Taxes Consolidation Act 1997 section 138

Treatment of dividends on certain preference shares

Section 138 is an anti-avoidance measure that targets artificial preference share arrangements where what is in reality a loan is disguised as an investment in specially created preference shares, allowing lending institutions to receive interest in a tax-free form.

• Dividends paid on preference shares caught by this section are chargeable to corporation tax under Case IV of Schedule D in the hands of the recipient company, overriding any other provision in the Tax Acts.
• The section excludes quoted preference shares, unquoted fixed-rate preference shares with rights comparable to quoted shares, and certain non-transferable shares issued to wholly foreign-owned companies in the IFSC or Shannon zone.
• The section applies where a company pays a dividend on preference shares to another company within the charge to corporation tax, such as an Irish resident company or a foreign company trading in the State through a branch or agency.
• A saver provision ensures that shares which were excluded from being preference shares under the former IFSC and Shannon zone reliefs (sections 445 and 446) continue to be excluded, even though those sections have been deleted.