Capital Gains (Amendment) Rules, 2010

L.N. 317 of 2010

INCOME TAX ACT

(CAP. 123)

Capital Gains (Amendment) Rules, 2010

IN exercise of the powers conferred by articles 5 and 96 of the

Income Tax Act, the Minister of Finance, the Economy and

Investment has made the following rules:-

(1) The title of these rules is the Capital Gains

(Amendment) Rules, 2010 and they shall be read and construed as

one with the Capital Gains Rules, hereinafter in these rules referred to

as "the principal rules".

(2) These rules shall be deemed to have come into force on the

16 th April, 2010.

Rule 5 of the principal rules shall be amended as follows

(a)

in paragraph (c) of subrule (2) thereof, for the

words "of that company." there shall be substituted the words

"of that company:" and immediately after paragraph (c) there

shall be added the following new provisos to the subrule

"Provided that, notwithstanding the provisions of

this subrule, where a transfer of shares in a company is a

transfer referred to in article 5(9A)(d) of the Act, such

transfer shall be treated as a transfer of a controlling

interest in that company

Provided further that, notwithstanding the

provisions in this subrule, where a transfer of shares in a

company is a deemed transfer of a proportion of a holding

as referred to in article 5(13)(b)(i) of the Act, such transfer

shall not be treated as a transfer of a controlling interest in

a company.";

(b)

sub-rule (6) thereof shall be amended as follows

(i) for the words "Provided that -" there shall be

substituted the following

"Provided that, where during the financial year in

which the transfer is made, but not later than the date

of the transfer, the company has transferred or

acquired any immovable property or rights over an

immovable property or any shares in a company, the

net asset value of the company shall be that resulting

from an accounting statement prepared by a certified

public accountant holding a practicing certificate in

auditing, to be drawn up as at the date of the transfer.

The accounting statement shall consist of a balance

sheet showing the position of the company as at the

date of the transfer and shall be drawn up using the

same methods and the same layout as used for its

financial statements for the financial year preceding

that in which the transfer is made

Provided further that – "; and

(ii)

in paragraph (d) of the second proviso,

for the words "the book value of such shares shall not

be considered in determining the net asset value of

the company." there shall be substituted the words

"the net asset value shall be reduced by the book

value of such shares

Provided that this paragraph shall not apply

where the company has applied an amount standing

to the credit of any of its reserve accounts funds,

other than a capital redemption reserve and profits

available for distribution in paying up to any extent

the allotment of the said shares.";

(c)

in subrule (13) thereof, for the words "in

accordance with this rule" there shall be substituted the words

"in accordance with rule 5A and this rule"; and

(d)

subrule (15) thereof shall be amended as follows

(i) in paragraph (b) thereof, for the words

"contemplated in this paragraph:" there shall be substituted

the words "contemplated in this paragraph; or"; and

(ii) immediately after paragraph (b) thereof, there

shall be added the following new paragraph

"(c) shares in a company referred to in article

5(9A)(a) of the Act:".

Immediately after rule 5 of the principal rules, there shall Adds new rules

5A to 5C to the

principal rules.

B

be added the following new rules

(1)

" Transfer of

(i)

Where as a result of

value.

a change in the issued share capital of a

company or a change in voting rights attached

to such shares, (hereinafter referred to as the

"change"), a transfer of value as provided for

in article 5(13)(b)(ii) of the Act is deemed to

have taken place, the value transferred or

acquired by a person shall be determined in

accordance with the following formula

Y = (A – B) + C – D where -

(a)

'Y' represents the amount

to be determined;

(b)

'A' is the market value of

the shares held in the company

immediately before the change;

(c)

'B' is the market value of

the shares held in the company

immediately after the change;

(d)

'C' is the consideration paid

for the acquisition of shares or

additional shares issued by the

company, where the change consists of

an issue of share capital for

consideration.

(e)

'D' is the amount paid by

the company in respect of a cancellation

of shares, where the change consists of

a reduction of share capital of the

company

Provided that where the market

value of the company immediately before the

change does not exceed the value of the paid

up share capital of such company, the value of

'Y' shall be taken as zero

Provided further that where such

person does not hold any shares in the

company immediately before or after the

change, the value of 'A' or 'B' in the said

formula, as the case may be, shall be taken as

zero

B

Provided also that, where the

change in the issued share capital consists of

a conversion of securities, for the purpose of

paragraphs (b) and (c) the market value of

shares not being securities as defined in

article 5(1)(b) of the Act shall be taken as

zero.

(ii)

Where

the

amount

determined in accordance with the said

formula is a positive amount, such person

("the transferor") shall be deemed for the

purposes of article 5(13)(b)(ii) of the Act to

have made a transfer of value equal to the

said amount and such value shall be deemed

for the purposes of the said article to have

passed into other shares in or rights over the

company held by any other person or persons.

The amount so determined shall be the gains

or profits referred to in the said article.

(iii)

Where

the

amount

determined in accordance with the said

formula is a negative amount, such person

("the transferee") shall be deemed to have

acquired value equal to the said amount and

such value shall be deemed to have passed

into shares in or rights over the company held

by him.

(2) For the purpose of sub-rule (1)

(i)

the market value of shares

held in a company is a percentage of the

market value of the said company

corresponding to the percentage of the

issued share capital represented by the

nominal value of those shares;

B

(ii)

where the issued share

capital of the company is made up of

different classes of shares (whether

before or after the change in the issued

share capital) or where the change

consists of an alteration of voting rights,

the market value of shares held in the

company

shall,

notwithstanding

paragraph (i), be the percentage of the

market value of the said company

corresponding to the percentage of the

total voting rights in the company

represented by the total voting rights

attached to those shares;

(iii)

notwithstanding paragraph

(ii), where the value of 'Y' as

determined by the application of

paragraph (i) is higher than the value of

'Y' as determined by the application of

paragraph (ii), the value of 'Y' is to be

determined by the application of

paragraph (i).

(3) The market value of a company

shall, for the purpose of subrule (2), be

determined in accordance with rules 5(6) and

(7)

Provided that in determining the

market value of the company the total net

asset value referred to in rule 5(6) shall be

that resulting from an accounting statement

prepared by a certified public accountant

holding a practicing certificate in auditing, to

be drawn up as at the date of the deemed

transfer of value. The accounting statement

shall consist of two balance sheets showing

the position of the company immediately

before and after the change and shall be

drawn up using the same methods and the

same layout as used for its financial

statements for the financial year preceding

that in which the change takes place.

B

(4) (i)

For

the

purpose

of

determining the chargeable gain there shall be

allowed as a deduction against the gains or

profits determined in accordance with subrule

(1) of this rule, a portion of the cost of

acquisition of the shares held by the transferor

immediately before the change in the issued

share capital or voting rights (herein after

referred to as the "change"), to be determined

in accordance with the following formula –

Z = ((A – B) / A) x E where –

(a)

'Z' represents the amount to

be determined;

(b)

'A' is the market value of

the shares held by the transferor

immediately before the change as

determined in sub-rule (1);

(c)

'B' is the market value of

the shares held by the transferor

immediately after the change as

determined in sub-rule (1); and

(d)

'E' is the cost of acquisition

of the shares held by the transferor

immediately before the change

Provided that the deduction

to be allowed against the said gains or

profits, shall in no case exceed such

gains or profits

Provided further that where

the amount determined in accordance

with the said formula is a negative

amount, such amount shall be taken to

be zero

Provided also that no such

deduction shall be allowed where the

gains or profits determined in

accordance with subrule (1) of this rule

arise as a result of a change in the issued

share capital consisting of a reduction of

share capital.

B

(ii)

on a subsequent transfer of

the shares held by the transferor immediately

before the change, the cost of acquisition

shall be deemed to be the portion of the cost

of acquisition not taken into account in

determining the chargeable gain referred to in

paragraph (i) of this subrule, and proviso (ii)

of rule 5(5) shall not apply to the said

transfer.

(iii)

the acquisition cost of

shares held by the transferee acquiring value

referred to in subrule (1)(iii) shall be

increased by the amount referred to in the

said paragraph, which shall for such purpose

be treated as a positive amount, and the

aggregate amount so obtained shall, for the

purpose of determining the chargeable gain

on a subsequent transfer, be the cost of

acquisition of the said shares

Provided that where the said

transferee, held shares in the company

immediately before the change in the issued

share capital and acquired further shares as a

result of a change in the issued share capital

consisting of an increase in the share capital

of the company, the acquisition cost of the

shares held and acquired shall be increased

pro rata by the said amount.

Provided

further

that

the

acquisition cost of shares, not being securities

as defined in article 5(1)(b) of the Act, held

by the transferee immediately before the

change in the issued share capital shall, for

the purpose of determining the aggregate

amount referred to in this paragraph, be taken

to be zero

Provided also that this paragraph

shall only apply where the said transferee

acquiring value has paid the relative duty as

determined in accordance with article 42 of

the Duty on Documents and Transfers Act in

respect of the value so acquired.

(iv)

on a subsequent transfer of

the shares held by the transferor and

transferee immediately after the change,

made before the end of the financial year in

which the change took place, the market

value taken into account in determining the

chargeable gain shall, notwithstanding the

provisions of rule 5, not be lower than the

value of 'B' referred to in sub-rule (1)(i)(c) of

this rule, being the value that was taken into

account in determining the value transferred

or acquired, as the case may be.

(5) The transferor in any transfer of

value referred to in this rule shall submit to

the Commissioner a computation of the

market value of the shares, made on the form

prescribed in Schedule F, accompanied,

where applicable, by the accounting

statement referred to in subrule (3) and by an

architect’s valuation of the market value of

the immovable property taken into account in

determining the value of the company.

(6) The form referred to in subrule (5)

shall be delivered in triplicate to the

Commissioner and the transferor shall,

together with the delivery, pay to the

Commissioner the provisional tax due on the

transfer in accordance with article 43 of the

Income Tax Management Act.

(7) The Commissioner shall stamp one

of the copies of the form submitted in

accordance

with

subrule

(5)

in

acknowledgement of the receipt of same and

return it to the person who submitted it.

(8) For the purposes of this rule, the

term "shares" or "share capital" shall exclude

shares which do not participate in any way in

the profits of a company other than by way of

a fixed rate of return.

The provisions of article 5(9) of

Applicabilit

y of article

the Act shall not apply where the asset

5(9) of the

transferred from one company to another

company consists of value in securities as

provided for in article 5(13)(b)(ii) of the Act.

For the purposes of identifying

Transfer of

shares acquired with shares subsequently

acquired by

means of

disposed of, in so far as the shares are of the

separate

same class, shares acquired at an earlier time

acquisitions.

shall for the purposes of determining the

gains or profits referred to in article

5(1)(a)(ii) of the Act be deemed to have been

disposed of before shares acquired at a later

time.".

4. Section II of Part 4 of Schedule C to the principal rules

shall be amended as follows

(a)

in paragraph (a), the words "as resulting from its

financial statements for the financial year preceding that in

which the transfer is made" shall be deleted;

(b)

paragraph (e) shall be renumbered as paragraph (f);

(c)

immediately after paragraph (d), the following new

paragraph (e) shall be inserted

"(e) Deduct book value of the shares referred to in

Rule 5(6)(d)".

5. In Schedule E to the principal rules, for Part 4 thereof there

shall be substituted the following

" Part 4 - Details of exemption

State under which of the following provisions the share transfer

Article 5(2)(e) Income Tax Act

Article 5(6)(e) Income Tax Act

Article 5(9) Income Tax Act

Article 5(13) Income Tax Act

[please quote specific paragraph]

Article 5(14) Income Tax Act

Article 12 Income Tax Act

[please quote specific paragraph]

Rule 3(1): Merchant Shipping

(Taxation and Other Matters

relating to Shipping Organisations)

Regulations

" .

Immediately after Schedule E to the principal rules, there Adds new

Schedule F to

shall be added the new Schedule F as follows

the principal

rules.

B

"Schedule F

(Rule 5A(5))

Notice in terms of Rule 5A(5) of the Capital Gains Rules, 1993

Computation of the gains or profits referred to in article 5(13)(b)(ii)

Part 1 - Details of change in the issued share capital or voting rights

(insert "Yes" or "No")

Nature of change

Alteration of voting rights

Allottment of shares

conversion of shares

Reduction in share capital

Date of change

Give details

In case of an allottment of shares state the amount paid to the company per share

In case of a reduction of share capital state the amount paid by the company per share

Part 2 - Details of issued share capital of company

Immediately before change

Type

Class

Votes

Nominal

Number of

Total voting

Total nominal

per share

value per

Shares

rights

value

share (€)

(€)

Immediately after change

Type

Class

Votes

Nominal

Number of

Total voting

Total nominal

per share

value per

Shares

rights

value

share (€)

(€)

Note: Include only securities as defined in article 5(1)(b) of the Income Tax Act

Part 3 - Details of Shareholders / shareholdings

Before change

After change

Name

Tax Ref.

Type

Nominal value

voting rights

Nominal value

voting rights

of shares (€)

of shares (€)

number

Note: Include only securities as defined in article 5(1)(b) of the Income Tax Act

B

Part 4 - Details of Company in which change was affected

Company Name

Income Tax Registration No

Company year end

Date of incorporation

ROC No

State whether: (Yes or No)

a

The Company holds shares directly or indirectly in other companies.

(if Yes attach details)

b

The Company or any companies referred to in (a) above own

immovable property at the date of the change in the issued share capital or voting rights.

(if Yes attach details)

c

The company came into existence as a result of a restructuring.

(if Yes attach details specifying the date and whether a merger, division, etc)

Part 5 - Computation of the value transferred

The value transferred is to be determined as follows

Sec I : Determination of the % of the market value of the company as represented by such reduction in value

Before change

After change

Name

Tax Ref.

Type

Percentage

Percentage

Percentage

Percentage

Higher

number

of Issued

of total

of Issued

of total

of

(Note 1)

share capital

voting rights

share capital

voting rights

Sec II : Computation of Market value of company;

Pre change

Post change

a

Total Net Asset Value of the company as resulting from its financial statements

b

Market Value of shares held in another company representing at least 10% of the

nominal value of the issued share capital of that other company, determined

in accordance with rule 5.

Company

Income Tax no.

Market Value

Deduct book value of shares held in the company

(as stated in the financial statements)

c

Total market value of immovable property as stated in the

Architect's Valuation (as per Part 6)

less Total book value of immovable property

Adjustment to the value of immovable property

d

Value of goodwill: (as calculated in Sec IV below)

e

Deduct book value of preference shares

(refer to Rule 5(6)(e))

g

Total adjusted market value of the company

B

Sec III : Calculation of the reduction in value

Name

Tax Ref.

Type

Market value

Market value

Amount paid

Reduction

Provisional

Increase

Duty

number

pre issue

post issue

in or out

in value

tax at 7%

in value

at 5% or 2%

(note 1)

[Y]

[A]

[B]

[C] & [D]

Note 1: To be filled in cases where the change in the issued share capital consists of an issue of share capital for cash consideration or a reduction of capital.

Sec IV : Calculation of the amount representing the value of goodwill

a

Where company was in existence for the five financial years immediately preceding the

year in which the transfer is made

Year 1

Year 2

Year 3

Year 4

Year 5

Total

Profit before tax

Value of goodwill

Note: Where the transfer is made during the company's first or second financial year the

value of goodwill above shall be zero.

b

Where the company has acquired its business or part thereof from another person

during the company's first three financial years

State date when business was acquired

State consideration paid for the acquisition of the goodwill of such business

Profits of the company excluding profits attributable to business acquired;

Year 1

Year 2

Year 3

Total

Year end

Profit before tax

Value of goodwill

Profits attributable to business acquired from another person;

Year 1

Year 2

Year 3

Year 4

Year 5

Total

Year end

Profit before tax

Value of goodwill attributable to business acquired

A

Consideration paid for the acquisition of such goodwill

B

Value of the goodwill of the business so acquired

(higher of A and B )

Total amount representing the value of goodwill

Note

Where the assets of the company include shares in another company, and such

shares represent at least ten percent of the nominal value of the issued share

capital of the other company, the computations in Part 5 must be made for each

such shareholding.

Part 6 - Architect's valuation

If the company owns immovable property at the date of the share transfer, attach an architect's valuation

of the market value of the immovable property taken into account in determining the value of the said shares.

Part 7 - Accounting statement

Attach accounting statement in accordance with rule 5A(3) prepared by a CPA holding a practicing certificate in auditing

I do hereby declare that the information submitted through this form is true and complete

Auditor's signature

Auditor's name

".