Up to 380,000 Vodafone shareholders in the Republic will avoid an income tax bill following their recent "return of value" thanks to a measure in the Finance Bill published yesterday.

In February, following the sale of its stake in US telecoms group Verizon, Vodafone paid more than €600 million back to its 380,000, mostly small-scale, Irish investors.

At the time, shareholders could choose to have the money paid as capital which would have avoided any tax bill as the shares are still worth considerably less than the price originally paid for them via a historical investment in Eircom.

However, many did nothing and, under the default option, received the money as income – subject to income tax, universal social charge and PRSI – taking up to 55 per cent of the value of the windfall. The decision sparked shareholder fury at the time.

Finance Bill 2015 includes provisions treating “return of value” payments of €1,000 or less from Vodafone as capital receipts for tax purposes unless shareholders specifically opted to treat the returns as income.

This will cover the vast majority of the Irish investors who received a payment in February.

“Since many small Irish investors are shareholders in Vodafone plc on foot of an original investment in Eircom, and are carrying capital losses for tax purposes as a result of that original investment, the effect of the Finance Bill provisions would be that no tax would be due on the returns of value affected,” the Department of Finance said.