Finance Act, 1989

Amendment of Part IX (Schedule F and Company Distributions) of Corporation Tax Act, 1976.

21.—(1) Part IX of the Corporation Tax Act, 1976 , is hereby amended by the substitution for section 84A (inserted by section 41 of the Finance Act, 1984 ) of the following section:

“Limitation on meaning of ‘distribution’.

84A.— (1) Any interest or other distribution which—

(a) is paid on or after the 12th day of April, 1989, out of assets of a company (hereafter in this section referred to as ‘the borrower’) to another company which is within the charge to corporation tax, and

(b) is so paid in respect of a security (hereafter in this section referred to as a ‘relevant security’) falling within subparagraph (ii), (iii) (I) or (v) of section 84 (2) (d),

shall not be a distribution for the purposes of this Act unless the application of this subsection is excluded by subsection (2) or (10).

(2) Subject to subsections (3) and (4), subsection (1) shall not apply to any interest which is paid by the borrower, in an accounting period of the borrower, to the another company in respect of relevant principal advanced by that other company, where—

(a) in that accounting period, the borrower carries on in the State a specified trade,

(b) the relevant principal, in respect of which the interest is paid, is used in the course of the said specified trade—

(i) for the activities of the trade which consist of the manufacture of goods within the meaning of subsection (6), or

(ii) where subsection (7) applies, for the activities of the trade which consist of such selling by wholesale as is referred to in paragraph (ii) of the definition of ‘specified trade’ in the said subsection (7),

and

(c) the interest, if it were not a distribution, would be treated as a trading expense of that trade for that accounting period.

(3) Notwithstanding subsection (2), where at any time after the 12th day of April, 1989, the total of the amounts of relevant principal (hereafter in this subsection referred to as the ‘current amounts of relevant principal’) advanced by a companyin respect of relevant securities held, directly or indirectly, by the company at that time is in excess of a limit, being a limit equal to 110 per cent. of the total of the amounts of relevant principal advanced by the company in respect of relevant securities held, directly or indirectly, by the company on the said 12th day of April, 1989, then such part of any interest paid at that time to the company in respect of relevant principal as bears, in relation to the total amount of interest so paid to the company, the same proportion as the said excess bears, in relation to the current amounts of relevant principal, shall not be treated as a distribution for the purposes of this Act in the hands of the company.

(4) Subsection (2) shall not apply to interest paid in respect of relevant principal to a company which on the 12th day of April, 1989, had no outstanding amounts of relevant principal advanced.

(5) In subsections (2), (3) and (4), ‘relevant principal’ means an amount of money advanced to a borrower by a company which is within the charge to corporation tax and the ordinary trading activities of the company include the lending of money where—

(a) the consideration given by the borrower for that amount is a relevant security, and

(b) interest or any other distribution is paid out of the assets of the borrower in respect of that security.

(6) Subject to subsection (7), in subsection (2) ‘specified trade’ means a trade which consists wholly or mainly of the manufacture of goods including activities which would, if the borrower were to make a claim for relief in respect of the trade under Chapter VI of Part I of the Finance Act, 1980 , fall to be regarded for the purposes of that Chapter as the manufacture of goods, but does not include trading activities in respect of which a certificate has been given by the Minister for Finance under section 39A (inserted by the Finance Act, 1981 ) of the Finance Act, 1980 .

(7) Where the borrower mentioned in subsection (2) is a 75 per cent. subsidiary of—

(a) an agricultural society, or

(b) a fishery society,

‘specified trade’, in that subsection, means a trade of the borrower which consists wholly or mainly of either or both of—

(i) the manufacture of goods within the meaning of subsection (6), and

(ii) the selling by wholesale of—

(I) where paragraph (a) applies, agricultural products, or

(II) where paragraph (b) applies, fish.

(8) For the purposes of subsections (6) and (7), a trade shall be regarded, as respects an accounting period, as consisting wholly or mainly of particular activities if, but only if, the total amount receivable by the borrower from sales made in the course of those activities in the accounting period is not less than 75 per cent. of the total amount receivable by the borrower from all sales made in the course of the trade in that period.

(9) In subsection (7)—

‘agricultural society’ and ‘fishery society’ have the meanings assigned to them, respectively, by section 18 of the Finance Act, 1978 ;

‘selling by wholesale’ means selling goods of any class to a person who carries on a business of selling goods of that class or who uses goods of that class for the purposes of a trade or undertaking carried on by him.

(10) Subsection (1) shall not apply in a case where the consideration given by the borrower for the use of the principal secured represents more than a reasonable commercial return for the use of that principal:

Provided that, where this subsection applies, nothing in subparagraph (ii), (iii) (I) or (v) of section 84 (2) (d) shall operate so as to treat as a distribution for the purposes of this Act so much of the interest or other distribution as represents a reasonable commercial return for the use of that principal.”

(2) The provisions of section 84A of the Corporation Tax Act, 1976 , which were in force immediately before the commencement of this section shall, notwithstanding subsection (1), continue to have effect in respect of any interest or other distribution paid in respect of a security falling within subparagraph (ii), (iii) (I) or (v) of section 84 (2) (d) of the Corporation Tax Act, 1976 , where—

(a) the principal secured has been advanced by a company out of money subscribed for the share capital of the company and that share capital is beneficially owned directly or indirectly by a person or persons resident outside the State, or

(b) the interest or other distribution is paid on or before the 31st day of December, 1991, in respect of a security issued before the 12th day of April, 1989.