Chapter 3
Corporation Tax
Head 8-30. TCA Section 243(4) – Charges on income for corporation tax purposes
Explanatory Note:
Section 243 provides for relief from corporation tax in the form of charges on income in respect of annuities and other annual payments, patent royalties, rents and other similar payments, and, to a limited extent, interest, paid in connection with a trade. Charges on income paid by a company are deductible against its total profits. Section 243(4) allows relief in the form of a charge on income in respect of non-yearly interest paid by a company to recognised EU banks or EU stock exchange members and discount houses carrying on business in the EU, against its total profits. The charges must be paid in the accounting period out of the profits brought into the charge to Irish corporation tax for that accounting period.
After the transition period, a company would not be able to avail of relief from corporation tax under section 243 in respect of non-yearly interest paid to recognised banks, stock exchange members or discount houses carrying on business in the UK.
It is proposed to extend the references to include the UK to maintain the status quo in the immediate future.
Head 8-31. Group provisions – TCA Sections 410 and 411
Explanatory Note:
Recognising that groups of companies usually comprise a single economic entity, legislation provides for the allowance of trading losses of a group member against the profits of other group members provided both the company surrendering the losses and the company claiming them satisfy certain relationship requirements and they are both resident in an EU Member State/EEA and are within the charge to Irish tax. In addition, the legislation provides that certain payments (primarily interest) between group members resident in Member States, which would normally be paid subject to deduction of withholding tax, may be made without such deductions, where certain minimum relationship requirements exist between the companies. The companies must form part of a 75% group, and only shareholdings in companies resident or quoted in EU/EEA/tax treaty States are considered for this purpose.
Section 410 – Group Payments
Section 410 deals with companies and their 51% subsidiaries. It provides that where a company which is resident in a “relevant Member State” makes a payment (primarily interest) to another qualifying group company resident in a relevant Member State that payment may be made without deduction of tax. “Relevant Member State” for this purpose includes EU Member States and EEA States with whom a tax treaty has been agreed.
After the transition period, intra-group payments – relief from withholding tax will no longer be available under section 410 in respect of payments to UK resident companies. Other reliefs from withholding tax may continue to apply, subject to the relevant conditions. It is proposed to extend the relevant definition to include the UK, to maintain the status quo in the immediate future
Section 411 – Surrender of Relief between members of Groups and Consortia
The purpose of group relief provisions is to enable groups of companies to offset losses incurred by one or more of its members against profits of one or more of its other members. In order to claim such relief both the surrendering company and the claimant company must be resident in the EU/EEA and within the charge to Irish corporation tax. This will be the case in relation to Irish resident companies and EU/EEA resident companies that carry on a trade in the State through a branch or agency. In addition, the relevant companies must form a group. For these purposes, the relevant companies will form a group where one is a 75% subsidiary of the other or both companies are 75% subsidiaries of a third company. In determining whether the requisite relationship exists, only shareholdings held through companies resident in the EU/EEA and double tax treaty partner jurisdictions (or quoted in those territories) are considered. For the purposes of this section;
After the transition period
- for the purpose of determining whether a group relationship exists, shareholdings held through UK resident companies will continue to be factored in because the UK is a tax treaty partner jurisdiction. Therefore, the UK’s withdrawal from the EU would not give rise to a de-grouping of existing group relationships formed via UK companies, and future group loss relief claims can be made in respect of companies whose group relationship is formed or partly formed via a UK resident
- However, UK resident companies trading in Ireland through a branch or agency will no longer be able to surrender or claim group relief under 411.
It is proposed to extend the relevant definition to include the UK, to maintain the status quo in the immediate future.
Head 8-32. TCA Section 438 – Loans to participators
Provide that –
To amend Taxes Consolidation Act 1997 Section 438 to include the UK within the definition of Member State of the European Communities.
Explanatory Note:
Section 438 is a provision applying to close companies, designed to prevent the avoidance of tax through the withdrawal of profits in the form of a loan. A close company is a company which is under the control of five or fewer participators or of participators who are directors. Section 438 provides for a charge to income tax on loans or advances provided by a close company to a participator in that close company.
In this section, the references to a “participator” may apply to an individual, a company receiving the loan or advance in a fiduciary or representative capacity, and to a company not resident in a Member State of the European Communities [EU].
After the transition period, a company resident in the UK could potentially become a ‘participator’ for the purposes of this anti-avoidance provision, and loans/advances to a UK company that is a participator in the close company could become subject to a charge under section 438.
It is proposed to extend the definition in order to maintain the status quo in the short term, to allow time to examine any potential impact on bona-fide business transactions.
Head 8-33. TCA Section 486C – Relief from tax for certain start-up companies
Explanatory Note:
Section 486C allows for relief from corporation tax for certain start-up companies in the first three years of trading, with the value of the relief being subject to an overall cap and linked to the amount of employers’ PRSI paid by a company.
A ‘new company’ for the purposes of this section includes a company incorporated in an EEA State.
After the transition period, if the UK ceases to belong to the European Economic Area, then a company incorporated in the UK will not be a “new company” for the purposes of this section and therefore will not qualify for the relief. It is proposed to extend the relevant definition to include the UK, to maintain the status quo in the immediate future, in view of potential relevance to small cross-border businesses.
Head 8-34. TCA Section 766 – Tax credit for research and development (R&D) expenditure
Explanatory Note:
Qualifying R&D must be carried out in a relevant Member State – this is defined in section 766 as a Member State of the European Communities [the EU] or, if not a Member State, a State which is a contracting party of the European Economic Area (EEA) Agreement. Furthermore, the credit is only available if no tax deduction is claimed for the cost of R&D in that other State.
After the transition period, if the UK ceases to belong to the EEA then research carried out in the UK will no longer qualify for the purpose of the relief. It is proposed to extend the relevant definitions to include the UK, to maintain the status quo in the immediate future, pending further research on the potential consequences for established R&D activities in the State.
Head 8-35. TCA Section 615 – Company reconstruction or amalgamation: transfer of assets
Explanatory Note:
Section 615 provides relief from corporation tax on chargeable gains on a transfer of assets under a scheme of reconstruction or amalgamation of companies. This section operates in a situation where, on a reconstruction or amalgamation, one company takes over the whole or part of the business of another company, and that other company receives no consideration for the transfer of the business other than the taking over of its liabilities.
The relief provides that no corporation tax is to be charged in respect of chargeable gains accruing on the transfer – the transfer is treated as giving rise to no gain/no loss for the disposing company and the acquiring company assumes the original base cost of the assets.
The relief may apply in respect of transfers between two companies where:
- the company transferring the assets must be resident in an EU Member State or be resident in an EEA Member State with which Ireland has a tax treaty at the time of transferring them, or (where it is not so resident) the assets must be chargeable assets for capital gains tax purposes in relation to the company immediately before that time, and
- the company acquiring the assets must be resident in an EU Member State or be resident in an EEA Member State with which Ireland has a tax treaty at the time of acquisition, or the assets must become chargeable assets in relation to the company on
After the transition period, transfers of assets to or from a UK company would not meet the conditions of section 615 because it would not be resident in an EU/EEA Member State. It is proposed to extend the relevant definition to include the UK, to maintain the status quo in the immediate future.
Head 8-36. TCA Section 616 – Groups of companies: interpretation
Explanatory Note:
Sections 616 contains the interpretational rules for Part 20 Chapter 1 TCA 1997. It provides, inter alia, that any reference to a company in section 616 (which defines a group of companies) is a reference to a company which is resident in a relevant Member State for the purposes of a tax which corresponds to Irish corporation tax. A relevant Member State means a Member State of the European Communities, or if not a Member State, an EEA State whose government has made arrangements which have the force of law by virtue of section 826(1).
A number of group provisions rely on the definitions contained within the interpretation section 616, namely:
- Section 586 (company amalgamations by exchange of shares),
- Section 587 (company reconstructions and amalgamations),
- Section 618 (transfers of trading stock within a group),
- Section 620 (replacement of business assets by members of a group),
- Section 625 (Shares in subsidiary member of group).
After the Transition Period, the reliefs in sections 586, 587, 618 and 620 would not apply. In addition, an immediate tax charge under section 625 would arise solely as a result of the UK ceasing to be an EU Member State. It is proposed to extend the relevant definition to include the UK, to maintain the status quo in the immediate future.
Head 8-37. TCA Section 130 – Matters to be treated as distributions
Explanatory Note:
Section 130(2)(d)(iv) is an anti-avoidance provision which acts to re-characterise interest as a distribution in certain circumstances.
Section 130(2B) TCA – re-characterisation of interest as a distribution
Section 130(2B) provides an exception from the re-characterisation of interest to a distribution where the payment is to a company which is a resident of another EU Member State.
After the transition period, this exemption would cease to apply in respect of interest payments from an Irish company to a UK company. It is proposed to extend the relevant definition to include the UK, to maintain the status quo in the immediate future.
Section 130(3) – transfer of company assets or liabilities as a distribution
Section 130(3) TCA 1997 provides that, where a company transfers assets or liabilities to its members or vice versa, the amount by which the market value of the amount or benefit received by the member exceeds the amount or value of any new consideration given by the member, is treated as a distribution.
However, such transfers between Irish resident companies are not treated as distributions where one company is a subsidiary of the other or both are subsidiaries of another company which is resident in a “relevant Member State”. “Relevant Member State” is defined for this purpose as an EU Member State or an EEA country with which Ireland has concluded a DTA.
After the transition period, this exemption would cease to apply in respect of transfers between Irish resident companies that are subsidiaries of a UK company. It is proposed to extend the relevant definition to include the UK, to maintain the status quo in the immediate future.
