Taxes Consolidation Act 1997 section 816

Taxation of shares issued in place of cash dividends

Section 816 sets out the tax treatment of additional shares (scrip dividends) received by a person in place of a cash dividend, where the person exercises an option to take shares instead of cash.

• Where a person exercises an option to receive additional share capital in a company instead of a cash dividend, the person is taxed on an amount equal to the cash dividend forgone.
• The tax treatment depends on the residence and status of the paying company: foreign company (Case III), Irish resident quoted company (Schedule F distribution), or Irish resident unquoted company (Case IV).
• An option is treated as exercised whether the person actively chooses shares or simply abandons or fails to exercise a right to choose cash instead.
• For CGT purposes, the additional shares are treated as acquired under a rights issue, and the cash dividend forgone is treated as enhancement expenditure on the combined shareholding.