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9 1996

FINANCE ACT, 1996

Chapter IV

Corporation Tax

Reduced rate of corporation tax for certain income.

44. —The Corporation Tax Act, 1976 , is hereby amended by the insertion after section 28 of the following section:

“28A.—(1) Notwithstanding section 1, so much of the profits of a company for an accounting period ending on or after the 1st day of April, 1996, that does not exceed the lower of either—

(a) the specified amount in relation to the accounting period, or

(b) the income of the company for the accounting period,

shall be charged to corporation tax as if the rate of corporation tax for the financial year 1996 and each subsequent financial year were 30 per cent.

(2) For the purposes of subsection (1) and subject to subsections (3) and (4), the specified amount in relation to an accounting period of a company shall be an amount determined by the formula—

N      1

£50,000 × __ × __

12      A

where—

N is the number of months in the accounting period, and

A is one plus the number of associated companies which the company has in the accounting period.

(3) Where, in the case of a company which has one or more associated companies in an accounting period—

(a) the accounting period of the company ends and on a date on which accounting periods of all of the associated companies end, and

(b) the company and all of the associated companies jointly elect in writing that this subsection shall apply,

then—

(i) the specified amount under subsection (2) shall be computed as if, in relation to the accounting period, the company and all of the associated companies were a single company (with no associated companies) with an accounting period ending on that date and beginning at the earliest date on which the accounting period of the company, or of any of the associated companies, begins, and

(ii) the specified amount computed under paragraph (i) shall be allocated to the accounting period of the company and to the accounting periods of its associated companies in such manner as is specified in the election, and the amount so allocated to a company shall be deemed to be the specified amount in relation to the accounting period of the company:

Provided that—

(I) the aggregate of amounts allocated under paragraph (ii) for an accounting period shall not exceed the specified amount computed under paragraph (i), and

(II) the amount allocated to an accounting period of a company shall not exceed the amount which would have been the specified amount in relation to the accounting period if the company had no associated companies in the accounting period.

(4) Where, in the case of a company which has one or more associated companies in an accounting period, the end of the accounting period of the company and the end of an accounting period of each of its associated companies do not coincide—

(a) subsection (3) shall apply as respects any period (hereafter in this subsection referred to as a ‘relevant period’) which falls into the accounting period of the company and an accounting period of each of the associated companies as if the relevant period were an accounting period of the company and of the associated companies,

(b) the amount allocated to any company in respect of a relevant period shall be deemed to be the specified amount in relation to that period, and

(c) where an amount has been allocated to a company in respect of a relevant period falling into an accounting period of the company, the specified amount for the accounting period of the company shall be the aggregate of—

(i) any specified amounts in relation to relevant periods falling into the accounting period, and

(ii) the amounts which would be the specified amounts in relation to any periods (which are not relevant periods) within the accounting period if each of those periods was treated as an accounting period:

Provided that the specified amount in relation to an accounting period of a company shall not exceed the amount which would be the specified amount in relation to the accounting period if the company had no associated companies in the accounting period.

(5) (a) In applying this section to any accounting period of a company, an associated company which—

(i) has not carried on any trade or business at any time in that accounting period or, if an associated company during part only of that accounting period, at any time in that part of that accounting period, or

(ii) has no income within the charge to corporation tax in the State in the accounting period,

shall be disregarded and for the purposes of this section a company is to be treated as an ‘associated company’ of another at a given time if at that given time one of the two has control of the other or both are under the control of the same person or persons.

(b) In this subsection ‘control’ shall be construed in accordance with section 102.

(6) In determining how many associated companies a company has in an accounting period or whether a company has an associated company in an accounting period, an associated company shall be counted even if it was an associated company for part only of the accounting period, and two or more associated companies shall be counted even if they were associated companies for different parts of the accounting period.

(7) For the purposes of this section, the income of a company for an accounting period shall be taken to be an amount determined by the formula—

I—M

where—

I is the amount of the company's profits for the accounting period on which corporation tax falls finally to be borne exclusive of the part of the profits attributed to chargeable gains; and that part shall be taken to be the amount brought into the company's profits for that period for the purposes of corporation tax in respect of chargeable gains before any deduction for charges on income, expenses of management or other amounts which can be deducted from or set against or treated as reducing profits of more than one description, and

M is the amount of the company's income from the sale of goods for the purpose of section 41 of the Finance Act, 1980 .

(8) (a) A company shall include in the return which is required to be delivered under section 10 of the Finance Act, 1988

(i) a statement specifying—

(I) the amount of its profits which is to be charged to corporation tax at the rate specified in subsection (1), and

(II) the number of companies which are its associated companies in relation to the accounting period,

and

(ii) a copy of any election made under subsection (3) or (4).

(b) A company which has specified an amount under paragraph (a) shall not be entitled to alter the amount so specified.

(9) Where an accounting period of a company begins before the 1st day of April, 1996, and ends on or after that day, it shall be divided into two parts, one beginning on the day on which the accounting period begins and ending on the 31st day of March, 1996, and the other beginning on the 1st day of April, 1996, and ending on the day on which the accounting period ends, and both parts shall be treated for the purpose of this section as if they were separate accounting periods of the company.

(10) Where any part of the profits of an accounting period of a company are charged to corporation tax in accordance with this section then—

(a) for the purposes of section 41 of the Finance Act, 1980 , the relevant corporation tax in relation to the accounting period shall be reduced by an amount determined by the formula—

R

___ × S

100

where—

R is the rate per cent. specified in subsection (1) in relation to the accounting period, and

S is the specified amount in relation to the accounting period, and

(b) notwithstanding the provisions of subsection (10) (b) of section 155 of the Corporation Tax Act, 1976 , in determining the income of a company, referred to in the expression ‘total income brought into charge to corporation tax’, for the accounting period for the purposes of subsection (2) of the said section 41, it shall be the sum determined by the said subsection (10) (b) for that period reduced—

(i) in accordance with sections 10A and 16A, and

(ii) by the specified amount in relation to the accounting period.”.

Amendment of section 12A (foreign currency: computation of income and chargeable gains) of Corporation Tax Act, 1976.

45. —(1) Section 12A (inserted by the Finance Act, 1994 ) of the Corporation Tax Act, 1976 , is hereby amended—

(a) in subsection (1) (a) by the insertion after the definition of “relevant contract” of the following definition:

“‘relevant tax contract’, in relation to an accounting period of a company, means any contract entered into by the company for the purpose of eliminating or reducing the risk of loss being incurred by the company due to a change in the value of money payable in discharge of a liability of the company to corporation tax for the accounting period being a change resulting directly from a change in a rate of exchange of the functional currency (within the meaning of section 14A) of the company for the currency of the State;”, and

(b) by the addition after subsection (3) of the following subsection:

“(4) Notwithstanding section 13, so much of the amount of any gain or loss arising to a company which carries on a trade in the State in an accounting period as—

(a) is attributable to any relevant tax contract in relation to the accounting period,

(b) results directly from a change in a rate of exchange, and

(c) (i) where it is a gain, does not exceed the amount of the loss which, if the company had not entered into the relevant tax contract, would have been incurred by the company, and

(ii) where it is a loss, does not exceed the amount of the gain which, if the company had not entered into the relevant tax contract, would have arisen to the company,

due to a change in the value of money payable in discharge of a liability of the company to corporation tax for the accounting period,

shall not be a chargeable gain or an allowable loss, as the case may be, of the company.”.

(2) This section shall apply and have effect as respects accounting periods ending on or after the 1st day of April, 1996.

Amendment of section 33A (acquisition expenses) of Corporation Tax Act, 1976.

46. Section 33A (inserted by the Finance Act, 1992 ) of the Corporation Tax Act, 1976 , is hereby amended in subsection (1) (as amended by the Finance Act, 1993 ) by the insertion after “ Finance Act, 1986 ,” of “or section 42 of the Finance Act, 1994 ,”.

Amendment of section 35A (chargeable gains of life business) of Corporation Tax Act, 1976.

47. —(1) Section 35A (inserted by section 11 (d) of the Finance Act, 1993 ) of the Corporation Tax Act, 1976 , is hereby amended by the insertion after subsection (1) of the following:

“(1A) (a) Where in an accounting period a company disposes of any securities and in the immediately following accounting period interest becoming payable in respect of the securities is receivable by the company, the gain or loss accruing on the disposal shall be computed as if the price paid by the company for the securities was reduced by the appropriate amount in respect of the interest:

Provided that where for an accounting period the provisions of this paragraph apply so as to reduce the price paid for securities, the amount by which the price paid for the securities is reduced shall be treated as a loss arising, in the immediately following accounting period, from the disposal of the securities.

(b) In this subsection—

the appropriate amount in respect of the interest’ means the appropriate amount in respect of the interest which would be determined in accordance with Schedule 11 to the Income Tax Act, 1967 , if the company were the first buyer and it carried on a trade to which section 368 (1) of the said Act applies:

Provided that in so determining the appropriate amount in respect of the interest in accordance with the said Schedule 11, paragraph 3 (4) of that Schedule shall apply as if there were deleted ‘in the opinion of the Appeals Commissioners’;

securities’ has the same meaning as in subsection (1) of section 29 of the Finance Act, 1984 .”.

(2) This section shall apply and have effect as respects a disposal on or after the 28th day of March, 1996.

Amendment of section 36 (investment income reserved for policy holders) of Corporation Tax Act, 1976.

48. —(1) Section 36 of the Corporation Tax Act, 1976 , is hereby amended in subsection (2) by the insertion of the following proviso:

“Provided that in computing that part of those profits for the purposes of paragraph (b), subsection (1A) of section 13 shall apply as if the rate per cent. of capital gains tax specified in subsection (3) of section 3 of the Capital Gains Tax Act, 1975 , were the rate per cent. of corporation tax specified in paragraph (b) of subsection (1) of section 1.”.

(2) This section shall have effect as on and from the 1st day of April, 1995.

Amendment of section 36A (special investment policies) of Corporation Tax Act, 1976.

49. —(1) Section 36A (inserted by the Finance Act, 1993 ) of the Corporation Tax Act, 1976 , is hereby amended in subsection (6) by the insertion of the following proviso:

“Provided that in computing profits for the purposes of this subsection, subsection (1A) of section 13 shall apply as if the rate per cent. of capital gains tax specified in subsection (3) of section 3 of the Capital Gains Tax Act, 1975 , were the rate per cent. of corporation tax specified in paragraph (b) of subsection (1) of section 1.”.

(2) This section shall have effect as on and from the 1st day of April, 1995.

Amendment of section 46B (gains or losses arising by virtue of section 46A) of Corporation Tax Act, 1976.

50. —(1) Section 46B (inserted by the Finance Act, 1992 ) of the Corporation Tax Act, 1976 , is hereby amended by the addition, after subsection (3), of the following subsection:

“(4) Where in an accounting period a company incurs a loss on the disposal (hereafter in this subsection referred to as the ‘first-mentioned disposal’) of an asset the gain or loss in respect of a deemed disposal of which was included in a net amount to which subsection (1)(b) applied for any preceding accounting period, then so much of the allowable loss on the first-mentioned disposal as is equal to the excess of the amount of the loss over the amount which, if section 46A had not been enacted, would have been the allowable loss on the first-mentioned disposal shall be treated for the purposes of this section as an allowable loss which would otherwise accrue on disposals deemed by virtue of section 46A to have been made in the company's accounting period.”.

(2) This section shall apply and have effect as respects a disposal on or after the 28th day of March, 1996.

Amendment of section 135 (company ceasing to be a member of a group) of Corporation Tax Act, 1976.

51. —As respects a company ceasing to be a member of a group of companies on or after the 28th day of March, 1996, section 135 of the Corporation Tax Act, 1976 , is hereby amended—

(a) in subsection (1) by the insertion after “or in consequence of another member of the group being wound up or dissolved” of “where the winding up or dissolution of the member or the other member, as the case may be, is for bona fide commercial reasons and is not part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax”, and

(b) by the substitution for subsection (2) of the following subsection:

“(2) Where two or more associated companies (hereafter in this subsection referred to as ‘the associated companies’) cease to be members of a group at the same time—

(a) subsection (1) shall not have effect as respects an acquisition by one from another of the associated companies, and

(b) where—

(i) a dividend has been paid or a distribution has been made by one of the associated companies to a company which is not one of the associated companies, and

(ii) the dividend so paid or the distribution so made, has been paid or made, as the case may be, wholly or partly out of profits which derive from the disposal of any asset by one to another of the associated companies,

the amount of the dividend paid or the amount or value of the distribution made, to the extent that it is paid or made, as the case may be, out of those profits, shall be deemed for the purposes of the Capital Gains Tax Act, 1975 , to be consideration (in addition to any other consideration) received by the member of the group or former member of the group in respect of a disposal, which disposal gave rise to or was caused by the associated companies ceasing to be members of the group:

Provided that paragraph (b) shall not apply to a distribution other than a dividend where a company ceases to be a member of a group of companies before the 23rd day of April, 1996.”.

Amendment of section 162 (surcharge on undistributed income of service companies) of Corporation Tax Act, 1976.

52. —(1) Section 162 of the Corporation Tax Act, 1976 , is hereby amended in subsection (4)—

(a) by the substitution of “15 per cent.” for “20 per cent.”, and

(b) by the insertion in the proviso to that subsection of the following paragraph after paragraph (ii):

“(iii) the surcharge shall apply to so much of the excess calculated under this subsection in respect of an accounting period of a company as is not greater than the excess of the aggregate of the distributable investment income and the distributable estate income of the accounting period over the distributions of the company for the accounting period as if the reference in this subsection, apart from this paragraph, to 15 per cent. were a reference to 20 per cent.”.

(2) This section shall apply and have effect as respects accounting periods ending on or after the 1st day of April, 1996:

Provided that for the purpose of this section where an accounting period begins before the 1st day of April, 1996, and ends on or after that day, it shall be divided into two parts, one beginning on the day on which the accounting period begins and ending on the 31st day of March, 1996, and the other beginning on the 1st day of April, 1996, and ending on the day on which the accounting period ends, and both of the parts shall be treated as if they were separate accounting periods.

Amendment of section 39A (relief in relation to income from certain trading operations carried on in Shannon Airport) of Finance Act, 1980.

53. Section 39A of the Finance Act, 1980 , is hereby amended in subsection (6) (c) by the insertion after “selling by retail” of “otherwise than by mail order, or other distance selling, which satisfies the requirement of subsection (5) (b)”.

Amendment of section 28 (relief in relation to income from qualifying shipping trade) of Finance Act, 1987.

54. —(1) Section 28 of the Finance Act, 1987 , is hereby amended by the substitution of the following paragraphs for paragraphs (a) and (b) of the definition of “qualifying ship”:

“(a) (i) is owned to the extent of not less than 51 per cent. by a person or persons resident in the State, or

(ii) is the subject of a letting on charter without crew by a lessor not resident in the State,

(b) in the case of a vessel to which paragraph (a) (i) applies, is registered in the State under Part II of the Mercantile Marine Act, 1955 , and, in the case of a vessel to which paragraph (a) (ii) applies, is a vessel in respect of which it can be shown that all the requirements of the Merchant Shipping Acts, 1894 to 1993, have been complied with as if it had been a vessel registered under the said Part II,”.

(2) Paragraph (c) of subsection (4) of section 28 of the Finance Act, 1987 , shall not have effect in the case of a letting on charter of a ship referred to therein where the lease in respect of the ship is a lease, the terms of which comply with the provisions of clauses (I) and (II) of subparagraph (i) of paragraph (b) of subsection (1) of section 30 of the Finance Act, 1994 , and where the lessee produces to the Revenue Commissioners a relevant certificate within the meaning of this section.

(3) (a) In this section, a “relevant certificate” means a certificate issued, with the consent of the Minister for Finance, by the Minister for the Marine in relation to the letting on charter of a ship, certifying, on the basis of a business plan and any other information supplied by the lessee to the Minister for the Marine, that the Minister for the Marine is satisfied that the lease is in respect of a ship which—

(i) will result in an upgrading and enhancement of the lessee's fleet leading to improved efficiency and the maintenance of competitiveness,

(ii) (I) has the potential to create a reasonable level of additional sustainable employment and other socio-economic benefits in the State, or

(II) will assist in maintaining or promoting the lessee's trade in the carrying on of a qualifying shipping activity, and the maintenance of a reasonable level of sustainable employment and other socio-economic benefits in the State,

and

(iii) will result in the leasing of a ship which complies with current environmental and safety standards.

(b) Before issuing the certificate referred to in paragraph (a), the Minister for the Marine shall be satisfied that the said lease is for bona fide commercial purposes and not as part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax.

(4) In this section “lessee”, in relation to a ship provided for leasing, means the person to whom the ship is or is to be leased and includes the successors in title of a lessee.

(5) This section, other than subsection (1), shall apply and have effect as respects a ship, a binding contract in writing for the acquisition or construction of which was concluded on or after the 1st day of July, 1996.

Amendment of section 31 (securitisation of assets) of Finance Act, 1991.

55. —(1) Section 31 of the Finance Act, 1991 , is hereby amended—

(a) in subsection (1)—

(i) by the substitution for the definition of “qualifying asset” of the following:

“‘original lender’ and ‘originator’ have the meanings they have, respectively, in the definition of ‘qualifying asset’;

qualifying asset’ means—

(a) in the case of a qualifying company which is a qualified company (within the meaning of section 39B of the Finance Act, 1980 ), an asset—

(i) denominated in a foreign currency which consists of, or of an interest in or a contractual right to, any loan, lease, trade or consumer receiveable or other debt or receiveable whether secured or unsecured, and

(ii) of a person (hereafter in this section referred to as the ‘originator’), being any government, public or local authority, company or other body corporate which—

(I) is not resident in the State, and

(II) (A) is not carrying on a trade in the State through a branch or agency, or

(B) is carrying on a trade in the State through a branch or agency and the asset was not created, acquired or held by or in connection with the branch or agency,

and

(b) in any other case, a loan made by a company (hereafter in this section referred to as the ‘original lender’) on the security of a mortgage of a freehold or leasehold estate or interest in the ordinary course of a trade carried on by it which consists of or includes the lending of money on such security;”,

(ii) in the definition of “qualifying company”—

(I) by the insertion after “original lenders” of “, or the originator or originators”, and

(II) by the insertion after “any other business” of “, apart from activities which are ancillary to the said business of the management of qualifying assets”,

and

(b) in subsection (2)—

(i) by the insertion in subparagraph (b) (ii) after “the original lender” of “or the originator, as the case may be,”, and

(ii) by the insertion in the proviso to paragraph (b) after “Provided that” of “in the case of a company referred to in paragraph (b) of the definition of ‘qualifying asset’.”.

(2) This section shall apply and have effect as on and from the 28th day of March, 1996.

Amendment of section 56 (relief for gifts to The Enterprise Trust Ltd.) of Finance Act, 1992.

56. Section 56 (as amended by section 51 of the Finance Act, 1994 ) of the Finance Act, 1992 , is hereby amended—

(a) by the substitution in paragraph (a) of subsection (2) of “31st day of December, 1997,” for “31st day of December, 1996,”, and

(b) by the substitution for subsection (3) of the following subsection:

“(3) Subject to subsection (2), where a company (hereafter in this subsection referred to as the ‘donor’) makes a gift to which this section applies and claims relief from tax by reference thereto, the net amount thereof shall, for the purposes of corporation tax, be treated as—

(a) a deductible trading expense of a trade carried on by the donor, or

(b) an expense of management deductible in computing the total profits of the donor,

incurred by it in the accounting period in which the gift is made:

Provided that in determining the net amount of the gift, the amount or value of any consideration received by the said donor as a result of making the gift, whether received directly or indirectly from the company or any other person, shall be deducted from the amount of the gift.”.

Amendment of section 59 (deduction for certain expenditure on research and development) of Finance Act, 1995.

57. —(1) Section 59 of the Finance Act, 1995, is hereby amended in subsection (1)—

(a) in paragraph (a)—

(i) in the definition of “qualifying group expenditure on research and development” by the substitution for the meaning assigned to “D” of “D is the amount of group base expenditure on research and development”,

(ii) in the definition of “relevant period” by the addition of the following proviso:

“Provided that a period shall not be a relevant period if it commences on or after the 1st day of June, 1999;”,

and

(b) in paragraph (b), by the deletion of “and” at the end of the proviso to subparagraph (ii), the insertion of “and” after “expended in the State,” in subparagraph (iii) and the substitution for subparagraph (iv) of the following:

“(iv) expenditure on research and development shall not be regarded as having been incurred in a relevant period by a company which is a member of a group if—

(I) in the relevant period the aggregate of amounts received by companies which are members of the group, being amounts paid, directly or indirectly, to the companies by the State or by a person, other than a company which is a member of the group, to enable the company to meet the cost of such expenditure, exceeds £50,000, or

(II) it is expenditure—

(A) approved by Forbairt under any scheme administered by it, and

(B) which has been or is to be met, to any extent, directly or indirectly by the State or any person other than a company which is a member of the group.”.

(2) This section shall apply and have effect as respects any relevant period commencing on or after the 1st day of June, 1996.

Amendment of Chapter VII (advance corporation tax) of Part I of the Finance Act, 1983.

58. —(1) Chapter VII of Part I of the Finance Act, 1983 , is hereby amended—

(a) in section 44, by the substitution in subsection (5) for “apply for the purposes of that section” of “would apply for the purposes of that section if ‘resident in the State’ in paragraph (c) of the said subsection (6) were deleted”, and

(b) in subsection (1) of section 47—

(i) by the substitution for clause (I) of paragraph (a)(ii) of the following:

“(I) (A) of which the first-mentioned company is a 75 per cent. subsidiary, or

(B) which is a member of a consortium which owns the first-mentioned company,

and”,

and

(ii) by the insertion after paragraph (c) of the following paragraph:

“(d) For the purposes of paragraph (a) a company is owned by a consortium if three-quarters or more of the ordinary share capital of the company is beneficially owned between them by five or fewer companies of which none beneficially owns less than one-twentieth of that capital, and those companies are called members of the consortium.”.

(2) This section shall apply and have effect as respect dividends paid on or after the 23rd day of April, 1996.