Background An information document has recently been circulated to shareholders in Kerry Co-op advising of a proposed share redemption scheme. The proposed redemption scheme requires approval at the Co-op’s upcoming general meeting on 19 June. If the scheme is passed, shareholders will have two opportunities each year to redeem some or all of their shares. Participation in the scheme will be optional and a shareholder may choose not to avail of the scheme if they so wish. The scheme is open to all shareholders (both farmers and non-farmers).The stated aim behind the scheme is to provide Co-op shareholders with an opportunity to unlock value from their shares. At present, it appears that the only means for shareholders to realise value from the shares is to sell the shares on the so-called “grey market”.However, reading between the lines, it is possible that another motive behind the scheme may be to allow the Co-op to regain its status as a “society” under Section 701 TCA 1997. If the Co-op has “Section 701” status, Co-op shareholders could potentially receive shares in Kerry PLC in exchange for their shares in the Co-op in the future without triggering an immediate tax liability. In order to qualify as a society under Section 701, a majority of the Co-op shareholders must derive the principal part of their income from farming. This is currently not the case due to the large number of non-farming investors now holding Co-op shares.Tax Treatment of Redemption ProceedsThe redemption proceeds should be subject to income tax in the hands of individual shareholders. A higher rate taxpayer is therefore facing an income tax liability in the region of 48.5% to 55% on the redemption proceeds. Dividend Withholding Tax at 20% would be withheld at source from the redemption proceeds and would be available as a credit against the shareholder’s final income tax liability. Due to these penal income tax rates, individual shareholders are unlikely to partake in the scheme unless they are lower rate taxpayers.Corporate shareholders should be liable to corporation tax at 25% on the redemption proceeds although the close company surcharge may increase the corporation tax liability to 40%.If the shares were acquired on the “grey market”, it appears that the shareholder would not receive a deduction for the acquisition cost of the shares when calculating the proceeds liable to income tax. However, it may be possible to claim a capital loss in respect of the cost of the shares in such circumstances.In summary, the proposed redemption scheme would be of benefit from a tax perspective to standard rate taxpayers only. The scheme would not be efficient from a tax perspective for individuals at the higher rate and for shareholders who acquired co-op shares on the “grey market”.