Written answers

Thursday, 28 January 2021

Photo of Cian O'CallaghanCian O'Callaghan (Dublin Bay North, Social Democrats)
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59. To ask the Minister for Finance the impact of EU Directive 2008/7 on Irish law; and if he will make a statement on the matter. [4917/21]

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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I am advised by Revenue that Council Directive 2008/7/EC (Capital Duties Directive) of 12 February 2008 regulates the levying of indirect taxes on the raising of capital by certain companies. In this regard, it prohibits the levying of indirect taxes on contributions of capital to capital companies, certain restructuring operations involving capital companies and the issue of certain securities. Irish tax law must be compatible with the terms of this Directive.

Before the Capital Duties Directive came into effect, a stamp duty called companies capital duty (CCD) was levied on the raising of capital by the issue of shares in a capital company and on certain other transactions such as restructuring arrangements. The most usual type of corporate body within the charge to CCD was a limited company incorporated in Ireland. The most common transactions which gave rise to a charge to CCD were the formation of a capital company, an increase in the issued share capital of a capital company and the transfer to Ireland of either the effective centre of management or the registered office of a capital company. However, as CCD was incompatible with EU rules, it was abolished with effect from 7 December 2005.

The issue of whether current Irish tax law is compatible with the Capital Duties Directive has recently arisen in relation to a change in Irish tax legislation taking effect on 9 October 2019, the provisions of which are now contained in section 31D Stamp Duties Consolidation Act (SDCA) 1999. Under section 31D, a stamp duty charge is levied where there is an agreement to acquire a company using a Court-approved scheme of arrangement in accordance with the Companies Act 2014 involving the cancellation of the company’s shares and the issue of new shares to the person acquiring the company. This type of arrangement was not previously subject to stamp duty as it did not involve an actual transfer of shares to the person acquiring the company even though the net effect was to transfer ownership of the company. In stamp duty terms, there is no transfer or conveyance on sale on which to impose a charge. This new charge recognises the substance of these types of arrangement (known as cancellation schemes of arrangement) and imposes the stamp duty charge of 1% that, in the normal course, applies to transfers of shares. Stamp duty is now charged on the consideration paid to shareholders for the cancellation of their shares.

I introduced this new stamp duty charge because I considered that it would be compatible with the Capital Duties Directive as the duty is not being charged on the new issue of shares. Nor did I consider ‘cancellation schemes of arrangement’ to be the type of restructuring operation that is targeted by the Directive. However, this issue of compatibility was recently considered in an appeal to the Tax Appeals Commission (TAC) against a Revenue assessment to stamp duty. The determination made by the TAC on 8 December 2020 found in favour of the appellant (taxpayer).

I am advised by Revenue that it does not agree with the TAC determination and is currently in the process of appealing this determination to the High Court. It intends to await the High Court judgement before deciding on how best to proceed in relation to the status of section 31D SDCA 1999 vis-à-vis the Capital Duties Directive.

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