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39 1997

TAXES CONSOLIDATION ACT, 1997

PART 13

Close Companies

CHAPTER 1

Interpretation and general

Meaning of “close company”.

[CTA76 s94]

430. —(1) For the purposes of the Corporation Tax Acts, “close company” means a company under the control of 5 or fewer participators, or of participators who are directors, but does not include—

(a) a company not resident in the State,

(b) a registered industrial and provident society, being a society within the meaning of section 698 ,

(c) a building society within the meaning of section 702 ,

(d) a company controlled by or on behalf of the State and not otherwise a close company, or

(e) a company within subsection (4) or section 431.

(2) For the purposes of this section—

(a) a company shall be treated as controlled by or on behalf of the State only if it is under the control of the State, or of persons acting on behalf of the State, independently of any other person, and

(b) where a company is so controlled, it shall not be treated as being otherwise a close company unless it can be treated as a close company by virtue of being under the control of persons acting independently of the State.

(3) A company resident in the State (but not within paragraph (b) or (c) of subsection (1)) shall also be a close company if, on a full distribution of its distributable income, more than 50 per cent of that income would be paid directly or indirectly to 5 or fewer participators, or to participators who are directors.

(4) A company shall not be treated as a close company—

(a) if—

(i) it is controlled by a company which is not a close company, or by 2 or more companies none of which is a close company, and

(ii) it cannot be treated as a close company except by taking as one of the 5 or fewer participators requisite for its being so treated a company which is not a close company,

or

(b) if it cannot be treated as a close company except by virtue of paragraph (c) of section 432 (2) and would not be a close company if the reference in that paragraph to participators did not include loan creditors who are companies other than close companies.

(5) References in subsection (4) to a close company shall be treated as including a company which if resident in the State would be a close company.

(6) Where shares in any company (in this subsection referred to as “the first company”) are at any time after the 5th day of April, 1976, held on trust for an exempt approved scheme (within the meaning of Chapter 1 of Part 30 ), then, unless the scheme is established wholly or mainly for the benefit of persons who are, or are dependants of, employees or directors or past employees or directors of—

(a) the first company,

(b) an associated company of the first company,

(c) a company under the control of any director, or associate of a director, of the first company or of 2 or more persons each of whom is such a director or associate, or

(d) a close company,

the persons holding the shares shall for the purposes of subsection (4) be deemed to be the beneficial owners of the shares and in that capacity to be a company which is not a close company.

Certain companies with quoted shares not to be close companies.

[CTA76 s95]

431. —(1) In this section, “share” includes “stock”.

(2) For the purposes of this section—

(a) a person shall be a principal member of a company—

(i) if such person possesses a percentage of the voting power in the company of more than 5 per cent and, where there are more than 5 such persons, if such person is one of the 5 persons who possess the greatest percentages, or

(ii) if (because 2 or more persons possess equal percentages of the voting power in the company) there are no such 5 persons, such person is one of the 6 or more persons (so as to include those 2 or more who possess equal percentages) who possess the greatest percentages,

(b) a principal member's holding shall consist of the shares which carry the voting power possessed by the principal member, and

(c) in determining the voting power which a person possesses, there shall be attributed to such person any voting power which for the purposes of section 432 would be attributed to such person under subsection (5) or (6) of that section.

(3) Subject to this section, a company shall not be treated as being at any time a close company if—

(a) shares in the company carrying not less than 35 per cent of the voting power in the company (not being shares entitled to a fixed rate of dividend, whether with or without a further right to participate in profits) have been allotted unconditionally to, or acquired unconditionally by, and are at that time beneficially held by, the public, and

(b) any such shares have within the preceding 12 months been the subject of dealings on a recognised stock exchange, and the shares have within those 12 months been quoted in the official list of a recognised stock exchange.

(4) Subsection (3) shall not apply to a company at any time when the total percentage of the voting power in the company possessed by all of the company's principal members exceeds 85 per cent.

(5) For the purposes of subsection (3), shares in a company shall be deemed to be beneficially held by the public only if the shares—

(a) are within subsection (6), and

(b) are not within the exceptions in subsection (7),

and the reference to shares which have been allotted unconditionally to, or acquired unconditionally by, the public shall be construed accordingly.

(6) Shares are within this subsection (as being beneficially held by the public) if the shares—

(a) are beneficially held by a company resident in the State which is not a close company, or by a company not so resident which would not be a close company if it were so resident,

(b) are held on trust for an exempt approved scheme (within the meaning of Chapter 1 of Part 30 ), or

(c) are not comprised in a principal member's holding.

(7) (a) Shares shall be deemed not to be held by the public if the shares are held—

(i) by any director, or associate of a director, of the company,

(ii) by any company under the control of any such director or associate, or of 2 or more persons each of whom is such a director or associate,

(iii) by an associated company of the company, or

(iv) as part of any fund the capital or income of which is applicable or applied wholly or mainly for the benefit of, or of the dependants of, the employees or directors, or past employees or directors, of the company, or of any company within subparagraph (ii) or (iii).

(b) References in this subsection to shares held by any person include references to any shares the rights or powers attached to which could for the purposes of section 432 be attributed to that person under subsection (5) of that section.

Meaning of “associated company” and “control”.

[CTA76 s102; FA96 s132(1) and Sch5 Pt1 par10(4)]

432. —(1) For the purposes of this Part, a company shall be treated as another company's associated company at a particular time if, at that time or at any time within one year previously, one of the 2 companies has control of the other company, or both companies are under the control of the same person or persons.

(2) For the purposes of this Part, a person shall be taken to have control of a company if such person exercises, or is able to exercise or is entitled to acquire, control, whether direct or indirect, over the company's affairs, and in particular, but without prejudice to the generality of the foregoing, if such person possesses or is entitled to acquire—

(a) the greater part of the share capital or issued share capital of the company or of the voting power in the company,

(b) such part of the issued share capital of the company as would, if the whole of the income of the company were distributed among the participators (without regard to any rights which such person or any other person has as a loan creditor), entitle such person to receive the greater part of the amount so distributed, or

(c) such rights as would, in the event of the winding up of the company or in any other circumstances, entitle such person to receive the greater part of the assets of the company which would then be available for distribution among the participators.

(3) Where 2 or more persons together satisfy any of the conditions of subsection (2), they shall be taken to have control of the company.

(4) For the purposes of subsection (2), a person shall be treated as entitled to acquire anything which such person is entitled to acquire at a future date or will at a future date be entitled to acquire.

(5) For the purposes of subsections (2) and (3), there shall be attributed to any person any rights or powers of a nominee for such person, that is, any rights or powers which another person possesses on such person's behalf or may be required to exercise on such person's direction or behalf.

(6) For the purposes of subsections (2) and (3), there may also be attributed to any person all the rights and powers of—

(a) any company of which such person has, or such person and associates of such person have, control,

(b) any 2 or more companies of which such person has, or such person and associates of such person have, control,

(c) any associate of such person, or

(d) any 2 or more associates of such person,

including the rights and powers attributed to a company or associate under subsection (5), but excluding those attributed to an associate under this subsection, and such attributions shall be made under this subsection as will result in the company being treated as under the control of 5 or fewer participators if it can be so treated.

Meaning of “participator”, “associate”, “director” and “loan creditor”.

[CTA76 s103; FA97 s146(1) and Sch9 PtI par10(5)]

433. —(1) For the purposes of this Part, “participator”, in relation to any company, means a person having a share or interest in the capital or income of the company and, without prejudice to the generality of the foregoing, includes—

(a) any person who possesses, or is entitled to acquire, share capital or voting rights in the company,

(b) any loan creditor of the company,

(c) any person who possesses, or is entitled to acquire, a right to receive or participate in distributions of the company (construing “distributions” without regard to section 436 or 437 ) or any amounts payable by the company (in cash or in kind) to loan creditors by means of premium on redemption, and

(d) any person who is entitled to secure that income or assets (whether present or future) of the company will be applied directly or indirectly for such person's benefit.

(2) (a) References in subsection (1) to being entitled to do anything apply where a person is entitled to do it at a future date or will at a future date be entitled to do it.

(b) Subsection (1) is without prejudice to any particular provision of this Part requiring a participator in one company to be treated as being also a participator in another company.

(3) (a) In this subsection, “relative” means husband, wife, ancestor, lineal descendant, brother or sister.

(b) For the purposes of this Part but subject to paragraph (c), “associate”, in relation to a participator, means—

(i) any relative or partner of the participator,

(ii) the trustee or trustees of any settlement in relation to which the participator is, or any relative (living or dead) of the participator is or was, a settlor (“settlement” and “settlor” having the same meanings respectively as in section 10 ), and

(iii) where the participator is interested in any shares or obligations of the company which are subject to any trust or are part of the estate of a deceased person, any other person interested in those shares or obligations,

and has a corresponding meaning in relation to a person other than a participator.

(c) Paragraph (b)(iii) shall not apply so as to make an individual an associate as being entitled or eligible to benefit under a trust—

(i) if the trust relates exclusively to an exempt approved scheme (within the meaning of Chapter 1 of Part 30 ), or

(ii) if the trust is exclusively for the benefit of the employees, or the employees and directors, of the company or their dependants (and not wholly or mainly for the benefit of the directors or their relatives) and the individual in question is not (and could not as a result of the operation of the trust become), either on his or her own or with his or her relatives, the beneficial owner of more than 5 per cent of the ordinary share capital of the company,

and, in applying subparagraph (ii), any charitable trusts which may arise on the failure or determination of other trusts shall be disregarded.

(4) For the purposes of this Part, “director” includes any person—

(a) occupying the position of director by whatever name called,

(b) in accordance with whose directions or instructions the directors are accustomed to act,

(c) who is a manager of the company or otherwise concerned in the management of the company's trade or business, and

(d) who is, either on his or her own or with one or more associates, the beneficial owner of, or able, directly or through the medium of other companies or by any other indirect means, to control, 20 per cent or more of the ordinary share capital of the company.

(5) In subsection (4)(d), “either on his or her own or with one or more associates” requires a person to be treated as owning or, as the case may be, controlling what any associate owns or controls, even if he or she does not own or control share capital on his or her own and, in subsection (3)(c)(ii), “either on his or her own or with his or her relatives” has a corresponding meaning.

(6) (a) For the purposes of this Part but subject to paragraph (b), “loan creditor”, in relation to a company, means a creditor in respect of—

(i) any debt incurred by the company for—

(I) any money borrowed or capital assets acquired by the company,

(II) any right to receive income created in favour of the company, or

(III) consideration the value of which to the company was (at the time when the debt was incurred) substantially less than the amount of the debt (including any premium on the debt),

or

(ii) any redeemable loan capital issued by the company.

(b) A person carrying on a business of banking shall not be deemed to be a loan creditor in respect of any loan capital issued or debt incurred by the company for money loaned by such person to the company in the ordinary course of that business.

(7) A person who is not the creditor in respect of any debt or loan capital to which subsection (6) applies but nevertheless has a beneficial interest in that debt or loan capital shall to the extent of that interest be treated for the purposes of this Part as a loan creditor in respect of that debt or loan capital.

Distributions to be taken into account and meaning of “distributable income”, “investment income”, “estate income”, etc.

[CTA76 s100; FA89 s27(1)]

434. —(1) In this section—

distributable income” of a company for an accounting period means—

(a) the income as computed in accordance with subsection (4), increased by the amount of the company's franked investment income for the accounting period reduced by the tax credit comprised in that income, but

(b) where the aggregate of the amounts specified in paragraphs (d) to (g) of subsection (4) exceeds the income as computed in accordance with that subsection apart from those paragraphs, the amount of the excess shall, in computing the amount of the distributable income, be deducted from the amount of the company's franked investment income for the accounting period as so reduced;

estate income” means income (other than yearly or other interest) chargeable to tax under Case III, IV or V of Schedule D, and arising from the ownership of land (including any interest in or right over land) or from the letting furnished of any building or part of a building;

investment income” of a company means income other than estate income which, if the company were an individual, would not be earned income within the meaning of section 3 , but does not include any interest or dividends on investments which, having regard to the nature of the company's trade, would be taken into account as trading receipts in computing trading income but for the fact that they have been subjected to tax otherwise than as trading receipts, or but for the fact that by virtue of section 129 they are not to be taken into account in computing income for corporation tax;

trading income” means income arising from a trade (including farming) or profession in respect of which a company is chargeable to corporation tax under Case I or II of Schedule D;

trading company” means any company which exists wholly or mainly for the purpose of carrying on a trade and any other company whose income does not consist wholly or mainly of investment or estate income.

(2) For the purposes of section 440 , the distributions of a company for an accounting period shall be taken to be the aggregate of—

(a) any dividends which are declared for or in respect of the accounting period and are paid or payable during the accounting period or within 18 months after the end of the accounting period, and

(b) all distributions, other than dividends, made in the accounting period.

(3) Where—

(a) a period of account for or in respect of which a company declares a dividend is not an accounting period,

(b) the dividend is paid or payable during the period of account or within 18 months after the end of the period of account, and

(c) part of the period of account falls within an accounting period,

then, the proportion of the amount of the dividend to be treated for the purposes of subsection (2) as being for or in respect of the accounting period shall be the same as the proportion which that part of the period of account bears to the whole of that period.

(4) For the purposes of subsection (1), the income of a company for an accounting period shall be the income for the accounting period, computed in accordance with the Corporation Tax Acts, exclusive of franked investment income, before deducting—

(a) any loss incurred in any trade or profession carried on by the company which is carried forward from an earlier, or carried back from a later, accounting period,

(b) any loss which if it were a profit would be chargeable to corporation tax on the company under Case III or IV of Schedule D and which is carried forward from an earlier accounting period or any expenses of management or any charges on income which are so carried forward, and

(c) any excess of deficiencies over surpluses which if such excess were an excess of surpluses over deficiencies would be chargeable to corporation tax on the company under Case V of Schedule D and which is carried forward from an earlier, or carried back from a later, accounting period,

and after deducting—

(d) any loss incurred in the accounting period in any trade or profession carried on by the company,

(e) any loss incurred in the accounting period which if it were a profit would be chargeable to corporation tax on the company under Case III or IV of Schedule D,

(f) any excess of deficiencies over surpluses which if such excess were an excess of surpluses over deficiencies would be chargeable to corporation tax on the company for the accounting period under Case V of Schedule D,

(g) any amount which is an allowable deduction—

(i) in computing the total profits for the accounting period in respect of expenses of management by virtue of section 83 (2), or

(ii) against the total profits for the accounting period in respect of charges by virtue of section 243 (2), and

(h) the amount of the corporation tax which apart from section 448 (2) would be payable by the company for the accounting period if the tax were computed on the basis of the income determined in accordance with the preceding provisions of this subsection.

(5) For the purposes of section 440

distributable investment income” of a company for an accounting period means—

(a) in a case where paragraph (b) of the definition of “distributable income” applies, the amount determined in accordance with that paragraph, and

(b) in any other case, the sum of the following amounts—

(i) the amount determined by applying to the amount of the distributable income exclusive of franked investment income (as reduced by the tax credit comprised in that income) the fraction—

A

__

B

where—

A is the amount of the investment income taken into account in computing the tax mentioned in subsection (4)(h), and

B is the total amount of income so taken into account,

and

(ii) the amount of the franked investment income (as reduced by the tax credit comprised in that income),

but, in the case of a trading company, the distributable investment income shall be the amount determined in accordance with the preceding provisions of this definition reduced by 5 per cent;

distributable estate income” of a company for an accounting period means the amount determined by applying to the amount of the distributable income exclusive of franked investment income (as reduced by the tax credit comprised in that income) the fraction—

C

__

D

where—

C is the amount of the estate income taken into account in computing the tax mentioned in subsection (4)(h), and

D is the total amount of income so taken into account,

but, in the case of a trading company, the distributable estate income shall be the amount determined in accordance with the preceding provisions of this definition reduced by 7.5 per cent.

(6) The amount for part of an accounting period of any description of income referred to in this section shall be a proportionate part of the amount for the whole period.

(7) Where a company is subject to any restriction imposed by law as regards the making of distributions, regard shall be had to this restriction in determining the amount of income on which a surcharge shall be imposed under section 440 .

Information.

[CTA76 s104]

435. —(1) The inspector may by notice in writing require any company which is, or appears to the inspector to be, a close company to furnish him or her within such time (not being less than 30 days) as may be specified in the notice with such particulars as he or she thinks necessary for the purposes of this Part.

(2) Where for the purposes of this Part any person in whose name any shares are registered is so required by notice in writing by the inspector, such person—

(a) shall state whether or not such person is the beneficial owner of the shares, and

(b) if not the beneficial owner of the shares or any of them, shall furnish the name and address of the person or persons on whose behalf the shares are registered in such person's name.

(3) Subsection (2) shall apply in relation to loan capital as it applies in relation to shares.

(4) (a) In this subsection, “securities” includes shares, stocks, bonds, debentures and debenture stock and any promissory note or other instrument evidencing indebtedness issued to a loan creditor of the company.

(b) For the purposes of this Part, the inspector may by notice in writing require—

(i) any company which appears to the inspector to be a close company to furnish him or her with particulars of any bearer securities issued by the company and the names and addresses of the persons to whom the securities were issued and the respective amounts issued to each person, and

(ii) any person to whom securities were so issued, or any person to whom or through whom such securities were subsequently sold or transferred, to furnish the inspector with such further information as he or she may require with a view to enabling him or her to ascertain the names and addresses of the persons beneficially interested in the securities.