Revenue Note for Guidance

The content shown on this page is a Note for Guidance produced by the Irish Revenue Commissioners. To view the section of legislation to which the Note for Guidance applies, click the link below:

Revenue Note for Guidance

27 Market value of certain shares in private companies

Summary

This section makes special provision for the valuation of shares in a private company (as defined) which is deemed to be controlled by the donee or successor. “Control” includes control through a combination of some or all of family shareholdings, powers of voting or of dictating dividend policy, nominee holdings, trust holdings or holdings of other controlled companies. Where control, as defined, exists, this is taken into account in arriving at the value of the shares. The section also defines other terms used in the section. Where no question of control arises, shares in such a company are valued in accordance with section 26.

Details

(1) “group of shares”, in relation to a private company, means the aggregate of the shares in the company of the donee or successor, the relatives of the donee or successor, nominees of the donee or successor, nominees of relatives of the donee or successor, and the trustees of a settlement whose objects include the donee or successor or relatives of the donee or successor;

“nominee” includes a person who may be required to exercise his/her voting power on the directions of, or who holds shares directly or indirectly on behalf of, another person;

“private company” means, broadly, a company that is under the control of not more than 5 persons unless at least 35% of the voting power is held by the public and the company is quoted on the official list of a recognised stock exchange;

“share”, in relation to a private company and in addition to the interpretation of share in section 2(1), includes every debenture, or loan stock, issued otherwise than as a part of a transaction which is wholly and exclusively a bona fide commercial transaction.

(2) The market value of each share in a company which (after taking the gift or inheritance) is controlled by the donee or successor is to be ascertained as follows:

  • ascertain the value of the controlled “group of shares” i.e. all shares owned by the donee/successor, relatives, nominees and trustees as a single majority holding, and
  • apportion the value of the group as between the shares acquired and any other shares concerned having due regard to class rights.

For example, a donee or successor owns 10% of the shares and relatives own another 80%. The value of the total 90% is calculated and the value of the 10% holding is taken as 1/9th of that value. In the absence of subsection (1), the 10% holding would be valued as a minority holding.

As between shares of the same class, the apportionment is made on the basis of nominal amounts.

If the controlled group of shares includes different classes of shares (e.g. A ordinary, B ordinary, preference, etc.), regard will be had to the rights attaching to each class.

For the purposes of calculating the market value of shares in a controlled private company (Company A) which owns shares in another private company (Company B) for the purposes of subsection (1), it must first be established whether Company B is a company controlled by the donee or successor. If it is, then the shares held by Company A in Company B must be valued on the basis that Company A held the same element of control over Company B as was held by the donee or successor and his/her relatives, etc.

(3) A company is deemed to be controlled by the donee or successor if any one or more of the following control it, i.e.:

  • the donee or successor;
  • his/her relatives (see note on section 2(4));
  • his/her nominees;
  • nominees of his/her relatives;
  • trustees of a settlement whose objects include him/her or his/her relatives;
  • any company similarly controlled by him/her (regarded for this purpose as being “related” to him/her).

(4)(a) For the purposes of the section, a company will be deemed to be under the control of not more than 5 persons if any 5 or fewer persons together exercise, or are able to exercise, or are entitled to acquire control, whether direct or indirect, of the company. For this purpose, the following persons will be treated as a single person:

  • persons who are relatives of any other person together with that other person;
  • persons who are nominees of any other person together with that other person;
  • persons in partnership; and
  • persons interested in any shares or obligations of the company which are subject to any trust or are part of the estate of a deceased person.

A person will be deemed to have control of a company if he/she has any of the following powers:

  • (4)(b)(i) voting control which arises when he/she has a majority of the votes, or is capable (through, for example, shares held for him/her by a bare trustee) of directing others how to vote on any or all questions affecting the company as a whole. Some shareholders are, by the company’s articles of association, denied voting rights except on certain questions such as a winding-up. If a shareholder has a requisite majority of votes capable of deciding such a question, he/she will have control;
  • (4)(b)(ii) power to exercise or control the exercise of the powers of—
    • a board of directors;
    • a governing director; or

    to nominate a majority of the board, or a governing director, or to veto
    the appointment of a director, or any similar powers. Thus, a person has control if he/she is a sole director with full powers of a board of directors, or if he/she is a governing director;
  • (4)(b)(iii) receipt of dividend: a person is deemed to control the company through receipt of (or entitlement to) more than 50% of the dividends, interest, etc. of the company. Normally, such a person has voting control, or more than 50% of the nominal value of the capital, but it is not unusual to find a class of shares which are non-voting but eligible for dividends or interest;
  • (4)(b)(iv) ownership of capital: control is deemed to exist where a person has an absolute or limited interest in at least 50% of the nominal value of the company’s shares.

The 4 situations outlined above are intended to cover the various circumstances in which a private company can be controlled by a person (or persons). Unless the company is under the control of 5 or fewer persons, the section does not apply, and the shares will be valued under the normal market value rules in section 26.

Relevant Date: Finance Act 2015