  • the taking of a dividend on those shares.

The avoidance device involves the acquisition by company A of shares in company B. A dividend is declared and paid to company A. This is franked investment income in the hands of company A. The shares in company B are subsequently sold at a loss reflecting the fact that the accumulated reserves in company B have already been paid out. The loss to company A on this purchase and sale transaction would normally be used to claim a repayment of any tax credit attaching to the dividends paid by company B (section 157). Dealers in securities are in a specially favourable position to do this. The device can also be practised by exempt bodies to claim a repayment of the tax credits and can also be used, in the case of a non-financial trader with trading losses. These losses can be used to claim a repayment of the tax credit.

The provisions of this Chapter ensure that, in general terms, the price paid for the shares is to be reduced, in computing the body’s profit or loss by the extent of the dividends earned before the acquisition of the shares. As in Chapter 1 of this Part the broad effect is that this artificial loss is not now created.

752 Purchases of shares by financial concerns and persons exempted from tax


This section is the main provision designed to prevent avoidance of tax by the dividend-stripping device. The section affects persons who deal in financial securities as well as persons who enjoy an exemption from tax and are entitled to claim repayment of tax (for example, charities, pension schemes, etc).


(1) “dividends” includes all distributions.

“gross amount” or “gross dividend” is the dividend (distribution) including the tax credit.

“distribution” has the same meaning as in the Corporation Tax Acts.

(2)(a) “company” is an Irish resident body corporate.

“control” broadly means the power of a person to secure that the affairs of the company are conducted in accordance with that person’s wishes.

“person” includes any body of persons as well as a trust.

“share” includes stock other than loan stock, etc.

“shares of a class to which this section applies” means, in general, the share capital of a company other than preference shares. Shares are of a different class if their rights, etc are distinguishable.

The above definitions apply also for the purposes of Schedule 22.

(2)(b) The subsection also contains provisions for determining when 2 trades are under the same control.

(3) In general, where a body acquires 10 per cent or more of the issued share capital of a company which is of a class to which this section applies, and receives a dividend within 10 years from the date of acquisition, the net dividend, if and so far as it is paid out of pre-acquisition profits is to be treated as a trading receipt. In considering whether there is a 10 per cent shareholding regard is to be had to all shares of the class in question which were —

  • acquired within 10 years of the date of the dividend payment,
  • held by dealing concerns under the same control, and
  • acquired by dealing concerns acting in concert.

(4) There are also provisions relating to persons exempt from tax on dividends corresponding to those relating to financial concerns in subsection (3). The net effect is that where dividends are received in the circumstances of subsection (3) no relief by way of repayment of tax or otherwise is to be available in respect of such a dividend, to the extent that it is paid out of pre-acquisition profits.

(5) Account is to be taken in the application of subsections (3) and (4) of the acquisition of shares by persons acting in concert.

(6) A mechanism for identifying the order in which shares acquired at different times are sold is outlined and that is on a “first in, first out” (FIFO) basis.

(7) When a new trade commences any shares which form part of the stock-in-trade at that date are deemed to have been acquired at that date. The same applies to a change of ownership.

(8) The computation in Schedule 22 determines the extent to which profits are accumulated before any particular date.

Relevant Date: Finance Act 2021