Section 591A Dividends paid in connection with disposals of shares or securities

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Amendments

Section 591A inserted by Finance Act 2008 section 51 as respects a dividend paid, or a distribution made, on or after 19 February 2008.

(1) For the purposes of this section, a dividend paid, or a distribution made, by a company to a person in respect of shares or securities of the company in connection with a disposal of shares in the company shall be treated as being abnormal if the amount or value of the dividend, or as the case may be the distribution, exceeds the amount that could reasonably have been expected to be paid, or as the case may be made, in respect of the shares or securities of the company if there were no such disposal of the shares or securities.

What is an "abnormal" dividend?

(1) A dividend is regarded as abnormal if its value exceeds the amount that could reasonably be expected to be paid if there were no disposal.

(2) Where, in connection with the disposal by a person of any shares or securities of a company, there exists any scheme, arrangement or understanding by virtue of which, either directly or indirectly, an abnormal dividend is paid, or an abnormal distribution is made—

(a) where the person is a company, to that person or to any company connected (within the meaning of section 10) with that person, and

(b) where the person is not a company, to any company connected (within the meaning of section 10) with the person,

then, for the purposes of the Capital Gains Tax Acts, the amount or value of the dividend paid, or distribution made, to the person or, as the case may be, to the connected person, shall be treated as consideration received by the person for the disposal of the shares or securities, and shall be ignored for the purposes of the Tax Acts.

What are the consequences of receiving an abnormally high dividend in connection with a share disposal?

(2) An abnormally high dividend received by you as an Irish resident company from another such company is to be treated as subject to capital gains tax (20%), and is therefore not exempt.

(3) Subsection (2) does not apply if it is shown that the scheme, arrangement or understanding is effected for bona fide commercial reasons and is not, or does not form part of, any scheme, arrangement or understanding of which the main purpose or one of the main purposes is avoidance of liability to tax.

Do any exceptions apply?

(3) The rule in (2) does not apply if it can be shown that the scheme is for bona fide commercial reasons and not for tax avoidance.