Revenue Tax Briefing

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Revenue Tax Briefing Issue 46, December 2001


Calculation of Base Cost of Eircom shares and Vodafone shares

Following the disposal by Eircom of the Eircell business to Eircell 2000 and the subsequent share for share transaction between the shareholders of that latter company and Vodafone, the base cost of Eircom shares must be apportioned accordingly.

Apportionment Of Base Cost

Section 584(6) TCA 1997 contains the main rule for apportioning the cost of acquisition of a new “holding”. For the purpose of computing a gain or loss accruing from the disposal of any part of the new “holding”, the total cost of the new “holding” is apportioned on the basis of the respective market values, at the date of the part disposal, of what is disposed of and what is retained.

Section 548(3) outlines how market value is to be ascertained. Each Eircom shareholder received 1 share in Eircell 2000 for every Eircom share held. In accordance with the provisions of this section, the market value of the Eircom and Eircell 2000 shares, following the disposal are as follows:



Eircell 2000


Revenue will accept that the base cost to be used on the disposal of Eircom shares is as follows:

Assume Eircom shares purchased for €3.90 at original offer:

The split base cost per share, is thus as follows:





= €1.69 per share

1.11 + 1.45406

Each Eircell 2000 shareholder received 0.9478 shares in Vodafone for every two shares held.

Revenue will accept that the base cost to be used on the disposal of Vodafone shares is as follows:

Assume, as above, Eircom shares were purchased for €3.90.


€3.90 - €1.69 = €2.21 per share ×


= €4.66 per share


Fractional entitlements have been disregarded.

The percentage split of the base cost between Eircom and Vodafone is therefore:







1.69 + 2.21







1.69 + 2.21

Where Eircom shares were acquired after the initial floatation at a price other than €3.90 the split of that base cost (i.e. the cost of the shares) should be apportioned using the above percentages.

Individuals who held their shares for a specified period were entitled to receive one free loyalty bonus ordinary share for every 25 ordinary shares held. The bonus ordinary shares will have a base cost of nil for capital gains tax purposes.

Additionally, where an individual received loyalty bonus shares and subsequently Vodafone shares were received in respect of those shares, then the base cost of the Vodafone shares attributable to those shares is also nil. Consequently, where an individual participated in the initial offer and later received the loyalty bonus of one free ordinary share for every 25 ordinary shares held, then 1/26th of Vodafone shares acquired in respect of that holding will have a base cost of nil.

Any Eircom shares acquired after the disposal of the Eircell business are not affected.