Charlie McCreevy (Kildare North, Fianna Fail)

Section 13 of Finance Act 2002 provides that the transfer and appropriation of securities other than ordinary shares to the beneficiaries of an employee share ownership trust, ESOT, or approved profit sharing scheme, APSS, in the circumstances of certain takeovers may take place in a manner which preserves the tax benefits to the participants. The point at which income tax is forgone is when the shares are passed into the ESOT, which in the case of Eircom took place in 1999, and does not arise from any amendments contained in section 13.

In June 2001, the tax advisers to the ESOT contacted officials in the Revenue Commissioners and my Department to discuss the tax implications for the Eircom ESOT of the proposed takeover of Eircom. Having considered the issues involved, I indicated in June 2001 that I was prepared to propose an amendment, which I duly did in the Finance Act 2002. This was made known in my response to a parliamentary question from the then Deputy and now Senator Derek McDowell on 14 November 2001 on this subject.

Had the change not been made, the ESOT would have had to distribute cash to the beneficiaries as the ESOT would not have been permitted to acquire the preference shares, giving rise to a claw-back of some of the income tax forgone in 1999. However, this revenue would only have arisen had the takeover proceeded.

The legislative changes simply provided the membership of the Eircom ESOT with a level playing field to choose to support whichever bid they wished to support. In the event, two takeovers were in a position to take immediate advantage of these legislative changes. The first was the takeover of the landline business of Eircom by the Valentia consortium and the second was the takeover of ACC Bank by Rabobank.

I have made numerous changes to the ESOT legislation to facilitate ESOTs in changing circumstances to ensure that they retain the benefits available to them. This is because, by their nature, ESOTs are tailor-made to each particular circumstance.

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