Taxes Consolidation Act 1997 section 589

Shares in close company transferring assets at undervalue

Section 589 deals with the capital gains tax consequences where a close company transfers an asset at less than market value, requiring a reduction in the base cost of the company's shares to reflect the loss in value.

• Where a close company transfers an asset otherwise than at arm's length for less than market value, the difference between the consideration and the market value is apportioned among the company's issued shares.
• On a subsequent disposal of any of those shares, the amount apportioned to each share is deducted from the allowable base cost, increasing the chargeable gain.
• If a shareholder is itself a close company, the apportioned amount cascades through to its own shareholders, and so on through any number of close companies in the chain.
• The section also applies to non-resident companies that would be close companies if they were resident in the State.