Michael D'Arcy (Wexford, Fine Gael) | Oireachtas source

The amendment brought forward on Committee Stage to section 135 of the Taxes Consolidation Act, in introducing a new subsection (3A), is intended to counter a specific tax avoidance scheme which has been uncovered by Revenue. The scheme involves individuals avoiding a liability to income tax where a company indirectly buys back shares from a shareholder and the purchase is funded from the assets of the company. The changes announced to the legislation are to ensure that distribution treatment correctly applies to such transactions.

The broad policy objective of the Committee Stage amendment was to ensure that where, in effect, a shareholder receives distributable reserves of a company on a disposal of their shares in that company, then the member is treated as having received a distribution from the company which is subject to income tax. The draft amendment meets this policy objective.

That amendment, which now forms section 22 of the Finance Bill, has no impact on bona fide management buy-outs, buy-ins or third party SME company purchases. The amendment only has application where shareholders enter into arrangements to dispose of their shares and where the consideration is paid from the assets of the target company.

I am aware that many management buy-outs involve the provision of financing by the target company out of the assets of the company. However, a bona fide buy-out is not structured on the basis of a shareholder specifically arranging for the proceeds to be funded from assets of the target company. Bona fide financing arrangements entered into by the purchaser to fund the purchase of the shares are outside of the scope of the new provisions. Therefore, on the basis that the proposed amendment to section 135 does apply to bona fide management buy-out transactions, I do not propose to accept this amendment. I am advised that Revenue will be issuing comprehensive guidance once the provision has been enacted and that should meet the Deputy's concerns.

See this speech in context