8.1

CAPITAL GAINS

Corporation tax is chargeable on a company's profits which not only include income but also capital gains. Capital Gains are taxed at the rate of 20% of the chargeable gain but at the rate of 40% on certain disposals e.g. development land.

Companies resident in Ireland for tax purposes are generally liable to capital gains tax on all capital gains, wherever the assets are located. Non-resident companies are liable to capital gains tax on the disposal of assets in Ireland which are connected with the trade carried on there through a branch or agency. The Capital Gains Tax Act, 1975 sets out other instances where a non-resident company may be liable to tax on capital gains. For example, the disposal of land or minerals in Ireland or the disposal of unquoted shares in companies which derive the greater part of their value from such land or minerals is subject to capital gains tax.

In addition to indexation of base costs which will help to reduce the amount of taxable gains, there are two primary reliefs from capital gains tax. First, if a company disposes of machinery, land and buildings or goodwill and reinvests the proceeds of sale in new business assets, the liability to capital gains tax can be deferred until the new assets cease to be used for the purposes of the trade. Secondly, capital assets may be transferred within a 75% owned group, without attracting a liability to tax. However, tax implications can arise if the subsidiary to which the assets are transferred leaves the group by, for example, ceasing to be Irish tax resident or being sold off to an unrelated party.

This article is intended to provide general guidelines. Specialist advice should be sought about specific facts.