TAXES CONSOLIDATION ACT, 1997

• (b) This section shall not apply to the issue by a company of shares in the company by means of an exchange referred to in subsection (1) unless it is shown that the exchange is effected for bona fide commercial reasons and does not form part of any arrangement or scheme of which the main purpose or one of the main purposes is avoidance of liability to tax.

587 Company reconstructions and amalgamations. [CGTA75 s51(1) and Sch2 par5; FA82 s63(1)(b) and (2)]

587.—(1) In this section, “scheme of reconstruction or amalgamation” means a scheme for the reconstruction of any company or companies or the amalgamation of any 2 or more companies, and references to shares or debentures being retained include their being retained with altered rights or in an altered form, whether as the result of reduction, consolidation, division or otherwise.

• (2) Where under any arrangement between a company and the persons holding shares in or debentures of the company or any class of such shares or debentures, being an arrangement entered into for the purposes of or in connection with a scheme of reconstruction or amalgamation, another company issues shares or debentures to those persons in respect of and in proportion to (or as nearly as may be in proportion to) their holdings of the first-mentioned shares or debentures, but the first-mentioned shares or debentures are either retained by those persons or cancelled, then, those persons shall be treated as exchanging the first-mentioned shares or debentures for those held by them in consequence of the arrangement (any shares or debentures retained being for this purpose regarded as if they had been cancelled and replaced by a new issue), and accordingly section 586(1) shall apply to such exchange of shares or debentures.

• (3) Subsection (2) shall apply in relation to a company which has no share capital as if references to shares in or debentures of a company included references to any interests in the company possessed by members of the company, and sections 584 and 586 shall apply accordingly.

• (4)
• (a) In this subsection, “shares” has the same meaning as in section 586(3).

• (b) This section shall not apply to the issue by a company of shares in the company under a scheme of reconstruction or amalgamation referred to in subsection (2) unless it is shown that the reconstruction or amalgamation is effected for bona fide commercial reasons and does not form part of any arrangement or scheme of which the main purpose or one of the main purposes is avoidance of liability to tax.

588 Demutualisation of assurance companies. [CGTA75 s51(1) and Sch2 par5A; FA97 s70]

588.—(1) In this section—

“assurance company” has the same meaning as in section 3 of the Insurance Act, 1936;

“free shares”, in relation to a member of the assurance company, means any shares issued by the successor company to that member in connection with the arrangement but for no new consideration;

“member”, in relation to the assurance company, means a person who is or has been a member of it, in that capacity, and any reference to a member includes a reference to a member of any particular class or description;

“new consideration” means consideration other than—

• (a) consideration provided directly or indirectly out of the assets of the assurance company or the successor company, or

• (b) consideration derived from a member's shares or other rights in the assurance company or the successor company.

• (2) This section shall apply as on and from the 21st day of April, 1997, in respect of an arrangement between a company and its members, being an arrangement to which subsection (2) of section 587 applies by virtue of subsection (3) of that section, and where the company is an assurance company which carries on a mutual life business.

• (3) Where in connection with the arrangement there is conferred on a member of the assurance company concerned any rights—

• (a) to acquire shares in another company (in this section referred to as the “successor company”) in priority to other persons,

• (b) to acquire shares in the successor company for consideration of an amount or value lower than the market value of the shares, or

• (c) to free shares in the successor company,

then, any such rights so conferred on a member shall be regarded for the purposes of capital gains tax as an option (within the meaning of section 540) granted to and acquired by such member for no consideration and having no value at the time of that grant and acquisition.

• (4) Where in connection with the arrangement shares in the successor company are issued to a member of the assurance company concerned, and such shares are treated under section 587 as having been exchanged by the member for the interest in the company possessed by the member, those shares shall, notwithstanding section 584, be regarded for the purposes of section 552(1)—

• (a) as having been issued to the member for a consideration given by the member of an amount or value equal to the amount or value of any new consideration given by the member for the shares or, if no new consideration is given, as having been issued for no consideration, and

• (b) as having, at the time of their issue to the member, a value equal to the amount or value of the new consideration so given or, if no new consideration is given, as having no value;

but this subsection is without prejudice to the operation where applicable of subsection (3).

• (5) Subsection (6) shall apply in any case where—

• (a) in connection with the arrangement, shares in the successor company are issued by that company to trustees on terms which provide for the transfer of those shares to members of the assurance company concerned for no new consideration, and

• (b) the circumstances are such that in the hands of the trustees the shares constitute settled property.

• (6)
• (a) Where this subsection applies, then, for the purposes of capital gains tax—

• (i) the shares shall be regarded as acquired by the trustees for no consideration,

• (ii) the interest of any member in the settled property constituted by the shares shall be regarded as acquired by the member for no consideration and as having no value at the time of its acquisition, and

• (iii) where on the occasion of a member becoming absolutely entitled as against the trustees to any of the settled property, both the trustees and the member shall be treated as if, on the member becoming so entitled, the shares in question had been disposed of and immediately reacquired by the trustees, in their capacity as trustees within section 567(2), for a consideration of such an amount as would secure that on the disposal neither a gain nor a loss would accrue to the trustees, and accordingly section 576(1) shall not apply in relation to that occasion.

• (b) Reference in paragraph (a) to the case where a member becomes absolutely entitled to settled property as against the trustees shall be taken to include reference to the case where the member would become so entitled but for being a minor or otherwise under a legal disability.

589 Shares in close company transferring assets at undervalue. [CGTA75 s35(1) to (3) and (5); CTA76 s140(2) and Sch 2 PtII par3(1)]

589.—(1) Where a close company transfers an asset to any person otherwise than by means of a bargain made at arm's length and for a consideration of an amount or value less than the market value of the asset, an amount equal to the difference shall be apportioned among the issued shares of the company, and the holders of those shares shall be treated in accordance with subsections (2) and (3).

• (2) For the purposes of the computation of a chargeable gain accruing on the disposal of any of those shares by the person owning them on the date of transfer, an amount equal to the amount so apportioned to that share shall be excluded from the expenditure allowable as a deduction under section 552(1)(a) from the consideration for the disposal.

• (3) Where the person owning any of those shares at the date of transfer is itself a close company, an amount equal to the amount apportioned to the shares so owned under subsection (1) to that close company shall be apportioned among the issued shares of that close company, and the holders of those shares shall be treated in accordance with subsection (2), and so on through any number of close companies.

• (4) This section shall apply to a company within section 590 as it applies to a close company.

590 Attribution to shareholders of chargeable gains accruing to non-resident company. [CGTA75 s36; CTA76 s129(6)(c) and (7), s140(2) and s159 and Sch2 PtII pars4 and 5]

590.—(1) This section shall apply as respects a chargeable gain accruing to a company—

• (a) which is not resident in the State, and

• (b) which would be a close company if it were resident in the State.

• (2) Subject to this section, any person who at the time when the chargeable gain accrues to the company—

• (a) is resident or ordinarily resident in the State,

• (b) if an individual, is domiciled in the State, and

• (c) holds shares in the company,

shall be treated for the purposes of the Capital Gains Tax Acts as if a part of the chargeable gain had accrued to that person.

• (3) The part of the chargeable gain referred to in subsection (2) shall be equal to the proportion of the assets of the company to which that person would be entitled on a liquidation of the company at the time when the chargeable gain accrues to the company.

• (4) This section shall not apply in relation to—

• (a) any amount in respect of the chargeable gain which is distributed, whether by means of dividend or distribution of capital or on the dissolution of the company, to persons holding shares in the company or to creditors of the company within 2 years from the time when the chargeable gain accrued to the company,

• (b) a chargeable gain accruing on the disposal of assets, being tangible property, whether movable or immovable, or a lease of such property, where the property was used only for the purposes of a trade carried on by the company wholly outside the State,

• (c) a chargeable gain accruing on the disposal of currency or of a debt within section 541(6), where the currency or debt is or represents money in use for the purposes of a trade carried on by the company wholly outside the State, or

• (d) a chargeable gain in respect of which the company is chargeable to capital gains tax by virtue of subsection (3) or (7) of section 29 or to corporation tax by virtue of section 25(2)(b).

• (5) Subsection (4)(a) shall not prevent the making of an assessment in pursuance of this section but, if by virtue of subsection (4)(a) this section is excluded, all such adjustments, whether by means of repayment or discharge of tax or otherwise, shall be made as will give effect to subsection (4)(a).

• (6) The amount of capital gains tax paid by a person in pursuance of subsection (2) (in so far as not reimbursed by the company) shall be allowable as a deduction in the computation under the Capital Gains Tax Acts of a gain accruing on the disposal by the person of the shares by reference to which the tax was paid.

• (7) To the extent that it would reduce or extinguish chargeable gains accruing by virtue of this section to a person in a year of assessment, this section shall apply in relation to a loss accruing to the company on the disposal of an asset in that year of assessment as it would apply if a gain instead of a loss had accrued to the company on the disposal, but shall only so apply in relation to that person, and, subject to this subsection, this section shall not apply in relation to a loss accruing to the company.

• (8) Where the person owning any of the shares in the company at the time when the chargeable gain accrued to the company is itself a company which is not resident in the State but which would be a close company if it were resident in the State, an amount equal to the amount apportioned under subsection (3) out of the chargeable gain to the shares so owned shall be apportioned among the issued shares of the second-mentioned company, and the holders of those shares shall be treated in accordance with subsection (2), and so on through any number of companies.

• (9) Where any tax payable by any person by virtue of subsection (2) is paid by the company to which the chargeable gain accrues, or in a case under subsection (8) is paid by any such other company, the amount so paid shall not, for the purposes of income tax or for the purposes of the Capital Gains Tax Acts, be regarded as a payment to the person by whom the tax was originally payable.

• (10) Where any tax payable by any company by virtue of subsection (2) is paid by the company to which the chargeable gain accrues, or in a case under subsection (8) is paid by any such other company, the amount so paid shall not for the purposes of corporation tax be regarded as a payment to the company by which the tax was originally payable.

• (11)
• (a) In this subsection—

“group” shall be construed in accordance with subsections (1) (excluding paragraph (a)), (3) and (4) of section 616;

“non-resident group” of companies—

• (i) in the case of a group none of the members of which is resident in the State, means that group, and

• (ii) in the case of a group 2 or more members of which are not resident in the State, means the members not resident in the State.

• (b) For the purposes of this section—

• (i) sections 617 to 620 shall apply in relation to non-resident companies which are members of a non-resident group of companies as they apply in relation to companies resident in the State which are members of a group of companies, and

• (ii) sections 623 and 625 shall apply as if for any reference in those sections to a group of companies there were substituted a reference to a non-resident group of companies, and as if references to companies were references to companies not resident in the State.

591 Relief for individuals on certain reinvestment. [FA93 s27(1) to (5) (apart from proviso to (5)) and (6) to (13); FA94 s65(b); FA95 s74(1); FA96 s62(1); FA97 s75(1)]

591.—(1) In this section—

“director” has the same meaning as in section 116;

“eligible shares” and “ordinary shares” have the same meanings respectively as in section 488;

“full-time director”, “full-time employee”, “part-time director” and “part-time employee” have the same meanings respectively as in section 250;

“holding company” means a company whose business consists wholly or mainly in the holding of shares in, or securities of, one or more companies which are trading companies and which are its 51 per cent subsidiaries;

“material disposal” has the meaning assigned to it by subsection (5);

“ordinary share capital” has the same meaning as in section 2;

“the original holding” has the meaning assigned to it by subsection (2);

“qualifying company” has the meaning assigned to it by subsection (7);

“qualifying investment” has the meaning assigned to it by subsection (6);

“the reinvestor” has the meaning assigned to it by subsection (2);

“the specified period” has the meaning assigned to it by subsection (6)(b);

“trade” includes a profession, and “trading company”, “trading group”, “qualifying trade” (within the meaning of subsection (8)) and “qualifying trading operations” (within the meaning of that subsection) shall be construed accordingly;

“trading company” means a company whose business consists wholly or mainly of the carrying on of a trade or trades;

“trading group” means a holding company and one or more trading companies which are 51 per cent subsidiaries of the holding company;

“unquoted company” means a company none of whose shares, stocks or debentures are listed in the official list of a stock exchange or quoted on an unlisted securities market of a stock exchange;

“51 per cent subsidiary” has the meaning assigned to it by section 9.

• (2)
• (a) Subject to this section, where the consideration which an individual (in this section referred to as “the reinvestor”) obtains for any material disposal by him or her of shares in or securities of any company (in this section referred to as “the original holding”) is applied by him or her within the period of 3 years from the date of that disposal in acquiring a qualifying investment, the reinvestor shall, on making a claim in that behalf, be treated for the purposes of the Capital Gains Tax Acts as if the chargeable gain accruing on the disposal of the original holding did not accrue until he or she disposes of the qualifying investment.

• (b) Notwithstanding paragraph (a), where—

• (i) the disposal of the qualifying investment is a material disposal for the purposes of this section, and

• (ii) the consideration for that disposal is applied by the reinvestor within the period of 3 years from the date of that disposal in acquiring another qualifying investment,

the reinvestor shall be treated as if the chargeable gain accruing on the disposal of the original holding did not accrue until he or she disposes of the other qualifying investment and any further qualifying investment which is acquired in a similar manner.

• (3)
• (a) Where an individual is not entitled to be treated in accordance with subsection (2) solely by reason of not having satisfied the requirements of either or both paragraphs (a) and (e) of subsection (6), and—

• (i) all the other requirements of this section have been satisfied,

• (ii) the capital gains tax on the disposal of the original holding has been paid in full, and

• (iii) the individual has, throughout a period of 2 years beginning within the specified period, been a full-time employee or a full-time director of the qualifying company,

then, the individual—

• (I) shall be entitled on making a claim in that behalf to such repayment of capital gains tax as would secure that the tax which is ultimately borne by the individual does not exceed the tax which would have been borne by the individual if he or she had been entitled to be treated in accordance with subsection (2), and

• (II) shall be treated for the purposes of the Capital Gains Tax Acts as if the chargeable gain accruing on the disposal of the original holding did not accrue until the individual disposes of the qualifying investment, and subsection (2)(b) shall apply for the purposes of this subsection as it applies for the purposes of subsection (2).

• (b) No repayment of tax under this subsection shall carry interest.

• (4) Subsection (2) shall not apply if part only of the amount or value of the consideration for the material disposal of the original holding is applied, within the period of 3 years from the date of that disposal, in acquiring a qualifying investment but, if all of the amount of that consideration except for a part which is less than the amount of the gain accruing on the disposal is so applied, the reinvestor shall, on making a claim in that behalf, be treated for the purposes of the Capital Gains Tax Acts as if the amount of the gain accruing on the disposal were reduced to the amount of the consideration not applied in acquiring a qualifying investment, and the balance of the gain shall be treated as if it did not accrue until the reinvestor disposes of the qualifying investment.

• (5) For the purposes of this section, the disposal of shares in or securities of a company shall be a material disposal if—

• (a) throughout the period of 3 years ending with the date of the disposal, or

• (b) in a case where the company commenced to trade at any time in the period mentioned in paragraph (a), throughout the period beginning at that time and ending with the date of the disposal,

the following conditions are satisfied—

• (i) the company has been a trading company or a holding company, and

• (ii) the reinvestor has been a full-time employee, part-time employee, full-time director or part-time director of the company or, if that company is a member of a trading group, of one or more companies which are members of the trading group.

• (6) For the purposes of this section, an individual shall be regarded as acquiring a qualifying investment where he or she acquires any eligible shares in a qualifying company if—

• (a) he or she holds not less than 5 per cent of the ordinary share capital of the company at any time in the period (in this subsection referred to as “the initial period”) beginning on the date of the acquisition of the eligible shares and ending on the date which is one year after the date of the disposal of the original holding,

• (b) he or she holds not less than 15 per cent of the ordinary share capital of the company at any time in the period (in this section referred to as “the specified period”) beginning on the date of the acquisition of the eligible shares and ending on the date which is 3 years after the date of the disposal of the original holding,

• (c) within the specified period, the company uses the money raised through the issue of the eligible shares for the purposes of enabling it, or enlarging its capacity, to undertake qualifying trading operations (within the meaning of subsection (8)),

• (d) the company is not—

• (i) the company in which the original holding has subsisted, or

• (ii) a company that was a member of the same trading group as that company,

and

• (e) he or she becomes at any time within the initial period, and is throughout the period beginning at that time and—

• (i) ending at the end of the specified period, or

• (ii) in a case where the company is wound up or dissolved without winding up and the conditions mentioned in subsection (7)(d) are satisfied, ending at the time of the commencement of the winding up or dissolution of the company,

a full-time employee or a full-time director of the company.

• (7)
• (a) For the purposes of this section and subject to paragraphs (b) to (d), a company shall be a qualifying company if it is incorporated in the State and if—

• (i) it is throughout the specified period—

• (I) an unquoted company resident in the State and not resident elsewhere, and

• (II) a company which exists wholly for the purposes of carrying on wholly or mainly in the State of one or more qualifying trades,

and

• (ii) it is not at any time in the specified period—

• (I) under the control of another company (or of another company and any person connected with that other company), or

• (II) without being under the control of another company, a 51 per cent subsidiary of that other company.

• (b) A company shall be deemed not to have ceased to be a qualifying company solely by virtue of shares in the company commencing, at any time in the specified period, to be quoted on the market known as the Developing Companies Market of the Irish Stock Exchange.

• (c) A company shall cease to be a qualifying company if at any time in the specified period a resolution is passed, or an order is made, for the winding up of the company (or in the case of a winding up otherwise than under the Companies Act, 1963, any other act is done for the like purpose) or the company is dissolved without winding up.

• (d) Notwithstanding paragraph (c), a company shall be deemed not to have ceased to be a qualifying company solely by virtue of the application of that paragraph where—

• (i) it is shown that the winding up or dissolution is for bona fide commercial reasons and does not form part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of income tax, corporation tax or capital gains tax, and

• (ii) the company's net assets, if any, are distributed to its members within 3 years from the commencement of the dissolution or the winding up.

• (8)
• (a) In this subsection, “qualifying trading operations”, in relation to a trade, means all the operations of the trade excluding those of dealing in shares, securities, land, currencies, futures or traded options.

• (b) A trade shall be a qualifying trade for the purposes of subsection (7) if throughout the specified period the trade—

• (i) is conducted on a commercial basis and with a view to the realisation of profits, and

• (ii) consists wholly or mainly of qualifying trading operations,

and a trade which during the specified period consists partly of qualifying trading operations and partly of other trading operations shall be regarded for the purposes of this subsection as a trade which consists wholly or mainly of qualifying trading operations only if the total amount receivable in the specified period by the company carrying on the trade from sales made and services rendered in the course of qualifying trading operations is not less than 75 per cent of the total amount receivable by the company from all sales made and services rendered in the course of the trade in the specified period.

• (9) A claim for relief under this section may be made after the making of a material disposal and the acquisition of eligible shares in a qualifying company if all the conditions for the relief are or will be satisfied, but the relief shall be withdrawn if, by reason of the subsequent happening of any event or failure of an event to happen which at the time the relief was claimed was expected to happen, the individual by whom the relief was claimed is not entitled to the relief so claimed.

• (10) The withdrawal of relief under subsection (9) shall be made—

• (a) for the year of assessment in which the happening or failure to happen, as the case may be, of the event giving rise to the withdrawal of the relief occurred, and

• (b) in accordance with subsection (11),

and both—

• (i) details of the happening or the failure to happen, as the case may be, of the event giving rise to the withdrawal of relief, and

• (ii) the amount to be treated as a gain under subsection (11),

shall be included in the return required to be made by the individual concerned under section 951 for that year of assessment.

• (11)
• (a) Notwithstanding any other provision of the Capital Gains Tax Acts, where relief is to be withdrawn under subsection (9) for any year of assessment, such amount (in this subsection referred to as “the relevant amount”) of the chargeable gain which accrued to the reinvestor on the disposal of the original holding as was treated under subsection (2) or (4) as not accruing at that time—

• (i) reduced in accordance with paragraph (b), and

• (ii) increased in accordance with paragraph (c),

shall be treated as a gain which accrued in that year of assessment.

• (b) The amount by which the relevant amount is to be reduced under paragraph (a)(i) is an amount equal to the aggregate of—

• (i) to the extent that such excess has not been deducted in years of assessment subsequent to the year of assessment in which the disposal of the original holding occurred, the excess of the amount of the losses which would have been deducted under section 31 in the year of assessment in which the disposal of the original holding occurred, if relief under this section had not been claimed, over the amount of such losses which were so deducted in that year, and

• (ii) any amount of chargeable gains in the year of assessment in which the disposal of the original holding occurred in respect of which the reinvestor would not by virtue of section 601 have been charged to capital gains tax if relief under this section had not been claimed.

• (c) The amount by which the relevant amount is to be increased under paragraph (a)(ii) is an amount determined by the formula—

G ×	R ____ 100	× M

where—

G is the relevant amount reduced in accordance with paragraph (b),

R is the rate per cent specified in section 1080(1), and

M is the number of months in the period beginning on the date on which capital gains tax for the year of assessment in which the disposal of the original holding occurred was due and payable and ending on the date on which capital gains tax for the year of assessment for which the withdrawal of relief is to be made is due and payable.

• (12) A chargeable gain or the balance of a chargeable gain which under subsection (2) or (4), as may be appropriate, is treated as accruing at a date later than the date of the disposal on which it accrued shall not be so treated for the purposes of section 556.

• (13) Without prejudice to the provisions of the Capital Gains Tax Acts providing generally for apportionments, where consideration is given for the acquisition or disposal of any assets some or part of which are shares or other securities to the acquisition or disposal of which a claim under this section relates and some or part of which are not, the consideration shall be apportioned in such manner as is just and reasonable.

• (14) This section shall not apply unless the acquisition of a qualifying investment was made for bona fide commercial reasons and not wholly or partly for the purposes of realising a gain from the disposal of the qualifying investment.

592 Reduced rate of capital gains tax on certain disposals of shares by individuals. [FA94 s66(1) to (8); FA96 s63(1); FA97 s76, s146(1) and Sch9 PtI par 18(3)]

592.—(1) In this section—

“disposal” does not include a relevant disposal within the meaning of section 648;

“ordinary share capital” has the same meaning as in section 2;

“ordinary shares” means shares forming part of a company's ordinary share capital;

“period of ownership”, in relation to an individual making a disposal of qualifying shares, means the individual's period of continuous ownership of the shares in the same capacity ending on the date of such disposal and, for the purposes of this definition, where the shares were acquired by the individual on the death of that individual's spouse so that the individual's period of ownership would apart from this definition be treated as having commenced on the date of that death, the individual's period of ownership shall be deemed to be extended to include the individual's spouse's period of ownership ending on that date;

“qualifying company” shall be construed in accordance with subsection (2);

“qualifying shares”, in relation to a company, means ordinary shares of the company which are fully paid up and which carry no present or future preferential rights to dividends or to the company's assets on its winding up and no present or future preferential right to be redeemed;

“qualifying trade” shall be construed in accordance with subsection (4);

“qualifying trading operations”, in relation to a trade, means all the operations of the trade excluding those of dealing in shares, securities, land, currencies, futures or traded options;

“the specified period”, in relation to the disposal of qualifying shares, means the period of 3 years immediately preceding the date of the disposal of those shares;

“trade” includes a profession, and “qualifying trade” and “qualifying trading operations” shall be construed accordingly;

“unquoted company” means a company none of whose shares, stocks or debentures are listed in the official list of a stock exchange or quoted on an unlisted securities market.

• (2) For the purposes of this section, a company shall be a qualifying company in relation to the disposal of qualifying shares where—

• (a) at the date of acquisition of those shares, it is an unquoted company which is resident in the State and not resident elsewhere and which has an issued share capital the market value of which is not more than £25,000,000, and

• (b) throughout the specified period, it is a company which is resident in the State and not resident elsewhere and—

• (i) which exists wholly or mainly for the purposes of the carrying on of one or more qualifying trades, or

• (ii) the business of which consists—

• (I) wholly or mainly of the holding of shares in one or more connected companies, or

• (II) wholly or mainly of both the holding of such shares and the carrying on of one or more qualifying trades.

• (3)
• (a) A company shall be regarded as having satisfied the condition referred to in subsection (2)(b)(i) only if throughout the specified period not less than 75 per cent of the market value of all the issued share capital of the company derives from the carrying on by the company of one or more qualifying trades.

• (b) A company shall be regarded as having satisfied the condition referred to in clause (I) or (II), as the case may be, of subsection (2)(b)(ii) only if throughout the specified period not less than 75 per cent of the market value of all the issued share capital of the company derives from the carrying on of one or more qualifying trades by the connected companies or, as the case may be, by the company and the connected companies.

• (c) In a case where a connected company (in this paragraph referred to as “the first-mentioned company”) is a company whose business consists of the holding of shares in one or more companies, references in paragraph (b) to the connected companies shall be construed as including references to the companies which are connected with the first-mentioned company.

• (4) For the purposes of this section, a trade shall be a qualifying trade if throughout the specified period it consists of qualifying trading operations and, where during that period a trade consists partly of qualifying trading operations and partly of other trading operations, the part of the trade which consists of other trading operations shall be treated as a separate trade.

• (5) For the purposes of this section, where a company (in this subsection referred to as “the first-mentioned company”) holds shares in another company, that other company shall be regarded as connected with the first-mentioned company if—

• (a) at the date of the acquisition of those shares by the first-mentioned company it was an unquoted company,

• (b) it is resident in the State and not resident elsewhere, and

• (c) not less than 20 per cent of the total voting rights in the company are exercisable by the first-mentioned company.

• (6) As respects chargeable gains accruing to an individual on the disposal of qualifying shares in a qualifying company in a case where the individual's period of ownership of those shares is not less than 3 years, section 28 (3) shall apply as if the reference in that section to 40 per cent were a reference to 26 per cent.

• (7)
• (a) In this subsection and in subsection (8), “original shares” and “new holding” have the same meanings respectively as in section 584.

• (b) If the time when an individual acquires qualifying shares would be determined under section 584, 585, 586 or 587, it shall be determined in the same way for the purposes of this section where the following conditions are satisfied—

• (i) both the original shares and the new holding constitute qualifying shares, and

• (ii) the individual is not treated under section 584(4) as giving or becoming liable to give any consideration, other than the original shares, for the acquisition of the new holding.

• (8)
• (a) In a case where subsection (7)(b) applies and the new holding is held for a period of not less than 3 years, subsection (2) shall apply as if—

• (i) in paragraph (a) of that subsection “at the date of acquisition of the original shares” were substituted for “at the date of acquisition of those shares”,

• (ii) where the company in which the new holding subsists is not the company in which the original shares subsisted, in paragraph (a) of that subsection “the company in which the original shares subsisted is” were substituted for “it is”, and

• (iii) in paragraph (b) of that subsection “the company in which the new holding subsists is” were substituted for “it is”.

• (b) In a case where subsection (7)(b) applies and the new holding is held for a period of less than 3 years, subsection (2) shall apply—

• (i) as if in paragraph (a) of that subsection “at the date of acquisition of the original shares” were substituted for “at the date of acquisition of those shares”, and

• (ii) where the company in which the new holding subsists is not the company in which the original shares subsisted as if—

• (I) in paragraph (a) of that subsection “the company in which the original shares subsisted is” were substituted for “it is”,

• (II) in paragraph (b) of that subsection “throughout that part of the specified period commencing on the date of the acquisition of the new holding, the company in which the new holding subsists is” were substituted for “throughout the specified period, it is”, and

• (III) the conditions referred to in paragraph (b) of that subsection applied also to the company in which the original shares subsisted but only in relation to the part of the specified period which does not include the part of that period mentioned in clause (II).

CHAPTER 5 Life assurance and deferred annuities

593 Life assurance and deferred annuities. [CGTA75 s20]

593.—(1) This section shall apply for the purposes of the Capital Gains Tax Acts as respects any policy of assurance or contract for a deferred annuity on the life of any person.

• (2) No chargeable gain shall accrue on the disposal of or of an interest in the rights under any such policy of assurance or contract except where the person making the disposal is not the original beneficial owner and acquired the rights or interests for a consideration in money or money's worth.

• (3) Subject to subsection (2), the occasion of the payment of the sum or sums assured by a policy of assurance or of the first instalment of a deferred annuity, and the occasion of the surrender of a policy of assurance or of the rights under a contract for a deferred annuity, shall be the occasion of a disposal of the rights under the policy of assurance or contract for a deferred annuity, and the amount of the consideration for the disposal of a contract for a deferred annuity shall be the market value at that time of the right to the first and further instalments of the annuity.

• (4) In subsection (3), the reference to payment of the sum assured shall include a reference to the transfer of investments or other assets to the owner of the policy in accordance with the policy.

594 Foreign life assurance and deferred annuities: taxation and returns. [CGTA75 s20A; FA93 s24; FA95 s68; FA97 s74(1)]

594.—(1) (a) (i) For the purposes of this section, a policy of assurance or contract for a deferred annuity on the life of any person, being a policy issued or a contract made before the 20th day of May, 1993, shall be treated as a policy issued or contract made, as the case may be, after that date if there is a variation of the policy or contract on or after that date which directly or indirectly increases the benefits secured by, or extends the term of, the policy or contract, as the case may be.

• (ii) For the purposes of subparagraph (i), where a policy of assurance issued or a contract made before the 20th day of May, 1993, provides an option to have another policy or contract substituted for it or to have any of its terms changed, any change in the terms of the policy or contract made in pursuance of the option shall be deemed to be a variation of the policy or contract, as the case may be.

• (b) Subject to subsection (2), this section shall be construed together with subsections (3) and (4) of section 593 as if subsection (3) of that section were not subject to subsection (2) of that section.

• (c) (i) In this paragraph and in subsection (3)—

“assurance company” has the same meaning as in section 3 of the Insurance Act, 1936;

“excluded policy” means a policy of assurance or contract for a deferred annuity on the life of any person where the policy is issued to or the contract is made with, as the case may be, a person who did not continuously reside outside the State throughout the period of 6 months commencing on the date of issue or the date of contract, as the case may be;

“life assurance fund” has the same meaning as in the Insurance Acts 1909 to 1969;

“relevant company” means a company which is—

• (I) resident in the State, or

• (II) chargeable under Case III of Schedule D by virtue of section 726 in respect of its income from the investment of its life assurance fund.

• (ii) Subsection (2) shall apply to any policy of assurance or contract for a deferred annuity on the life of any person which is a policy issued or a contract made, as the case may be, on or after the 20th day of May, 1993—

• (I) otherwise than by an assurance company which is a relevant company, or

• (II) being a policy or contract which is an excluded policy issued or made, as the case may be, by a relevant company to which section 710(2) applies.

• (2)
• (a) In this subsection, “relevant gain” means a chargeable gain arising on a disposal of or of an interest in the rights under any policy of assurance or contract for a deferred annuity to which this subsection applies, including a disposal by a person who is not the original beneficial owner of those rights and who acquired them or an interest in them for a consideration in money or money's worth.

• (b) Section 593(2) shall not apply in respect of any disposal of or of any interest in the rights under any policy of assurance or contract for a deferred annuity to which this subsection applies.

• (c) A relevant gain shall be computed as if section 556 had not been enacted.

• (d) Notwithstanding section 31, the total amount of chargeable gains accruing to a person chargeable in a year of assessment after deducting any allowable losses shall not be less than the total amount of any relevant gains accruing to the person in that year, and accordingly any deduction for allowable losses made in computing the total amount of chargeable gains so accruing shall not exceed the total amount of chargeable gains so accruing which are not relevant gains.

• (e) Notwithstanding section 601 or 1028(4), an individual shall be charged to capital gains tax on the amount of any relevant gains accruing to the individual.

• (3) As respects a policy of assurance or a contract for a deferred annuity to which subsection (2) applies, section 895 shall apply with any necessary modifications—

• (a) (i) to a relevant company, and

• (ii) to every person carrying on in the State a trade or business in the ordinary course of the operations of which such person acts as an intermediary in or in connection with the issue of such a policy, or the making of such a contract,

in the same manner as it applies to every intermediary within the meaning of that section, and

• (b) to a person resident or ordinarily resident in the State who is entitled to any amount payable under such a policy or contract, being an amount payable otherwise than in the event of the death of a person specified in the terms of the policy or the contract, as the case may be, in the same manner as it applies to a person resident in the State opening an account, in which a deposit which such person beneficially owns is held, at a location outside the State,

as if references in that section to—

• (i) a deposit were references to any payment made by a person resident or ordinarily resident in the State in respect of such a policy or contract,

• (ii) a foreign account were references to such a policy or contract,

• (iii) the opening of a foreign account were references to the issue of such a policy or the making of such a contract, and

• (iv) a relevant person were references to a person who in the normal course of such person's trade or business would issue such a policy or make such a contract.

• (4)
• (a) In this subsection, “reinsurance contract” means any contract or other agreement for reassurance or reinsurance in respect of—

• (i) any policy of assurance on the life of any person, or

• (ii) any class of such policies.

• (b) Where apart from this paragraph a reinsurance contract would not be a policy of assurance on the life of any person for the purposes of the Capital Gains Tax Acts, it shall be deemed to be such a policy for those purposes.

• (c) Subsections (2) and (3) shall not apply to, and shall be deemed never to have applied to, reinsurance contracts; but, where apart from this paragraph a reinsurance contract would not be a relevant policy within the meaning of section 595 for the purposes of that section, it shall be deemed not to be such a policy for those purposes.

• (d) (i) Subject to paragraph (e), where subsection (2) would (apart from paragraph (c)) apply to a reinsurance contract in respect of any policy of assurance on the life of any person, being a policy issued on or after the 1st day of January, 1995, section 593(2) shall not apply in respect of any disposal or deemed disposal on or after the 1st day of January, 1995, of, or of any interest in, rights of the insured company under the reinsurance contract to the extent that—

• (I) those rights refer to that policy, and

• (II) the insured company could receive, otherwise than on the death, disablement or disease of any person or one of a class of persons to whom that policy refers, payment on a disposal of those rights the aggregate amount of which would exceed the aggregate amount of payment made by it in respect of those rights.

• (ii) Subparagraph (i) shall apply as if—

• (I) as respects any reinsurance contract made before the 20th day of May, 1993, that contract were made on that day, and

• (II) as respects any reinsurance contract made or modified on or after the 1st day of January, 1995, there were deleted from subparagraph (i) “being a policy issued on or after the 1st day of January, 1995,”.

• (iii) Subparagraphs (i) and (ii) of subsection (1)(a) shall apply for the purposes of this paragraph as if for “the 20th day of May, 1993” there were substituted “the 1st day of January, 1995”.

• (e) Paragraph (d) shall not apply to any disposal of or of any interest in rights under a reinsurance contract, being a disposal resulting directly from the death, disablement or disease of a person or one of a class of persons to whom the reinsurance contract refers; but in computing any gain or loss in respect of a disposal or deemed disposal of or of any interest in rights of the insured company under a reinsurance contract—

• (i) there shall be excluded from the sums allowable under section 552 so much of any payment made by the insured company under the reinsurance contract as is paid in respect of an entitlement to a payment on the death, disablement or disease of a person, or one of a class of persons, and

• (ii) there shall be added to the consideration taken into account under Chapter 2 of this Part the market value of an entitlement for any period, commencing on or after the most recent acquisition or deemed acquisition by the insured company of those rights, to a payment on the death, disablement or disease of a person, or one of a class of persons, to the extent that the insured company held the entitlement for that period in place of any return which would otherwise have accrued under the reinsurance contract and increased that consideration.

595 Life assurance policy or deferred annuity contract entered into or acquired by company. [CGTA75 s20B; FA94 s58]

595.—(1) (a) In this section—

“relevant disposal” means a disposal of or an interest in the rights under any relevant policy, other than—

• (i) a disposal by a person who is not the original beneficial owner of those rights and who acquired them or an interest in them for a consideration in money or money's worth, or

• (ii) a disposal resulting directly from the death, disablement or disease of a person, or one of a class of persons, specified in the terms of the policy;

“relevant gain” means a chargeable gain arising on a relevant disposal;

“relevant policy” means a policy of life assurance or a contract for a deferred annuity on the life of any person, entered into or acquired by a company on or after the 11th day of April, 1994, which is not a policy to which section 594(2) applies.

• (b) (i) For the purposes of this section, a policy of assurance or a contract for a deferred annuity on the life of any person, entered into by a company before the 11th day of April, 1994, shall be treated as a policy or contract, as the case may be, entered into on or after that date if there is a variation of the policy or contract on or after that date which directly or indirectly increases the benefits secured by, or extends the term of, the policy or contract, as the case may be.

• (ii) For the purposes of subparagraph (i), where a policy or contract entered into by a company before the 11th day of April, 1994, provides an option to have another policy or contract substituted for it or to have any of its terms changed, any change in the terms of the policy or contract which is made in pursuance of the option shall be deemed to be a variation of the policy or contract, as the case may be.

• (c) Subject to subsection (2), this section shall be construed together with subsections (3) and (4) of section 593, as if subsection (3) of that section were not subject to subsection (2) of that section.

• (2) Section 593(2) shall not apply in respect of any relevant disposal.

• (3)
• (a) For the purposes of the Corporation Tax Acts—

• (i) any relevant gain arising to a company shall be treated as if it were the net amount of a gain from the gross amount of which corporation tax has been deducted at the standard rate (within the meaning of section 3) of income tax,

• (ii) the amount to be taken into account in respect of the relevant gain in computing in accordance with section 78 the company's chargeable gains, for the accounting period in which the relevant gain arises, shall be that gross amount, and

• (iii) the corporation tax treated as deducted from that gross amount shall—

• (I) be set off against the corporation tax assessable on the company for that accounting period, or

• (II) in so far as it cannot be set off in accordance with clause (I), be repaid to the company.

• (b) Paragraph (a) shall be disregarded for the purposes of section 546(2).

• (c) This subsection shall be construed together with the Corporation Tax Acts.

• (4) For the purposes of this section, a contract, being a policy of life assurance or a contract for a deferred annuity on the life of any person, shall be treated as having been entered into by a company before the 11th day of April, 1994, if—

• (a) (i) a document referable to the contract was served on the company in pursuance of section 52 of the Insurance Act, 1989, before the 11th day of April, 1994, and

• (ii) the company entered into the contract on or before the 22nd day of April, 1994,

or

• (b) (i) the contract was entered into before the 30th day of June, 1994, by the company,

• (ii) before the 11th day of April, 1994—

• (I) there was in existence a binding agreement in writing under which the company was obliged to acquire land, and

• (II) preliminary commitments or agreements had been entered into by the company—

• (A) to obtain a loan, which was to be secured on the land, to defray money applied in acquiring the land, and

• (B) to enter into the contract primarily for the purpose of repaying the loan,

and

• (iii) the agreement under which the loan was advanced obliges the company to apply any payment made to it under the contract to the repayment of the loan before any other application by it of such payment.

CHAPTER 6 Transfer of business assets

596 Appropriations to and from stock in trade. [CGTA75 s51(1) and Sch1 par15; FA90 s86]

596.—(1) Where an asset acquired by a person otherwise than as trading stock of a trade carried on by the person is appropriated by that person for the purposes of the trade as trading stock (whether on the commencement of the trade or otherwise) and, if that person had then sold the asset for its market value, a chargeable gain or allowable loss would have accrued to that person, that person shall be treated for the purposes of the Capital Gains Tax Acts as having by such appropriation disposed of the asset by selling it for its then market value.

• (2) Where at any time an asset forming part of the trading stock of a person's trade is appropriated by the person for any other purpose or is retained by the person on that person ceasing to carry on the trade, that person shall be treated for the purposes of the Capital Gains Tax Acts as having acquired the asset at that time for a consideration equal to the amount brought into the accounts of the trade in respect of the asset for the purposes of income tax on the appropriation or on that person ceasing to carry on the trade, as the case may be.

• (3) Subsection (1) shall not apply in relation to a person's appropriation of an asset for the purposes of a trade if the person is chargeable to income tax in respect of the profits of the trade under Case I of Schedule D, and instead elects that the market value of the asset at the time of the appropriation shall, in computing the profits of the trade for the purposes of income tax, be treated as reduced by the amount of the chargeable gain or increased by the amount of the allowable loss referred to in that subsection and, where that subsection does not apply by reason of such an election, the profits of the trade shall be computed accordingly; but—

• (a) if a person making an election under this subsection is at the time of the appropriation carrying on the trade in partnership with others, the election shall not have effect unless concurred in by the others, and

• (b) an election under this subsection shall not be made in any case where the application of subsection (1) would give rise to an allowable loss.

597 Replacement of business and other assets. [CGTA75 s28; CGT(A)A78 s9]

597.—(1) In this section, “farming”, “trade”, “profession”, “office” and “employment” have the same meanings respectively as in the Income Tax Acts, but not so as to apply the provisions of those Acts as to the circumstances in which, on a change in the persons carrying on a trade, a trade is to be regarded as discontinued or as set up and commenced, and “a trade of dealing in or developing land” shall include a business of dealing in or developing land regarded as a trade under those Acts.

• (2) This section shall apply with the necessary modifications in relation to—

• (a) the discharge of the functions of a public authority,

• (b) the occupation of woodlands where the woodlands are managed by the occupier on a commercial basis and with a view to the realisation of profits,

• (c) a profession, office or employment,

• (d) such of the activities of a body of persons whose activities are carried on otherwise than for profit and are wholly or mainly directed to the protection or promotion of the interests of its members in the carrying on of their trade or profession as are so directed,

• (e) the activities of a body of persons, being a body not established for profit whose activities are wholly or mainly carried on otherwise than for profit, but in the case of assets within subsection (3)(b) only if they are both occupied and used by the body and in the case of other specified assets only if they are used by the body,

• (f) such of the activities of a body of persons established for the sole purpose of promoting athletic or amateur games or sports as are directed to that purpose, and

• (g) farming,

as it applies in relation to a trade.

• (3) The following shall be assets for the purpose of this section—

• (a) plant or machinery;

• (b) except where the trade is a trade of dealing in or developing land, or of providing services for the occupier of land in which the person carrying on the trade has an estate or interest—

• (i) any building or part of a building and any permanent or semi-permanent structure in the nature of a building occupied (as well as used) only for the purposes of the trade,

• (ii) any land occupied (as well as used) only for the purposes of the trade, provided that where the trade is a trade of dealing in or developing land, but a profit on the sale of any land held for the purposes of the trade would not form part of the trading profits, the trade shall be treated for the purposes of this subsection as if it were not a trade of dealing in or developing land;

• (c) goodwill.

• (4)
• (a) Where—

• (i) the consideration which a person carrying on a trade obtains for the disposal of, or of that person's interest in, assets (in this section referred to as “the old assets”) used only for the purposes of the trade throughout the period of ownership is applied by that person in acquiring other assets, or an interest in other assets (in this section referred to as “the new assets”),

• (ii) the new assets on their acquisition are taken into use and used only for the purposes of the trade, and

• (iii) the old assets and the new assets are assets of a kind specified in subsection (3),

then, the person carrying on the trade shall on making a claim in that behalf be treated for the purposes of the Capital Gains Tax Acts as if the chargeable gain accruing on the old assets did not accrue until that person ceases to use the new assets for the purposes of the trade.

• (b) Where the consideration for the disposal of the new assets is applied in acquiring other new assets which on the acquisition are taken into use and used only for the purposes of the trade and are assets specified in subsection (3), then, the person carrying on the trade shall be treated as if the chargeable gain accruing on the disposal of the old assets did not accrue until that person ceases to use the other new assets for the purposes of the trade and any further new assets which are acquired in a similar manner, taken into use, and used only, for the purposes of the trade and are assets specified in subsection (3).

• (5) Subsection (4) shall not apply if part only of the amount or value of the consideration for the disposal of or of the interest in the old assets is applied as described in that subsection, but if all of the amount or value of the consideration except for a part which is less than the amount of the gain (whether all chargeable gain or not) accruing on the disposal of or of the interest in the old assets is so applied, then, the person carrying on the trade shall on making a claim in that behalf be treated for the purposes of the Capital Gains Tax Acts as if the amount of the gain accruing on the disposal of the old assets were reduced to the amount of consideration not applied in the acquisition of the new assets (and if not all chargeable gain with a proportionate reduction in the amount of the chargeable gain) and the balance of the gain (or chargeable gain) shall be treated as if it did not accrue until that person ceases to use the new assets for the purposes of the trade.

• (6) A chargeable gain or the balance of a chargeable gain which under subsection (4) or (5), as may be appropriate, is treated as accruing on a date later than the date of the disposal on which it accrued shall not be so treated for the purposes of section 556.

• (7) This section shall apply only if the acquisition of or of the interest in the new assets takes place, or an unconditional contract for the acquisition is entered into, in the period beginning 12 months before and ending 3 years after the disposal of or of the interest in the old assets, or at such earlier or later time as the Revenue Commissioners may by notice in writing allow; but, where an unconditional contract for the acquisition is so entered into, this section may be applied on a provisional basis without waiting to ascertain whether the new assets are, or the interest in the new assets is, acquired in pursuance of the contract, and when that fact is ascertained all necessary adjustments shall be made by making assessments or by repayment or discharge of tax, and shall be so made notwithstanding any limitation in the Capital Gains Tax Acts on the time within which assessments may be made.

• (8) This section shall not apply unless the acquisition of or of the interest in the new assets was made for the purpose of their use in the trade, and not wholly or partly for the purpose of realising a gain from the disposal of or of the interest in the new assets.

• (9) Where over the period of ownership or any substantial part of the period of ownership part of a building or structure is, and part is not, used for the purposes of a trade, this section shall apply as if the part so used, together with any land occupied for purposes ancillary to the occupation and use of that part of the building or structure, were a separate asset, and subject to any necessary apportionments of consideration for an acquisition or disposal of or of an interest in the building or structure and other land.

• (10) Where the old assets were not used for the purposes of the trade throughout the period of ownership, this section shall apply as if a part of the asset representing its use for the purposes of the trade, having regard to the time and extent to which it was and was not used for those purposes, were a separate asset which had been wholly used for the purposes of the trade, and this subsection shall apply in relation to that part subject to any necessary apportionment of consideration for an acquisition or disposal of or of the interest in the asset.

• (11)
• (a) This section shall apply in relation to a person who carries on 2 or more trades which are in different localities, but which are concerned wholly or mainly with goods or services of the same kind, as if, in relation to the assets used for the purposes of the trades, the trades were the same trade.

• (b) This section shall apply in relation to a person who ceases to carry on a trade or trades (in this paragraph referred to as “the old trade or trades”) which the person has carried on for a period of 10 years or more and commences to carry on another trade or trades (in this paragraph referred to as “the new trade or trades”) within a period of 2 years from the date on which the person ceased to carry on the old trade or trades as if, in relation to the old assets used for the purposes of one of the old trades and the new assets used for the purposes of the new trade, the 2 trades were the same trade.

• (12) Without prejudice to the provisions of the Capital Gains Tax Acts providing generally for apportionments, where consideration is given for the acquisition or disposal of assets some or part of which are assets in relation to which a claim under subsection (4) or (5) applies, and some or part of which are not, the consideration shall be apportioned in such manner as is just and reasonable.

598 Disposals of business or farm on “retirement”. [CGTA75 s26(1) to (6); FA90 s84(c)(iii); FA91 s42(b); FA95 s71(1); FA96 s60(1)]

598.—(1) (a) In this section and in section 599—

“chargeable business asset” means an asset (including goodwill but not including shares or securities or other assets held as investments) which is, or is an interest in, an asset used for the purposes of farming, or a trade, profession, office or employment, carried on by—

• (i) the individual,

• (ii) the individual's family company, or

• (iii) a company which is a member of a trading group of which the holding company is the individual's family company,

other than an asset on the disposal of which no gain accruing would be a chargeable gain;

“family company”, in relation to an individual, means, subject to paragraph (b), a company the voting rights in which are—

• (i) as to not less than 25 per cent, exercised by the individual, or

• (ii) as to not less than 75 per cent, exercisable by the individual or a member of his or her family and, as to not less than 10 per cent, exercisable by the individual himself or herself;

“family”, in relation to an individual, means the husband or wife of the individual, and a relative of the individual or of the individual's husband or wife, and “relative” means brother, sister, ancestor or lineal descendant;