Revenue Tax Briefing Issue 54, December 2003
[Approved for the purposes of Chapter 1, Part 17, TCA 1997 and Schedule 11 of that Act.] - Interaction with a Direct Demerger.
In Tax Briefing, Issue No. 48 (June 2002) Revenue detailed the appropriate tax relieving provisions in relation to company reconstructions and amalgamations. In brief, where shares are distributed in specie, the provisions of Sections 586 and 587, TCA 1997 do not apply, since both sections require that shares be issued. In addition, Section 535 TCA, 1997 (i.e., disposals where capital sums are derived from assets) does not apply since a distribution is chargeable as income in the hands of the recipient.
Arising from a number of queries received, Revenue would like to clarify the taxation position of a distribution in specie from a demerged company where shares have been appropriated to participants of an approved Profit Sharing Scheme and the Release Date for those shares has not been reached (at present three years from the Date of Appropriation).
The following treatment will apply in circumstances where a company makes a distribution to its shareholders consisting of shares in another company that is its 100% subsidiary.
No charge to income tax will arise where a distribution in specie is made by the company whose shares are used for the purposes of the scheme, where all of the following circumstances apply:
Where this tax treatment applies, the original base cost for capital gains tax purposes must be apportioned over the original and distributed shares by reference to their market value at the date of distribution of the shares.
Prior approval must be sought before the forgoing tax treatment can apply. Applications for approval may be submitted to Personal Income Tax, Direct Taxes Interpretation & International Division, Dublin Castle, Dublin 2 together with:
This practice is subject to review.