Tax owed on non-existent Shares

C

Concerned MAte

Guest
Hi All,
wonder if any of you can give some advise.
Was talking to a mate recently & he's in a pickle. A couple of years ago he bough 4k worth of shares in the company he worked for.They were a private company looking to go public. Anyway they never went public & he was subsequently made redundant.The company refunded his 4k on redunancy. However he's received a letter from the Revenue claiming he owes them over 3k!!
Can this be right? Surely as the shares never went public he can't be liable. He's now being threatened with letters saying to pay up or else.!
Any advise would be great.
 
Surely as the shares never went public he can't be liable
Click to expand...
The 'going public' wouldn't have anything to do with it. I guess the Revenue are treating the 4k refund as taxable income. The fact that the company gave him this money to refund him for the loss on his investment is not relevant for tax purposes. It is taxable income, and tax is due on it.

On the flip side, he also has a capital loss on his investment which he can use to reduce any current or future capital gains.
 
Hello,
Would it be fair to say that the key thing for ConcernedMate's mate is getting a valuation of these shares ? I think the shares do exist. Not really helpful to call them non-existent. They were just not publicly traded ones (like on a stock exchange), so they don't have a publicly-known value.

is the following correct ? I'm not an expert, just feel like participating...

Look at the day the mate was given the 4k from the company.

Say that mate's shares were worth 1k. Then he received 3k from his employer, and must pay tax on that (about 1,500 or something, maybe interest or penalty).

Or say that the shares were worth 4k. Then he received 4k from his employer, and must pay tax on that. No tax! but that might be a bit optimistic.

Or maybe the value of these shares can only be judged at zero euros. In which case... yep the 4k recieved is just income. You win some you lose some!
 
As Rainyday says the first thing is to find out if Revenue are classing this payment as income (as seems to be the case) or a capital (re)payment. Perhaps they simply don't know that it is (?) the latter and are applying income tax to it. If it's a capital (re)payment then the values of the shares at acquisition and disposal (buyback) are relevant and the normal CGT rules apply. If the employer paid €4K to buy back shares that were worth less than that then any different would be subject to income tax anyway.
 
3 k would seem a bit excessive.

Capital gains tax treatment for buyback of shares in private companies is only allowed in limited circumstances.
Otherwise as in this case income tax applies.

The amount of proceeds over initial consideration for the shares is treated as a distribution taxable as Schedule F income. The company have to pay 20% witholding tax on the distribution and this can also be offset

eXAMPLE
Buyback proceeds 4000
Cost of shares 2000

Schedule F 2000
tAX AT 42% 840

Withholding tax
paid by co 400
Net due 440
 
> 3 k would seem a bit excessive.

Any chance that penalties & interest could bring the amount owed closer to that figure?

> Cost of shares 2000

Where does this figure come from?

Would there not be some (income?) tax liability on the discounted value if the shares were bought back for €4K but were worth less at the time?
 
I just used 2000 for the sample calculation.
If the cost was actually 4000 then the taxable distribution should be nil.

In the case of a buyback of shares then the distribution is the excess over the initial subscription for the shares. Bona fida repayments of share capital of an amount not in excess of the amount subscribed for the share capital are tax neutral.

Prehaps what has happened in this case is that the shares weren't bought back as such making it a buyback subject to the above rules but that the company just paid him 4000 euros and the revenue is taxing 4000 income.
You would need to know how he company has treated the transaction.
 
> I just used 2000 for the sample calculation.

Sorry - I thought that it came from the original query somehow.

> If the cost was actually 4000 then the taxable distribution should be nil.

But if the company paid €4K back for shares that were now worth less (or nothing) then wouldn't the difference be assessable for INCOME tax?

I think that the problem here is that we're trying to second guess certain details that have not been divulged including what sort of tax treatment applied to the payment...
 
Lads,
without getting into details from what he told me he bought them for $5 per share & revenue said that at the time they were were $13. He's supposed to owe money on the difference.
He last sent a letter to revenue with documentation over a year ago outlining why he believed he didn't owe anyone money & he didn't hear anything for a year & he belived the matter was resolved. Incidently he's the only person out of about a hundred in the same situation whos been served with such a bill.
Anyways he's still not 100% what the revenues reasons behind the bill are so I told him to contact them & start talking to them.
I'll post how he gets on when I get some news from him
 
> without getting into details from what he told me he bought them for $5 per share & revenue said that at the time they were were $13. He's supposed to owe money on the difference.

In this case the $13 - $5 = $8 discount would be subject to income tax (and maybe PRSI/health levy as a benefit in kind?).

Are you saying that the €4K ($4K?) payment from the company to him (for his shares?) - and any tax arising - is a separate issue from this or also related?

> Anyways he's still not 100% what the revenues reasons behind the bill are so I told him to contact them & start talking to them.

Good idea.
 
You must log in or register to reply here.
Back
Top