The Gazette 1980

GAZETTE

JULY-AUGUST

198

Associated Companies — The Turn of the Screw By CHARLES HACCIUS, Barrister-at-Law

the grantor conveying or transferring his estate subject to the reservation of a rent charge. 1 All that need now be established is that the effect of the instrument in question is to transfer " a" beneficial interest in property from the transferor to the transferee, without going on to establish further that the transferor has parted with his entire beneficial interest. (2) Under the former legislation the relief applied only if either (a) the transferor was the "beneficial owner" of "not less than ninety per cent" of the "issued share capital" of the transferee (or vice versa), or (b) a "third body corporate" was the beneficial owner of not less than ninety per cent of the issued share capital "of each" of the transferor and transferee. In Diagram (I) below, for example, (I)

As anticipated, the "Imposition of Duties (No. 241) (Limit on Stamp Duty in respect of Certain Transactions between Bodies Corporate) Order 1979" (hereinafter referred to as "the Order") has been embodied in the Finance Bill 1980, which at the same time has revoked the Order "with respect to instruments executed on or after the date of the passing of this Act". The Order, it will be recalled, came into effect on 17th July, 1979 and replaced S.19 Finance Act 1952, as amended by S.76 Finance Act 1959, which until that date had been the relevant legislation granting relief from the ad valorem stamp duty which would otherwise have been payable on conveyances or transfers between associated companies. The new legislation, as embodied in the Bill, takes the form of a new Section 19 to be substituted for the exist- ing S.19 Finance Act, 1952 in relation to instruments executed on or after the date upon which the Bill be- comes law. In this article, the Order and the new Section 19 are referred to as "the new legislation", the existing S.19 Finance Act 1952, as amended by S.76 Finance Act 1959, being referred to as "the former legislation". The new legislation is reminiscent of those familiar jokes whereby the camp commandant addresses the assembled prisoners of war in the words "Prisoners! I have good news and bad news. First the good news . . .". The good news S. 19(2) in the new legislation, modelled on S.42(2) and (3) Finance Act 1930 (U.K.), as inserted by S.27(2) Finance Act 1967 (U.K.) in the United Kingdom legislation, has greatly extended the ambit of the former legislation, while at the same time removing a few minor yet irritating points of difference between the Irish and the United Kingdom legislation. Reliance can therefore be placed on United Kingdom case law as an aid to the construction of the relevant legislation to a far greater extent than before. In order of appearance, the differences between the new legislation and the former legislation are as follows:— (1) Under the former legislation it was necessary to establish to the satisfaction of the Revenue Commissioners not merely that the effect of the instrument in question was to convey or transfer a beneficial interest in property from the transferor to the transferee, but (a) that the transferor was entitled to "the entire beneficial interest" in the subject matter of the conveyance or transfer, and also, (b) that in consequence of the conveyance or transfer the "entire beneficial interest" in the subject matter of the conveyance or transfer vested in the transferee. Under the former legislation, therefore, it was a matter of some doubt whether a fee farm grant between associated companies qualified for relief.

where A, a holding company, was the beneficial owner of the entire issued share capital of two subsidiaries B and C, and B was the beneficial owner of the entire issued share capital of a sub-subsidiary D, a conveyance or transfer by A to B, A to C or B to C would qualify for relief, as would a conveyance or transfer by B to D, but not one by A to its sub- subsidiary D, the reason being simply that B and not A was the "beneficial owner" of the issued share capital of D: Rodwell Securities Ltd. vs. IRC( 1968) 1 All E.R. 257. In S. 19(2) the new legislation remedies this by invoking subsections (5) to (10) of S.156 Cor- poration Tax Act 1976 with the substitution of the expressions "body corporate" for "company", and "issued share capital" for "ordinary share capital". Subsections (5) to (10), although somewhat intimidating are quite simple in their effect. In order to ascertain whether the holding company (A in Diagram I above) is to be treated for the purposes of the new legislation as the "beneficial owner" of the requisite proportion (90 per cent) of the issued share capital the subsubsidiary (D), one simply works one's way through the "intermediary" (B), and so on through the whole "chain of intermediaries". In so doing, one ignores class rights and concentrates on the nominal value of the share capital of each company in the beneficial ownership of its immediate holding company, this being the 95