My question is about the base price of “new” shares after the consolidation. You’ve previously explained that Revenue accepted a base price of €4.53 but presumably this will have changed now. As I would like to sell my remaining shareholding, what is the applicable base price for calculating the gain/loss incurred?

Mr S.K., Dublin

There has been a steady stream of queries over the past month or so about the base price for the restructured Vodafone shares following the Verizon deal – most particularly from those long-suffering shareholders whose investment dates back to the original flotation of Eircom.

Eircom is now looking to float for the third time, giving some idea of the length of time people have waited to try and make a profit on that ill-starred deal. And they are waiting still.

Conscious that the Revenue would in time be providing formal guidance, I saw little point in jumping the gun and possibly misleading people with a necessarily amateur calculation.

Revenue has now pronounced, on this and several related matters.

To recollect, in the “return of value” programme, Vodafone shareholders received cash of 35.85437 cent for every Vodafone share they held at the time plus 0.0263001 of a Verizon share for every Vodafone share held (effectively a Verizon share for just under every 39 Vodafone shares held).

Furthermore, Vodafone re-organised their shares so that, after the return of value, shareholders would receive six “new” Vodafone shares in place of every 11 shares they had previously held.

At the time, people had the choice of selling their Verizon shares or holding on to them. They also had the option of choosing to receive their windfall, or “return of value” as a capital gain rather than a special dividend.

The significance for original Eircom shareholders was that, given the poor performance of Vodafone shares, shareholders would have no tax liability if they chose the capital option but would see their money (and the value of the Verizon shares) treated as income otherwise, subject to income tax, universal social charge and PRSI.

So where are we now for those original Eircom shareholders? Well, in relation to the capital gains tax treatment – and using the example of someone holding 1,000 Vodafone shares – the Revenue notes the share would have received cash of €358.54, 26 Verizon shares worth €886 (at a price of €34.0835897 per share) and 545 new Vodafone shares.

Leaving aside the new shares (and fractional cash entitlements on the cash and the Verizon share sides of the deal), Revenue said the total amount received was €1,244 (€358 + €886).

However, Revenue has calculated that the portion of the original Vodafone shareholding accounted for in the cash payment of €358 was actually worth €565. And the portion of the original shareholding accounted for by the Verizon shares worth €886 was, in fact, €1,400.

The Revenue has essentially gone back to its previous valuation of the Vodafone shares – €4.46 (a figure that, in essence, dates right back to the sale of Eircom’s original mobile phone business, Eircell). It has then allocated that between what remains in the new Vodafone shares, the cash windfall and the Verizon share element of the return of value.

Thus, Revenue has determined, the actual value of the Verizon shares and cash received by a holder of 1,000 Vodafone shares dating back to the Eircom deal as €1,965 (€565 + €1,400).

The difference between this figure and what people actually received (€1,244) is the “loss” on the transaction for capital gains purposes – a figure of €721 (or 72.1 cent per share). Shares can either set this loss against other gains made this year or carry it forward to set against future gains.

If you held on to the Verizon shares, the loss is €207 per 1,000 original Vodafone shares – or 20.7 cent a share.

Fair enough, but what about the value of the remaining Vodafone shares for people like yourself who are now just looking to get rid of them.

Okay, so you take the 4460 (€4.46 x 1,000 shares) and multiply it by the value of your remaining Vodafone shares (545) on the first day they traded after the whole restructuring (€2.90). This is divided by 358 (the cash received) plus €2.90 x 545 (the value of the remaining holding in the market plus €34.08 x 26 (the number of Verizon shares and their market value). So it looks something like this: 4460 x (2.90 x 545) / 358 + (2.90 x 545) + (34.08 x 26) = ?.

And the answer is €2,495. Divide that by the 545 Vodafone shares held and you discover the new “base” value for your remaining Vodafone shares following the restructuring of €4.58.

So that’s your bottom line. If you are selling your remaining shares, you need to achieve a price higher than €4.58 a share to make a capital gain – and even then you have the loss from the return of value to take into account before considering tax.

At the time of the contentious Verizon shareholder payout, I suggested that Vodafone might consider offering its largely small scale Irish retail shareholders the opportunity to sell their small holdings with little or no broker charges. It would relieve the company of the burden of dealing with an army of small, largely first-time shareholders and give those shareholders the chance to close the book on Eircom. It would be at a loss certainly but at least they would get whatever money is left in their investment back at a time when many hard-pressed families would be glad of it. It remains to be seen if Vodafone does make such an offer. Send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara St, D2, or email dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice.