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20 1975

CAPITAL GAINS TAX ACT, 1975

PART VII

Anti-Avoidance

Connected persons.

33. —(1) This section shall apply where a person acquires an asset and the person making the disposal is connected with him.

(2) Without prejudice to the generality of section 9, the person acquiring the asset and the person making the disposal shall be treated as parties to a transaction otherwise than by way of a bargain made at arm's length.

(3) If on the disposal a loss accrues to the person making the disposal, it shall not be deductible except from a chargeable gain accruing to him on some other disposal of an asset to the person acquiring the asset mentioned in subsection (1), being a disposal made at a time when they are connected persons:

Provided that this subsection shall not apply to a disposal by way of gift in settlement if the gift and the income from it is wholly or primarily applicable for educational, cultural or recreational purposes, and the persons benefiting from the application for those purposes are confined to members of an association of persons for whose benefit the gift was made, not being persons all or most of whom are connected persons.

(4) Where the asset mentioned in subsection (1) is an option to enter into a sale or other transaction given by the person making the disposal, a loss accruing to the person acquiring the asset shall not be an allowable loss unless it accrues on a disposal of the option at arm's length to a person who is not connected with him.

(5) In a case where the asset mentioned in subsection (1) is subject to any right or restriction enforceable by the person making the disposal, or by a person connected with him, then (the amount of the consideration for the acquisition being, in accordance with subsection (2), deemed to be equal to the market value of the asset) that market value shall be—

(a) what its market value would be if not subject to the right or restriction, as reduced by—

(b) the market value of the right or restriction or the amount by which its extinction would enhance the value of the asset to its owner, whichever is the less:

Provided that if the right or restriction—

(i) is of such a nature that its enforcement would or might effectively destroy or substantially impair the value of the asset without bringing any countervailing advantage either to the person making the disposal or a person connected with him,

(ii) is an option or other right to acquire the asset, or

(iii) in the case of incorporeal property, is a right to extinguish the asset in the hands of the person giving the consideration by forfeiture or merger or otherwise,

that market value of the asset shall be determined, and the amount of the gain accruing on the disposal shall be computed, as if the right or restriction did not exist.

(6) Subsection (5) shall not apply to a right of forfeiture or other right exercisable on breach of a covenant contained in a lease of land or other property, and shall not apply to any right or restriction under a mortgage or other charge.

(7) Any question whether a person is connected with another shall be determined in accordance with the following provisions (any provision that one person is connected with another being taken to mean that they are connected with one another)—

(a) a person is connected with an individual if that person is the individual's husband or wife, or is a relative, or the husband or wife of a relative, of the individual or of the individual's husband or wife;

(b) a person, in his capacity as trustee of a settlement, is connected with any individual who in relation to the settlement is a settlor, with any person who is connected with such an individual and with a body corporate which is deemed to be connected with that settlement, and a body corporate shall be deemed to be connected with a settlement in any year if at any time in the year it is a controlled company (or only not a controlled company because it is not resident in the State) and the shareholders then include the trustees of or a beneficiary under the settlement;

(c) except in relation to acquisitions or disposals of partnership assets pursuant to bona fide commercial arrangements, a person is connected with any person with whom he is in partnership, and with the husband or wife or a relative of any individual with whom he is in partnership;

(d) a company is connected with another company—

(i) if the same person has control of both, or a person has control of one and persons connected with him, or he and persons connected with him, have control of the other, or

(ii) if a group of two or more persons has control of each company, and the groups either consist of the same persons or could be regarded as consisting of the same persons by treating (in one or more cases) a member of either group as replaced by one or more persons with whom he is connected;

(e) a company is connected with another person, if that person has control of it or if that person and persons connected with him together have control of it;

(f) any two or more persons acting together to secure or exercise control of or to acquire a holding in a company shall be treated in relation to that company as connected with one another and with any person acting on the direction of any of them to secure or exercise control of or to acquire a holding in the company.

(8) In subsection (7) “relative” means brother, sister, uncle, aunt, niece, nephew, ancestor, lineal descendant, or a person adopted under the Adoption Acts, 1952 to 1974, or under the law of any place outside the State.

Assets disposed of in a series of transactions.

34. —If a person is given, or acquires from one or more persons with whom he is connected, by way of two or more transactions, assets of which the aggregate market value, when considered separately in relation to the separate other transactions, is less than the aggregate market value of those assets when considered together, then for the purposes of this Act the market value of the assets where relevant, shall be taken to be the larger market value and that value shall be apportioned rateably to the respective disposals.

Controlled company transferring assets at undervalue.

35. —(1) If on or after the 6th day of April, 1974, a company which is a controlled company transfers an asset to any person otherwise than by way 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 the following provisions of this section.

(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 paragraph 3 (1) (a) of Schedule 1 from the consideration for the disposal.

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

(4) (a) A controlled company means a company resident in the State—

(i) in which the number of persons holding shares is not more than 50;

(ii) which has not issued any of its shares as a result of a public invitation to subscribe for shares; and

(iii) which is under the control of not more than 5 persons.

(b) A company shall be deemed to be under the control of any persons where the majority of the voting power or shares is in the hands of those persons or nominees of those persons.

(c) For the purposes of this subsection, a person and any persons with whom he is connected shall be treated as one person.

(5) This section shall apply to a company falling within section 36 as it applies to a controlled company.

Non-resident company.

36. —(1) This section applies as respects chargeable gains accruing to a company—

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

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

(2) Subject to this section, every 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 this Act as if a part of the chargeable gain had accrued to him.

(3) That part of the chargeable gain 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 way of dividend or distribution of capital or on the dissolution of the company, to persons holding shares in the company, or creditors of the company, within two 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, and 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 46 (6) (foreign bank accounts), 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 tax by virtue of subsection (2) or (7) of section 4 (charge to tax on non-residents).

(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 way of repayment or discharge of tax or otherwise, shall be made as will give effect to the provisions of subsection (4) (a).

(6) The amount of capital gains tax paid by a person in pursuance of subsection (2) (so far as not reimbursed by the company) shall be allowable as a deduction in the computation, under this Act, of a gain accruing on the disposal by him 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 the foregoing provisions of this subsection, this section shall not apply in relation to a loss accruing to the company.

(8) If the person owning any of the shares in the company at the time when the chargeable gain accrues to the company is itself a company which is not resident in the State but which would be a controlled 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) If 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 this Act, be regarded as a payment to the person by whom the tax was originally payable.

Non-resident trust.

37. —(1) This section applies as respects chargeable gains accruing to the trustees of a settlement if the trustees are not resident and not ordinarily resident in the State, and if the settlor, or one of the settlors, is domiciled and either resident or ordinarily resident in the State, or was domiciled and either resident or ordinarily resident in the State when he made the settlement.

(2) Any beneficiary under the settlement who is domiciled and either resident or ordinarily resident in the State in any year of assessment shall be treated for the purposes of this Act as if an apportioned part of the amount, if any, on which the trustees would have been chargeable to capital gains tax under section 5 (1), if domiciled and either resident or ordinarily resident in the State in that year of assessment, had been chargeable gains accruing to the beneficiary in that year of assessment; and for the purposes of this section any such amount shall be apportioned in such manner as is just and reasonable between persons having interests in the settled property, whether the interest be a life interest or an interest in reversion, and so that the chargeable gain is apportioned, as near as may be, according to the respective values of those interests, disregarding in the case of a defeasible interest the possibility of defeasance.

(3) For the purposes of this section—

(a) if in any of the five years ending with that in which the chargeable gain accrues a person has received a payment or payments out of the income of the settled property made in exercise of a discretion, he shall be regarded, in relation to that chargeable gain, as having an interest in the settled property of a value equal to that of an annuity of a yearly amount equal to one-fifth of the total of the payments so received by him in the said five years, and

(b) if a person receives at any time after the chargeable gain accrues a capital payment made out of the settled property in exercise of a discretion, being a payment which represents the chargeable gain in whole or in part, then, except so far as any part of the gain has been attributed under this section to some other person who is domiciled and resident or ordinarily resident in the State, that person shall, if domiciled and resident or ordinarily resident in the State, be treated as if the chargeable gain, or as the case may be the part of the chargeable gain represented by the capital payment, had accrued to him at the time when he received the capital payment.

(4) In the case of a settlement made before the 28th day of February, 1974—

(a) subsection (2) shall not apply to a beneficiary whose interest is solely in the income of the settled property, and who cannot by means of the exercise of any power of appointment or power of revocation or otherwise, obtain for himself, whether with or without the consent of any other person, any part of the capital represented by the settled property, and

(b) payment of capital gains tax chargeable on a gain apportioned to a beneficiary in respect of an interest in reversion in any part of the capital represented by the settled property may be postponed until that person becomes absolutely entitled to that part of the settled property, or disposes of the whole or any part of his interest, unless he can, by any means described in paragraph (a), obtain for himself any of it at any earlier time,

and, for the purposes of this subsection, property added to a settlement after the settlement is made shall be regarded as property under a separate settlement made at the time when the property is so added.

(5) In any case in which the amount of any capital gains tax payable by a beneficiary under a settlement in accordance with the provisions of this section is paid by the trustees of the settlement, such amount shall not for the purposes of income tax or capital gains tax be regarded as a payment to such beneficiary.

(6) This section shall not apply in relation to a loss accruing to the trustees of the settlement.