Reorganisations

Stamp Duty Relief and Reconstruction

There are significant stamp duty reliefs when companies are reconstructed, amalgamated, and shareholdings are rearranged. Anti-avoidance measures exist to prevent these arrangements from being used to circumvent general stamp duty and property transfer regulations, including the packaging of properties within companies that are subsequently sold.

Section 80 of the Stamp Duties Consolidation Act provides relief for reconstructions and amalgamations. Prior to 20 July 2012, it was necessary to submit the instruments to the Revenue to claim adjudication. After that date, the exemption applies, and it must be satisfied that the arrangements are subject to audit in the usual way.

A conveyance or transfer of assets made in connection with a scheme of reconstruction of any company or companies, or in connection with the amalgamation of any companies, may qualify for relief from stamp duty, provided it meets the conditions.

The expressions “reconstructions” and “amalgamations” are not defined by the legislation but are the subject of case law stretching back over a hundred years.

Broadly speaking, a reconstruction is a rearrangement of the means by which a business is being carried out. It is to be contrasted with a sale where an outsider takes over the enterprise. This involves an arrangement in which substantially the same business shall be carried out by substantially the same people afterward. There should be substantially the same shareholders or members in the old and new companies. It involves substantially the same business.

A reconstruction or amalgamation must relate to an undertaking, namely a business. It’s not about investments or property holding in itself. It may relate to part of an undertaking or part of the business. It must be an arrangement between two companies or bodies corporate. It does not apply to the transfer of assets on the incorporation of a business partnership.

An amalgamation involves two companies being joined to form a third company, which may be undertaken in several ways. In particular, there are two-party amalgamations, three-party amalgamations, and share-for-share swaps.

• The undertaking of the target company may be acquired by the acquiring company in return for the issue of shares in the acquiring company to the target company itself. (Two-party)
• The shares of the target company may be acquired by the acquiring company in return for shares in the acquiring company being issued to the shareholders of the target company. (Share-for-share swap)
• The undertaking of the target company may be acquired by the acquiring companies in return for the issue of shares in the acquiring company to the shareholders of the target company. (Three-party)

An amalgamation may be carried out by the purchase of one company of all the shares of another company with which it is proposed to amalgamate. The purchase of shares does not by itself result in an amalgamation. This may be a step towards amalgamation or may eventually be brought about by the first company being put into liquidation by the company which bought the shares, acquiring the undertaking of the first company. In that event, there would be an amalgamation of the two corporations and their undertakings. There would then be one set of shareholders or two sets.

An amalgamation requires something more than the mere acquisition of 90% of the shares of another company. Otherwise, almost any acquisition of shares would be exempt from stamp duty applicable on the transfer of shares. The Irish Revenue Commissioners manual indicates that reconstructions and amalgamations may be effected by share exchanges.

There need not necessarily be complete identity of shareholding. Substantial identity is required. There are statutory provisions in relation to takeovers by which some shareholders may effectively opt-out. Equally, preference shares may be redeemed.

Share-for-share swaps require that consideration shares issued by the acquiring company are issued to the shareholders in the target company. If there is more than one type of shares, the acquiring company must issue shares of the same type in exchange for shareholdings respectively for each class.

This relief does not cover partitions of undertakings between shareholders in proportion to their shareholdings. A partition is neither a reconstruction nor an amalgamation. Revenue gives relief by way of concession for the partition of family companies.

Partition relief requires that there are substantially the same shareholders. It does not require substantially the same management.

The relief for reconstruction and amalgamation does not have the same express provisions applicable under section 79 requiring maintenance of association for a two-year period. Reconstruction relief is used to facilitate the sale of shares of part of the business of the company or its reorganization into a new company and its subsequent sale, particularly in a reorganized or reconstructed entity. This can raise difficult questions in terms of compliance with the requirements. If there is a prior agreement to sell the shares, the requirement for substantially the same shareholders may not be satisfied.

Some such arrangements may be disguised partitions.  The terms of the relief require a bona fide reconstruction of any company or companies or the amalgamation of any companies.

Revenue has indicated that the substantial identity of shareholding must exist immediately after the transfer. It is not necessarily precluded that the next step is the sale of the shares. The reconstruction must not be in any way contingent upon the subsequent sale of the shares. The contract for the sale of shares must not exist at the time of the issue of shares by the new company.

The relief is applicable to an undertaking or business. The assets together must comprise a business. The disposal of static assets which do not comprise a business in themselves does not qualify. This will generally refer to trading companies but not necessarily exclusively so.

The business and the assets must comprise a standalone business. It has been held that making investments on a trading basis can constitute a business. Relevant factors would include the extent of management decisions and investments in subsidiaries. Mere investment or passive shareholding is not sufficient for this purpose.

The fact that the holding company of a group holds shares in trade by itself does not preclude relief. Revenue accepts that the transfer of a hundred percent holding shareholding of holding companies is the transfer of an undertaking.

The acquiring company must be a limited liability company. It may be incorporated in Ireland or an EU state under equivalent law. The acquiring company must increase its nominal capital with a view to the acquisition either of the undertaking of the target company or at least 90% of the issued share capital of the target company.

The acquiring company must have as an objective the acquisition of the undertaking or shares in the target company, and this must be clear from the resolution, act, or other authority increasing the capital of the acquiring company for this purpose.

The target company may be incorporated anywhere. It must correspond to a company under Irish law. It may be an unlimited company and includes industrial or provident societies.

Consideration for the acquisition, other than such part as consists of a transfer to or discharge by the acquiring company of liabilities of the target company, must consist of not less than 90% of the value where the undertaking is to be acquired through the issue of shares in the acquiring company to the target company or the holders of shares in the target company.

Where shares are to be acquired, the issue of shares in the acquiring company to the holders of the shares in the target company in exchange for shares held by them in the target company is required.

Indebtedness which is discharged or released by the acquiring company is ignored for the purpose of the 90% test. The consideration for the acquisition must come from the acquiring company. The 90% test may not be met where additional consideration comes from others.

The issue of shares requires issue and registration in the register of members. There are statutory provisions in the Companies Act for the acquisition of dissenting shareholders in a takeover. In this case, consideration shares may be issued to the target company as a nominee. This is accepted as issued to the shareholders by concession by Revenue.

Issued shares must be part of the nominal value of the shares rather than market value. If the acquiring company already holds 10% or more of the shares in the target, the condition cannot be met as to acquiring a 90% shareholding.

If, at the time of making the claim, all the conditions for claiming relief have been met except for the 90% of the shares, the Revenue may allow a refund of duty once 90% of the shares are subsequently acquired. It must be proved that not less than 90% of the issued share capital has been acquired under the scheme of reconstruction arrangement within a period of six months from the earliest of the last day of one month after the first allotment of the date on which the invitation was issued to the shareholders to accept the shares in the new company acquiring company.

The relief for reconstruction and amalgamation requires that there be a bona fide scheme. It must be for bona fide commercial reasons and not form part of a larger arrangement, the main purpose, or one of the main purposes of which is the avoidance of liability to income tax, corporation tax, capital gains tax, and capital acquisitions tax.

The question of whether this is the objective is one of fact. The fact that a transaction is structured in a particular way to avoid paying tax when there are two ways of structuring it would not itself necessarily involve this conclusion. However, the tax advantage must not be the main or principal objective.

A return is required in respect of the reconstruction or amalgamation.

Where an instrument is made for the purpose of or in connection with the transfer of an Irish incorporated company, it will not qualify for relief unless it is executed within 12 months of the date of incorporation or the date of resolution increasing the share capital of the acquiring company, or is made for the purpose of effecting a conveyance or transfer in pursuance of an agreement the terms of which have been filed within 12 months.

There is provision for clawback of the relief. If it is subsequently established that the relief is not applicable because the conditions are not met, the relief is clawed back. If any of the conditions are not satisfied in the reconstruction or amalgamation, the relief may be lost.

There is a clawback if, in a two-party share-for-share undertaking, the target company ceases to be the beneficial owner of the consideration shares issued by the acquiring company within two years of the date of incorporation or establishment of the acquiring company, unless this is in consequence of a reconstruction, amalgamation, or liquidation. In the case where a share-for-share swap, the acquiring company ceases to be the beneficial owner of the assets acquired in the target company within two years of the incorporation or establishment of the acquiring company increasing capital.

Relief is clawed back and fees payable together with interest from the relevant date of both.

The relief for clawback does not apply in the case of a share-for-undertaking swap where the shares are issued to the shareholders of the target company. They are not required to hold the shares for the two-year period.

If the target company’s undertaking is to be acquired but has not taken the conveyance of property before the date of the execution, relief is not available.

If the undertaking of the target company comprises a leasehold interest in property, the target company will be treated by the Revenue for this purpose as having obtained the conveyance of the property where the leasehold interest has been directly acquired by the target company by virtue of the grant of the lease from the lessor and such lease has been duly stamped. Relief will not be denied for an undertaking of the target company that comprises goodwill acquired by the target company through trading over a number of years. This treatment will only be granted by Revenue where they are satisfied with the bona fides of the claim for relief and that the reconstruction or amalgamation is not to avoid VAT, stamp duty, or any other tax.

—

(a) A merger undertaken in accordance with Chapter 3 of Part 9 of the Companies Act 2014—

(i) The resolution referred to in paragraph (a)(ii) of section 202(1) of that Act, in the case of a merger effected by way of the summary approval procedure (within the meaning of section 202 of that Act), or (ii) The order made under section 480(2) of that Act, in the case of a merger effected otherwise than by way of the summary approval procedure (within the foregoing meaning), shall be regarded as a conveyance on sale, or

(b) A merger undertaken in accordance with Chapter 16 of Part 17 of the Companies Act 2014, the order made under section 1144 of that Act shall be regarded as a conveyance on sale.

STAMP DUTIES CONSOLIDATION ACT

Part 7

Exemptions and Reliefs from Stamp Duty

(ss. 79-113)

Chapter 1 Instruments which must be presented to the Commissioners for adjudication in order to obtain exemption or relief (ss. 79-83F)
79.

Conveyances and transfers of property between certain bodies corporate.

(1)Stamp duty shall not be chargeable under or by reference to the following headings in Schedule 1 –

(a)”Conveyance or Transfer on sale of any stocks or marketable securities”,

(b)”Conveyance or Transfer on sale of a policy of insurance or a policy of life insurance where the risk to which the policy relates is located in the State”, or

(c)”Conveyance or Transfer on sale of any property other than stocks or marketable securities or a policy of insurance or a policy of life insurance”,

on any instrument to which this section applies.

(2)[deleted]

(3)This section applies to any instrument as respects which the effect of the instrument was to convey or transfer a beneficial interest in property from one body corporate to another, and that at the time of the execution of the instrument the bodies in question were associated, that is, one was the beneficial owner of not less than 90 per cent of the ordinary share capital of the other, or a third such body was the beneficial owner of not less than 90 per cent of the ordinary share capital of each and that this ownership was ownership either directly or through another body corporate or other bodies corporate, or partly directly and partly through another body corporate or other bodies corporate, and subsections (5) to (10) of section 9 of the Taxes Consolidation Act, 1997, shall apply for the purposes of this section as if –

(a)references to company were references to body corporate, and

(b)references to companies were references to bodies corporate.

(3A)For the purposes of subsection (3) “ordinary share capital”, in relation to a body corporate, means all the issued share capital (by whatever name called) of the body corporate, other than capital the holders of which have a right to a dividend at a fixed rate, but have no other right to share in the profits of the body corporate.

(4)Notwithstanding that at the time of execution of any instrument the bodies corporate between which the beneficial interest in the property was conveyed or transferred were associated within the meaning of subsection (3), they shall not be treated as having been so associated unless, additionally, at that time –

(a)one such body was beneficially entitled to not less than 90 per cent of any profits available for distribution to the shareholders of the other such body or a third such body was beneficially entitled to not less than 90 per cent of any profits available for distribution to the shareholders of each, and

(b)one such body would be beneficially entitled to not less than 90 per cent of any assets of the other such body available for distribution to its shareholders on a winding-up or a third such body would be beneficially entitled to not less than 90 per cent of any assets available for distribution to the shareholders of each on a winding-up,

and, for the purposes of this section –

(i)the percentage to which one body corporate is beneficially entitled of any profits available for distribution to the shareholders of another body corporate, and

(ii)the percentage to which one body corporate would be beneficially entitled of any assets of another body corporate on a winding-up,

means the percentage to which the first body corporate is, or would be, so entitled either directly or through another body corporate or other bodies corporate or partly directly and partly through another body corporate or other bodies corporate.

(5)This section shall not apply to an instrument unless the instrument was not executed in pursuance of or in connection with an arrangement under which –

(a)the consideration, or any part of the consideration, for the conveyance or transfer was to be provided or received, directly or indirectly by a person, other than a body corporate which at the time of the execution of the instrument was associated within the meaning of subsection (3) and (4) with either the transferor or the transferee (being, respectively, the body from whom and the body to whom the beneficial interest was conveyed or transferred),

(b)that interest was previously conveyed or transferred, directly or indirectly, by such a person, or

(c)the transferor and the transferee were to cease to be associated within the meaning of subsections (3) and (4),

and, without prejudice to the generality of paragraph (a), an arrangement shall be treated as within that paragraph if it is one under which the transferor or the transferee, or a body corporate associated with either as there mentioned, was to be enabled to provide any of the consideration, or was to part with any of it, by or in consequence of the carrying out of a transaction or transactions involving, or any of them involving, a payment or other disposition by a person other than a body corporate so associated.

(6)[deleted]

(7)If –

(a)where any claim for exemption from duty under this section has been allowed, it is subsequently found that the exemption was not properly due, or

(b)the transferor and transferee cease to be associated within the meaning of subsections (3) and (4) within a period of 2 years from the date of the conveyance or transfer,

then the exemption shall cease to be applicable and stamp duty shall be chargeable in respect of the conveyance or transfer as if subsection (1) had not been enacted together with interest on the duty, calculated in accordance with section 159D, to the day on which the duty is paid, in a case to which paragraph (a) applies, from the date of the conveyance or transfer or, in a case to which paragraph (b) applies, from the date the transferor and transferee ceased to be so associated.

(7A)Where a transferor –

(a)is liquidated, or

(b)is dissolved without going into liquidation and a conveyance or transfer has been effected as a result of a merger by absorption (within the meaning of section 463 or 1129 of the Companies Act 2014) by reason of which the foregoing dissolution of the transferor has taken place,

the transferor and the transferee shall, for the purposes of subsections (5)(c) and (7)(b), not be regarded as ceasing to be associated where, for a period of 2 years from the date of the conveyance or transfer –

(i)the beneficial interest that was conveyed or transferred from the transferor continues to be held by the transferee, and

(ii)the beneficial ownership of the ordinary share capital of the transferee remains unchanged.

(7B)This section shall not apply unless the conveyance or transfer of a beneficial interest in property, or the liquidation referred to in subsection (7A)(a), is effected for bona fide commercial reasons and does not form part of a scheme or arrangement of which the main purpose, or one of the main purposes, is the avoidance of liability to any tax or duty.

(8)For the purposes of subsection (4) –

(a)the percentage to which one body is beneficially entitled of any profits available for distribution to shareholders of another company has, subject to any necessary modifications, the meaning assigned to it by section 414 of the Taxes Consolidation Act, 1997, and

(b)the percentage to which one body is beneficially entitled of any assets of another body available for distribution on a winding-up has, subject to any necessary modifications, the meaning assigned to it by section 415 of the Taxes Consolidation Act, 1997.

(9)This section shall apply notwithstanding that a body corporate, referred to in this section, is incorporated outside the State, and such body corporate, corresponds, under the law of the place where it is incorporated, to a body corporate which has an ordinary share capital within the meaning given in subsection (3A) and subject to any necessary modifications for the purpose of so corresponding, all the other provisions of this section are met.

(10)Subsection (1) shall not apply to an instrument conveying or transferring stocks or marketable securities (in this subsection referred to as the ‘second transfer’) to the extent of the consideration for the sale that is attributable to those of the stocks or marketable securities being conveyed or transferred that were conveyed or transferred immediately prior to the second transfer by an instrument or instruments, as the case may be, to which section 75, as inserted by the Finance Act 2007, applied.

(11)In the case of –

(a)a merger undertaken in accordance with Chapter 3 of Part 9 of the Companies Act 2014 –

(i)the resolution referred to in paragraph (a)(ii) of section 202(1) of that Act, in the case of a merger effected by way of the summary approval procedure (within the meaning of section 202 of that Act), or

(ii)the order made under section 480(2) of that Act, in the case of a merger effected otherwise than by way of the summary approval procedure (within the foregoing meaning),

shall be regarded as a conveyance on sale, or

(b)a merger undertaken in accordance with Chapter 16 of Part 17 of the Companies Act 2014, the order made under section 1144 of that Act shall be regarded as a conveyance on sale.

80.

Reconstructions or amalgamations of companies.

(1)

(a)In this section –

“acquiring company” means, subject to paragraph (b), a company with limited liability;

“merger” means a merger undertaken in accordance with Chapter 3 of Part 9 or Chapter 16 of Part 17 of the Companies Act 2014;

“shares” includes stock;

“successor company” and “transferor company” have the meanings given to them by section 461 of the Companies Act 2014;

“undertaking” includes part of an undertaking.

(b)References in this section to a company shall be construed as including references to a society registered under the Industrial and Provident Societies Act 1893.

(2)

(a)This subsection applies where there is a scheme for the bona fide reconstruction of any company or the amalgamation of any companies and where, in connection with the scheme, the following conditions apply:

(i)a company with limited liability is to be registered, or a company has been established by Act of the Oireachtas, or the nominal share capital of a company has been increased,

(ii)the company (in this section referred to as the ‘acquiring company’) is to be registered or has been established or has increased its capital with a view to the acquisition of either –

(I)the undertaking of a particular existing company (in this section referred to as the ‘target company’), or

(II)not less than 90 per cent of the issued share capital of a target company,

and

(iii)the consideration for the acquisition (except such part of that consideration as consists in the transfer to or discharge by the acquiring company of liabilities of the target company) consists as to not less than 90 per cent of that consideration –

(I)where an undertaking is to be acquired, in the issue of shares in the acquiring company to the target company or to holders of shares in the target company, or

(II)where shares are to be acquired, in the issue of shares in the acquiring company to the holders of shares in the target company in exchange for the shares held by them in the target company.

(b)For the purposes of paragraph (a)(i) in so far as it relates to a company with limited liability that is to be registered, a company with limited liability does not include a private company limited by shares to which Part 2 of the Companies Act 2014 applies.

(c)For the purposes of paragraph (a)(i), a company that has issued any share capital shall be treated as if it had increased its nominal share capital.

(3)Subsection (2) shall not apply unless –

(a)it is provided by the memorandum of association of the acquiring company or the Act establishing the acquiring company that one of the objects for which the company is formed is the acquisition of the undertaking of, or shares in, the target company, or

(b)it appears from the resolution, Act or other authority for the increase of the capital of the acquiring company that the increase is authorised for the purpose of acquiring the undertaking of, or shares in, the target company.

(4)This subsection applies where –

(a)a merger is undertaken, and

(b)the successor company is a private company limited by shares, a designated activity company or a public limited company that is not an investment company within the meaning of section 2, 963 or 1001, respectively, of the Companies Act 2014.

(5)Where subsection (2) or (4) applies, and subject to this section, stamp duty under the following headings in Schedule 1 –

(a)‘CONVEYANCE or TRANSFER on sale of any stocks or marketable securities.’,

(b)‘CONVEYANCE or TRANSFER on sale of a policy of insurance or a policy of life insurance where the risk to which the policy relates is located in the State.’, or

(c)‘CONVEYANCE or TRANSFER on sale of any property other than stocks or marketable securities or a policy of insurance or a policy of life insurance.’,

shall not be chargeable on any instrument made for the purposes of or in connection with –

(i)the transfer of the undertaking or shares, or

(ii)the assignment of any debts, whether such debts are debts of the target company assigned to the acquiring company or, as the case may be, debts of the transferor company assigned to the successor company as a result of the merger.

(6)In the case of an instrument made for the purposes of or in connection with a transfer to a company (within the meaning of the Companies Act 2014), subsection (5) shall not apply unless the instrument is executed within the period of 12 months from the date of the registration of the acquiring company or the date of the resolution to increase the nominal share capital of the acquiring company.

(7)

(a)This subsection applies to any property, an instrument for the conveyance of which is chargeable to stamp duty under or by reference to the following heading in Schedule 1, namely: ‘CONVEYANCE or TRANSFER on sale of any property other than stocks or marketable securities or a policy of insurance or a policy of life insurance.’.

(b)Subsection (5) shall not apply to an instrument made for the purposes of or in connection with the transfer of an undertaking that includes any property to which this subsection applies, where a conveyance of that property has not been obtained by, as the case may be, the target company or the transferor company prior to the date of the execution of the instrument.

(8)If –

(a)in respect of any claim for exemption from duty under this section which has been allowed, it is subsequently found that the exemption was not properly due, or that the conditions specified in subsection (2) are not fulfilled in the reconstruction or amalgamation as actually carried out,

(b)in respect of shares in the acquiring company which have been issued to the target company in consideration of the acquisition, the target company within a period of 2 years from the date, as the case may be, of the registration or establishment, or of the authority for the increase of the capital, of the acquiring company ceases, otherwise than in consequence of reconstruction, amalgamation, liquidation or merger, to be the beneficial owner of the shares so issued to it, or

(c)in respect of any such exemption which has been allowed in connection with the acquisition by the acquiring company of shares in the target company, the acquiring company within a period of 2 years from the date of its registration or establishment or of the authority for the increase of its capital, as the case may be, ceases, otherwise than in consequence of reconstruction, amalgamation, liquidation or merger, to be the beneficial owner of the shares so acquired,

then the exemption shall cease to be applicable and stamp duty shall be chargeable in respect of the conveyance or transfer as if subsection (5) had not been enacted together with interest on the duty, calculated in accordance with section 159D, to the day on which the duty is paid, in a case to which paragraph (a) applies, from the date of the conveyance or transfer or, in a case to which paragraph (b) applies, from the date the target company ceased to be the beneficial owner of the shares so issued to it or, in a case to which paragraph (c) applies, from the date the acquiring company ceased to be the beneficial owner of the shares so acquired.

(9)If in the case of any scheme of reconstruction or amalgamation the Commissioners are satisfied that at the proper time for making a claim for exemption from duty under subsection (2) there were in existence all the necessary conditions for such exemption other than the condition that not less than 90 per cent of the issued share capital of the target company would be acquired by the acquiring company, subject to section 159A, the Commissioners may –

(a)if it is proved to their satisfaction that not less than 90 per cent of the issued capital of the target company has under the scheme been acquired within a period of 6 months from –

(i)the last day of the period of one month after the first allotment of shares made for the purposes of the acquisition, or

(ii)the date on which an invitation was issued to the shareholders of the target company to accept shares in the acquiring company,

whichever first occurs,

and

(b)on production of the instruments on which the duty paid has been impressed,

repay such an amount of duty as would have been remitted if that condition had been originally fulfilled.

(10)This section shall apply notwithstanding –

(a)that the acquiring company referred to in this section is incorporated in –

(i)another Member State of the European Union,

(ii)an EEA State within the meaning of section 80A, or

(iii)the United Kingdom,

or

(b)that the target company referred to in this section is incorporated outside the State,

but only where such acquiring company or target company incorporated outside the State corresponds, under the law of the place where it is incorporated, to an acquiring company or target company, as the case may be, within the meaning of this section and subject to any necessary modifications for the purpose of so corresponding, all the other provisions of this section are met.

(11)In the case of –

(a)a merger undertaken in accordance with Chapter 3 of Part 9 of the Companies Act 2014 –

(i)the resolution referred to in paragraph (a)(ii) of section 202(1) of that Act, in the case of a merger effected by way of the summary approval procedure (within the meaning of section 202 of that Act), or

(ii)the order made under section 480(2) of that Act, in the case of a merger effected otherwise than by way of the summary approval procedure (within the foregoing meaning),

shall be regarded as a conveyance on sale, or

(b)a merger undertaken in accordance with Chapter 16 of Part 17 of the Companies Act 2014, the order made under section 1144 of that Act shall be regarded as a conveyance on sale.

(12)This section shall not apply unless the scheme of reconstruction or amalgamation or the merger is effected for bona fide commercial reasons and does not form part of a scheme or arrangement of which the main purpose, or one of the main purposes, is avoidance of liability to any tax or duty.