Staying abreast of tax updates is becoming increasingly challenging due to the regular changes and extensions to Irish tax legislation and the ever-increasing number of Tax Appeals cases and decisions in Irish courts. We have highlighted and summarised a recent determination from the Tax Appeals Commission (“TAC”) which may be of assistance to you when advising your clients.

Key Learning:

Even where a transaction is carried out for bona fide commercial reasons, tax reliefs like the CGT exemption under section 586 TCA 1997 will be denied if the transaction also forms part of a scheme with a tax avoidance purpose - even if this is only one of several purposes.

58TACD2025 – Re: Share-for-share exchange and tax avoidance under section 586 TCA 1997

Overview:

This case concerned an appeal to the TAC by a taxpayer against a CGT assessment of €351,545. The assessment arose following a share-for-share exchange and subsequent sale of shares. The appellant had claimed relief under section 586 of the TCA 1997, arguing that the transaction was carried out for bona fide commercial reasons and not for the purpose of tax avoidance. Revenue denied the relief, claiming that the transaction formed part of a tax avoidance scheme.

Key Facts & Discussion Points:

• The appellant had invested €100,000 in a company ("Company A") and held Ordinary shares that gave limited voting rights, except in major decisions such as a sale of the business.

• In June 2023, the appellant incorporated a holding company ("HoldCo") and transferred his shares in Company A to HoldCo in exchange for shares in HoldCo, relying on section 586 TCA 1997 to exempt the exchange from CGT.
  
• On 19 July 2023, HoldCo sold its shares in Company A to a third-party buyer. HoldCo paid no CGT on the sale, claiming a market value-based cost for the shares.
  
• Revenue assessed CGT on the appellant personally, arguing that the section 586 exemption did not apply as the exchange was part of a tax avoidance scheme.

• The appellant argued that:
  
  • He had considered forming HoldCo for years for asset segregation, succession planning, and financing.
  • He was unaware of the proposed sale of Company A until after the share-for-share exchange occurred on 2 July.
  • The share exchange was not tax-motivated and had commercial justifications of succession planning and asset segregation.

Key Issues Considered:

• Procedural compliance under section 586(2)(b):
  
  
  
  
   
  • Section 586 requires that the offer be made "on a condition" that if accepted, the acquiring company will have control of the target.
  • The letters issued on 2 July were silent on this conditionality.
  • The TAC held that this was a failure to comply with the statutory requirement, fatal to the appellant’s claim.
• Whether the transaction was effected for bona fide commercial reasons:
  
   
  • The TAC accepted that the appellant had commercial motivations (succession planning, asset segregation), satisfying this limb of the test.
• Whether the transaction was part of a scheme to avoid tax:
  
  • The TAC concluded that
    
    
    
     
    • The appellant knew of and agreed to the sale of Company A by 20 June, prior to the exchange on 2 July.
    • The timing and urgency of the exchange suggested tax motivation.
    • Delaying the execution of the share transfer form until 19 July (the date of final sale) suggested an effort to avoid stamp duty by way of a sub-sale transaction type and reinforced the tax planning inference.
  • The Commissioner found that the appellant’s main or one of the main purposes was tax avoidance.

Findings:

• The relief under section 586 TCA 1997 was denied on two grounds:
  
  
  • Non-compliance with the procedural requirement under section 586(2)(b).
  • The transaction was part of a tax avoidance arrangement, contrary to section 586(3)(b).

Conclusion and Key Takeaway Point:

The appeal was unsuccessful. The TAC upheld Revenue’s amended assessment for CGT of €351,545. This case underlines that even where commercial reasons exist, tax reliefs can be denied if one of the main purposes is to avoid tax. Moreover, procedural compliance with statutory relief provisions (like clear conditionality wording in offers under section 586) is essential. The judgment reinforces both the substance and form requirements for reliefs under Irish tax law.

Take the Next Step

If you have clients undertaking transactions like share-for-share exchanges, or if you are unsure whether reliefs such as section 586 TCA 1997 apply to their circumstances, it is crucial to seek expert advice at an early stage. Cases like this highlight the importance of both procedural compliance and a clear understanding of potential tax avoidance concerns. If you would like to discuss a specific client situation or if you need advice on the application of tax reliefs or similar issues, please do not hesitate to contact the OmniPro Tax & Legal Team. We've encountered similar challenges many times before and can help you find the right solution for your clients.

The contents of this article are meant as a guide only and are not a substitute for professional advice. The author/s accept no responsibility for any action taken, or refrained from, as a result of the material contained in this document. Specific advice should be obtained before acting or refraining from acting, in connection with the matters dealt with in this article. The information at the time of publishing was accurate and could be subject to final changes.