Finance Act, 1993

Relief for individuals on certain reinvestment.

27.—(1) In this section—

“eligible shares”, “ordinary shares” and “unquoted company” have, respectively, the meanings assigned to them in Chapter III of Part I of the Finance Act, 1984 ;

“full-time working officer or employee”, in relation to one or more companies, means any officer or employee who devotes substantially the whole of his time to the service of that company, or those companies taken together, in a managerial or technical capacity;

“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;

“ordinary share capital”, in relation to a company, has the meaning assigned to it in section 155 of the Corporation Tax Act, 1976 ;

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

“personal company”, in relation to an individual, means any company the voting rights in which are exercisable by the individual as respects not less than 15 per cent. of the total voting rights;

“the re-investor” has the meaning assigned to it in subsection (2);

“the specified period” has the meaning assigned to it in subsection (5) (b);

“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;

“51 per cent. subsidiary” has the meaning assigned to it in section 156 of the Corporation Tax Act, 1976 .

(2) Subject to the provisions of this section, if the consideration which an individual (hereafter in this section referred to as “the re-investor”) obtains for any material disposal by him of shares in or securities of any company (hereafter in this section referred to as “the original holding”) is applied by him, within the period of 3 years from the date of that disposal, in acquiring a qualifying investment, he 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 disposes of the qualifying investment:

Provided that—

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

(b) if the consideration for that disposal is applied by the re-investor, within the period of 3 years from the date of that disposal, in acquiring another qualifying investment,

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

(3) 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, then, the re-investor 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 re-investor disposes of the qualifying investment.

(4) 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, that is to say—

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

(ii) the company has been an unquoted company,

(iii) the company has been the re-investor's personal company, and

(iv) the re-investor has been a full-time working officer or employee 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.

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

(a) he holds not less than 5 per cent. of the ordinary share capital of the company at any time in the 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 (hereafter in this subsection referred to as “the initial period”),

(b) he holds not less than 15 per cent. of the ordinary share capital of the company at any time in the 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 (hereafter in this section referred to as “the specified period”),

(c) 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 the company mentioned in subparagraph (i),

and

(d) he 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 the proviso to paragraph (b) of subsection (6) are satisfied, ending at the time of the commencement of the winding up or dissolution of the company,

a full-time working officer or employee of the company.

(6) (a) For the purposes of this section and subject to paragraph (b), 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 which is 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 it, a 51 per cent. subsidiary of another company.

(b) A company ceases 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:

Provided that a company shall be deemed not to have ceased to be a qualifying company solely by virtue of the application of this 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.

(7) Section 16 (as amended by this Act) of the Finance Act, 1984 , shall apply for the purposes of this section as if references therein to the relevant period were references to the specified period.

(8) 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.

(9) The withdrawal of relief under subsection (8) 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 the provisions of subsection (10),

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 (10),

shall be included in the return required to be made by the individual concerned under section 10 of the Finance Act, 1988 , for that year of assessment.

(10) (a) Notwithstanding any other provision of the Capital Gains Tax Acts, where relief falls to be withdrawn under subsection (8) for any year of assessment, such amount (hereafter in this subsection referred to as “the relevant amount”) of the chargeable gain which accrued to the re-investor on the disposal of the original holding as was treated under subsection (2) or (3) 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 subparagraph (i) of paragraph (a) 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 fallen to be deducted under section 5 (1) of the Capital Gains Tax Act, 1975 , 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 re-investor would not, by virtue of section 16 of the Capital Gains Tax Act, 1975 , 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 subparagraph (ii) of paragraph (a) is an amount determined by the formula—

G × R × M

___

100

where—

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

R is the rate per cent. specified in subsection (1) of section 550 of the Income Tax Act, 1967 , 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 falls to be made is due and payable.

(11) A chargeable gain or the balance of a chargeable gain which, under the provisions of subsection (2) or (3), 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 3 of the Capital Gains Tax (Amendment) Act, 1978 .

(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 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.

(13) 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.

(14) Section 157 of the Corporation Tax Act, 1976 , shall apply for the purposes of this section.

(15) This section shall apply as respects disposals made on or after the 6th day of May, 1993.