Revenue Tax Briefing Issue 52, May 2003
Section 538 TCA 1997 provides for loss relief where the owner of an asset satisfies the inspector that its value has become negligible. The loss is calculated as if the asset was sold for an amount equal to the amount so valued.
The word ‘negligible’ is not defined for the purpose of the Tax Acts and therefore takes its normal meaning, i.e., not worth considering; insignificant. The concept of negligible value is not comparative in nature. A dramatic fall in the value of shares, e.g., due to the volatile nature of the sector in which it operates, would not give rise to a negligible value claim where the company continues to operate and its shares continue to be traded. For example, shares purchased for €10M would not be regarded as having negligible value by virtue of their value decreasing to €100,000. Clearly €100,000 is not a negligible amount. Revenue do not accept that the legislation is intended to be applicable in these circumstances particularly where there would be a ready mechanism available to the shareholder to dispose of the shares. Section 538 is not intended to be a provision for making losses available on an artificial basis in circumstances where there would be no impediment to their actual disposal in the market place.
In applying the provisions of this section the inspector will look to the specific facts in ascertaining if the value of the asset has become negligible. In the case of shares, for example, a claim will only be considered where the inspector is satisfied that they are effectively worthless. Persons claiming relief under this section should provide their inspector with full details, supported by relevant documentation, of the circumstances in which the relevant asset has become of negligible value.
Special provisions apply where the assets in question are shares in a dissolved company where the shareholder acquires property of the company following a Ministerial waiver under the State Property Act 1954 or where the asset is a building or structure on land.