Capital Gains Tax Loss Relief On Convertible Loan Notes

Capital Gains Tax (CGT) Loss Relief On Convertible Loan Notes

If your convertible loan note is capable of being characterised as ‘marketable’ and capable of commanding a ‘market price’ over and above the mere value of the loan, it may be possible to claim the debt as a loss for capital gains tax purposes.

Simple debt is not an allowable Loss for Capital Gains Tax Purposes

A loss made on a simple (usually undocumented) loan is not allowable as a gain or loss for capital gains tax purposes (see section 541 (1) (a) of the Taxes Consolidation Act 1997). This is because a simple loan is not considered as capable of appreciating in value for capital gains tax purposes.

However, if the loan is characterised as a ‘debt on a security’ an allowable loss for capital gains tax purposes will be created (see section 541 (1) (b) of the Taxes Consolidation Act 1997). The reason for the foregoing is because a ‘debt on a security’ is considered as a marketable asset, capable of appreciating in value.

What is a ‘debt on a security’?

Section 541 (1)(b) does not define ‘debt’ (and so it has its ordinary meaning) but defines ‘security’ as per section 585 of the TCA ’97 which includes loan stock.

Revenue have clarified in Guidelines on section 541 (par.13.3.) that the reference to loan stock should be regarded as meaning a general class of debt transferable by purchase and sale. The emphasis on ‘transferable’ is in line with the concept of a marketable capital asset capable of appreciating in value. As you will see below, this is the characteristic necessary to classify a convertible loan note as a ‘debt on a security’ pursuant to section 541 (1)(b) of the TCA ’97.

Is a convertible loan note automatically characterised as a ‘debt on a security’?

A convertible loan note is not automatically characterised as a ‘debt on a security’ for the purposes of section 541 (1)(b) of the Taxes Consolidation Act. They key test to apply is whether the loan note possessed the necessary characteristic of ‘marketability’ which would render the holder capable of selling same on the open market (see judgment delivered by Judge Francis Murphy in the Supreme Court case Inspector of Taxes v Keleghan [2001] IESC 43) and receiving an amount over and above the mere value of the loan (also known as making a ‘capital gain’ on a disposal of the asset) (see High Court judgment of Morris J in Mooney v McSweeney 1997 1 ILRM 42).

In the Irish High Court case of Mooney v McSweeney 1997 1 ILRM 429 the claimant was entitled to claim loss relief in respect of the convertible loan advanced in 1985 of £140,000. However in the Supreme Court case of Inspector of Taxes Taxes v Keleghan [2001] IESC 43, the claimant was not permitted to claim loss relief in respect of a convertible loan note which bore different characteristics to that in the first case mentioned – specifically there were restrictions on the right of conversion and no evidence was adduced to suggest that the holder could command a higher value than the funds deemed advanced originally.

It is common for shareholders of privately held companies, and their friends and family members to provide working capital finance to their company by way of a loan. In most cases the loan is provided on an informal basis with little or no supporting documentation. Where the debt cannot be repaid, the shareholder, friend or family member cannot claim capital gains tax loss relief.

Arising from the above we would advise that specific legal advice and assistance would be received before advancing funds to a company.

Whilst every effort has been made to ensure the accuracy of the information contained in this article, it has been provided for information purposes only and is not intended to constitute legal advice. Amorys Solicitors is a boutique commercial and private client law firm in Sandyford, Dublin 18, Ireland.
For further information and advice in relation to “Capital Gains Tax Loss Relief On Convertible Loan Notes”, please contact Deirdre Farrell, partner, Amorys Solicitors deirdre@amoryssolicitors.com, telephone 01 213 5940 or your usual contact at Amorys.

The Employment (Miscellaneous Provisions) Bill 2017 – Far Reaching Implications for Employers

The Employment (Miscellaneous Provisions) Bill 2017 (“the Bill”) which is now at committee stage is expected to be enacted later this year. The Bill if enacted will have wide ranging effects for employers, in particular regarding “low hour” or “zero-hour” contracts. Below, we discuss a number of the more topical aspects of the Bill which we expect to be of concern to employers:-

  1. Terms of employment

If enacted, it will be a requirement for employers to provide employees with a written statement within five days of commencement of employment confirming the following:-

  • The full names of the employer and employee;
  • The address of the employer;
  • The duration of the contract;
  • The method of calculating remuneration;
  • The hours the employee is to be expected to work per week.

From a practical point of view and in an effort to avoid the sanctions under the Bill, it is advisable that employers should include the foregoing information in any offer letter being issued to a new employee. A contract of employment can then be issued inside the 8-week period as provided for in the Terms of Employment (Information) Act 1994.

In the Bill’s current format, where an employer is convicted for failure to comply with the foregoing, they may be liable on summary conviction to a Class A  (ie up to €5,000) fine and or a term of imprisonment not exceeding 12 months.

  1. Banded hours of work

In circumstances where the average hours an employee is working per week is greater than the contracted hours then in such circumstances, the employee on request is entitled to move to a higher band of hours. The reference period to be taken into account is proposed to be 12 months and the bands are as follows:-

Band                                                 From                                   

A                                                          3 to 6 hours

B                                                          6 to11 hours

C                                                          11 to 16 hours

D                                                         16 to 21 hours

E                                                          21 to 26 hours

F                                                          26 to 31 hours

G                                                         31 to 36 hours

H                                                         36 hours plus.

 

The above is of concern to employers and is expected to have a detrimental effect on businesses. In reality, it is widely expected that this new provision will force employers to close during quieter periods so as to avoid employees gaining rights under this provision. The concern is that if employees gain the right to move up in the bands then the employer may not be in a financial position to meet the increased wages over the longer term. The Bill is silent on the reduction of hours when the hours are not available at a later date.

  1. Employers to offer hours to part-time staff

The Employment (Miscellaneous Provisions) Bill 2017 imposes an obligation on employers to offer additional hours that may become available to existing part-time staff. The provision in its current format essentially prevents an employer from offering such additional work to full-time individuals. This measure clearly has an overly burdensome effect on how an employer can run their business. The provision is wide and fails to address issues such as skills and training and puts unreasonable expectation on employers to provide such additional hours to staff that simply may not be trained or qualified to carry out such work. Furthermore, it is likely that the provision will have a serious impact on custom and practice within organisations. For example, in situations where it is customary that overtime is regularly worked by full-time staff, it will not be within the gift of an employer to allow full-time staff to continue in this form. It will be set out in legislation that any such available hours will have to be provided to part-time workers where there are part-time workers employed.

  1. Prohibition on zero-hour contracts

The Employment (Miscellaneous Provisions) Bill 2017 imposes a strict prohibition on zero-hour contracts. If passed zero-hour contracts will only be allowed in circumstances which are genuinely casual in nature and in emergency cover situations. Again, the restriction is overly restrictive and may well result in employers not being able to fill casual or part-time roles for fear of falling foul of the proposed legislation.

  1. Conclusion

It is clear from the foregoing that if passed the Employment (Miscellaneous Provisions) Bill 2017 will have far-reaching implications for employers. Given the overly onerous provisions in the Bill, it is regrettable that there does not appear to have been prior consultation with employers. In the circumstances, you may consider it appropriate to raise the issue with your elected representatives.

Whilst every effort has been made to ensure the accuracy of the information contained in this article, it has been provided for information purposes only and is not intended to constitute legal advice. Amorys Solicitors is a boutique commercial and private client law firm in Sandyford, Dublin 18, Ireland.
For further information and advice in relation to “The Employment (Miscellaneous Provisions) Bill 2017”, please contact Brian Kirwan, partner, Amorys Solicitors brian@amoryssolicitors.com, telephone 01 213 5940 or your usual contact at Amorys.

SELLING YOUR COMPANY? HOW TO VALUE YOUR SHARES (Infographic)

Any valuer in the corporate finance area will tell you that valuing a shareholding in a private limited company is not an exact science.

Frequently, no market exists for the purchase of shareholdings in a private limited company save amongst existing shareholders.  In particular, most well-drafted shareholders agreements will require a shareholder to offer his/her shares to their co-shareholders for sale as the first step.   In such circumstances, the remaining shareholders will very often have a good idea what the shares are worth as they may be involved in the day to day running of the business and/or be familiar with valuations of businesses in the relevant industry/sector. Notwithstanding the foregoing, a valuation of a shareholding in a private company would be required for advisory and taxation purposes in such situations.

There is wide scope for significant variations in values when seeking a formal valuation and the first question a valuer usually asks is what the purpose of the valuation?  The objective and for whom the valuer is acting will determine whether s/he seeks to minimise or maximise the valuation and usually in the knowledge that it is the first stage in a negotiation.

A very brief overview of the four most commonly used methods when valuing shares in a small to medium company is set out below.

Selling Your Company How To Value Your Shares

Whilst every effort has been made to ensure the accuracy of the information contained in this article, it has been provided for information purposes only and is not intended to constitute legal advice. Amorys Solicitors is a boutique commercial and private client law firm in Sandyford, Dublin 18, Ireland.
For further information and advice in relation to “Selling Your Company? How To Value Your Shares (Infographic)”, please contact Deirdre Farrell, partner, Amorys Solicitors deirdre@amoryssolicitors.com, telephone 01 213 5940 or your usual contact at Amorys.

Terms and Conditions of Business – One size does NOT fit all! (Infographic)

Terms and conditions of Business (“T&C’s”) whether they apply to the provision of goods or services, are essential for all businesses.  Too frequently, a business’s T&C’s do not accurately reflect how a business is carried on.  If a dispute arises between a business and its customer, uncertainty of any aspect of the T&C’s can disrupt a business and could lead to time consuming and costly litigation. In addition, it is important for business owners to note that uncertainty of any term or condition could be interpreted against it on the basis of the the “contra proferentum” rule in law leaving any business “on the back foot” should litigation arise.

Save the cost and time of dealing with avoidable disputes by ensuring your business’s T&C’s are a true reflection of how business is carried on “on the ground” and that they comply with current case-law and legislation.

Below are 4 important questions to ask yourself when reviewing your business’s T&C’s to ensure both you and your customer are “on the same page” when engaging your business:

Terms and Conditions of Business – Infographic

Whilst every effort has been made to ensure the accuracy of the information contained in this article, it has been provided for information purposes only and is not intended to constitute legal advice. Amorys Solicitors is a boutique commercial and private client law firm in Sandyford, Dublin 18, Ireland.
For further information and advice in relation to “Terms and Conditions of Business (Infographic)”, please contact Deirdre Farrell, partner, Amorys Solicitors deirdre@amoryssolicitors.com, telephone 01 213 5940 or your usual contact at Amorys.

DOING BUSINESS IN IRELAND – THE ESSENTIALS FOR BUSINESSES AND PROSPECTIVE INVESTORS – Infographic

Ireland remains one of the most welcoming places in the world for international business and foreign direct investment and is a great place to invest, do business, work, and live. Below are our ten top points of information that any enterprise or investor looking to relocate or do business here should know.

Doing Business in Ireland – The Essentials for Business and Prospective Investors Part-1

Whilst every effort has been made to ensure the accuracy of the information contained in this article, it has been provided for information purposes only and is not intended to constitute legal advice. Amorys Solicitors is a boutique commercial and private client law firm in Sandyford, Dublin 18, Ireland.
For further information and advice in relation to “Doing Business In Ireland (Infographic)”, please contact Deirdre Farrell, partner, Amorys Solicitors deirdre@amoryssolicitors.com, telephone 01 213 5940 or your usual contact at Amorys.

10 Legal Tips for Start-up Businesses

  1. Make the deal between your co-founders clear from the outset.
    • Who gets what percentage of the equity/ shareholding of the company?
    • Is the percentage ownership subject to vesting based on continued participation in the business?
    • What are the roles and responsibilities of each founder?
    • If one founder leaves, does the company or the other founder have the right to buy back that founder’s shares? If so, at what price?
    • How much time commitment to the business is expected of each founder?
    • What salaries (if any) are the founders entitled to?
  1. Decide on the legal form (i.e. a company, a partnership or individual trader) that best suits your business at an early stage.
  1. Have a standard terms of business contract in favour of your company when you are dealing with your customers.
    • The key is to start with your form of contract.
    • Get sample contracts of what other people do in the industry.
    • There is no need to re-invent a contract.
    • Try and minimise or negate any representations and warranties about the product or service.
    • Include a clause on how disputes will be resolved.
  1. Carefully consider intellectual property protection. Is your business entitled to apply for trademark protection of its brand?  Is your product protected by the unregistered design right?  Is it proposed to register your design?  Would your product qualify for patent protection?  All of the foregoing questions should be considered prior to commencing to trade. Confidentiality in relation to your business and trade secrets is extremely important so think this through.
  1. Brand your company in a way that does not potentially infringe the intellectual property rights of other traders in your industry. Defending proceedings alleging your company is in breach of another company’s intellectual property rights is expensive and a decision may be made to re-brand at an early stage to avoid such litigation which can be expensive.  Tips:
    • Search Google for the name of your business and company name to see what other companies are using your name
    • Search in the Patent Office of Ireland and Trademark Office
    • Ensure your company’s name is distinctive and memorable.
  1. Keep up to date with employment law, have employment contracts for each of your employees and have employment policies in place and abide by them
  1. Know the difference between employee and independent contractor. Whether an individual works for your business as an employee or an independent contractor or not depends on how s/he is treated in practice.  Does your business’s worker work at one location for a fixed amount of hours at the company’s direction?  If so, your worker could be deemed an employee despite being labelled an independent contractor or on your business’s books and being treated as such for tax purposes.  The penalties for tax purposes can be huge.
  1. Carefully consider important tax issues:
    • Are you entitled to the Start-Up Refund for Entrepreneur Scheme (SURE) or any other entrepreneur relief?
    • Would it be worthwhile setting up under the Employment and Investment Incentive Scheme?
    • Would your company qualify for Research and Development credit and would your company want to claim same? Revenue recording requirements can be prohibitive
    • Understand the difference in treatment of employees and independent contractors
    • If you are employing employees – inform yourself of the operation and your duties under PAYE legislation
    • Should your company register for VAT or other taxes?
  1. Have a good Terms of Use Agreement setting out if cookies are used on your website and Privacy Policy for your website. A Terms of Use Agreement sets out the terms and conditions for people using your website.  Your Privacy Policy is a statement on your website setting out what you will do with the personal data collected from users and customers of the site, and how this data may be used, stored, sold or released to third parties.
  1. Ensure you have a good solicitor! Ensure you have a solicitor to draft all documents relating to loans given to you both by accredited investors and family members.  This will help protect your business from unscrupulous investors, as well as non-professional investors such as family members who may later say that your business plan was misleading or that the deal was different to what you intended same to be.  Having formal documents and the correct structure in place at an early stage will also make your business more attractive for investors.
Whilst every effort has been made to ensure the accuracy of the information contained in this article, it has been provided for information purposes only and is not intended to constitute legal advice. Amorys Solicitors is a boutique commercial and private client law firm in Sandyford, Dublin 18, Ireland.
For further information and advice in relation to “10 Legal Tips for Start-up Businesses”, please contact Deirdre Farrell, partner, Amorys Solicitors deirdre@amoryssolicitors.com, telephone 01 213 5940 or your usual contact at Amorys.

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