The disposal by an Irish holding company of shares in a subsidiary will be exempt from Capital Gains Tax (“CGT”) where certain criteria are satisfied. The following conditions must be satisfied before the exemption can apply:
The holding company must own a minimum of 5% of the shares in the subsidiary. This shareholding must include the right to 5% of the profits of the company and the right to 5% of the assets on a winding up. The minimum holding requirement can also be satisfied where the holding company is a member of a group and the shareholdings of members of the group are taken into account.
This holding requirement must be satisfied for a continuous 12 month period and the disposal must take place within a two year period after meeting the holding requirement.
The activity of a subsidiary company must consist wholly or mainly of the carrying on of a trade at the time of the disposal. This requirement can also be satisfied where the business of the holding company and companies in which the holding company has a direct or indirect ownership interest of at least 5%, consist wholly or mainly of the carrying on of one or more trades.
The subsidiary company must be resident in the EU or a treaty country at the time of the disposal. Subsidiaries located in Ireland will also qualify, but the company cannot derive its value from Irish land, buildings or mineral rights.
The exemption also applies to the disposal of assets related to shares which include options and securities convertible into cash. It is not necessary for the holding company to dispose of its entire shareholding in order for the gain arising on the disposal to be exempt; the gain arising will be exempt once the prescribed holding requirement is met.
It should be noted that losses arising that come within the terms of the CGT exemption are not available for offset against other capital gains.
Byrne & McCall, Core B, Block 71, The Plaza, Park West, Dublin 12, IrelandTel: +353-1-6120580Fax:+353-1- 6205625Email:info@byrnemccall.ie
