The Gazette 1980

GAZETTE

JULY-AUGUST

198

Associated Companies — The

Turn of the Screw

By CHARLES HACCIUS, Barrister-at-Law

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.

the grantor conveying or transferring his estate

subject to the reservation of a rent charge.

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)

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