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27 1974

FINANCE ACT, 1974

Chapter IV

Anti-avoidance

Charge to tax in respect of certain dividends received by directors and employees.

54. —(1) In this section—

director” has the same meaning as in section 119 of the Income Tax Act, 1967 ;

emoluments” has the same meaning as in section 111 (4) of the Income Tax Act, 1967 ;

employee” means a person employed by any body of persons;

tax-relieved company” means a body corporate which has claimed and is entitled to relief from tax under Part XXV of the Income Tax Act, 1967 .

(2) A person or body corporate shall, for the purposes of this section be regarded as connected with a tax-relieved company if that person or body corporate would be so regarded for the purposes of section 16 of the Finance (Miscellaneous Provisions) Act, 1968 , and a person shall be regarded as connected with another person if that person would be so regarded for the purposes of the said section 16.

(3) Where, for any year of assessment, a person—

(a) who is a director or employee of a tax-relieved company or of a body corporate connected with that company, or

(b) who is employed by a person connected with that company,

receives no emoluments in respect of services rendered by him to or for the benefit of the said company or to or for the benefit of any person connected with that company or receives emoluments in respect of such services which, in the opinion of the Revenue Commissioners, are not adequate as consideration for the services so rendered, and receives a dividend in respect of shares held by him in the said company, so much of that dividend (in this section referred to as the relevant part of the dividend) as is, in the opinion of the Revenue Commissioners, in consideration of the services so rendered shall be deemed to be emoluments of that person and shall be chargeable to tax under Schedule E as emoluments paid to him on the date on which the said dividend was payable, and the amount of the emoluments to be so charged shall be the amount which, after deduction of tax at the rate appropriate to the dividend, is equal to the net amount payable of the relevant part of the dividend.

(4) Where tax has been deducted from a dividend referred to in subsection (3), so much of that tax as is appropriate to the relevant part of the dividend shall be allowed as a credit against any tax chargeable by virtue of the said subsection (3).

(5) In considering for the purpose of this section whether emoluments paid to any person by a company are or are not adequate as consideration for services rendered, the Revenue Commissioners shall have regard to—

(a) the nature of the services rendered by that person,

(b) the emoluments received by that person from the company for services so rendered at a time when he did not hold shares in the company or did not hold the shares in respect of which the dividend is paid which is the subject of their consideration by virtue of this section,

(c) the amount of emoluments which it would be reasonable to expect to be paid for such services, and

(d) any evidence tendered by or on behalf of the said person as to the adequacy of the emoluments in question.

(6) Where shares in respect of which a dividend is paid are held in a tax-relieved company by a person who is connected with another person (that other person being a person who if he held the shares and received the dividend would be a person to whom subsection (3) applies), then, for the purposes of the said subsection (3), the shares shall be regarded as being held by the second-mentioned person and the dividend shall be regarded as having been received by him in respect of the shares on the date on which the dividend was payable.

(7) In considering for the purpose of this section whether a dividend or part of a dividend is in consideration of services rendered, the Revenue Commissioners shall have regard to—

(a) all the classes of shares issued by the company concerned,

(b) the class or classes of shares in the said company held by the person aforesaid, the number of shares so held, the nominal value of, and the amount subscribed by him in respect of, such shares,

(c) the rate of dividend paid on the shares of each class,

(d) whether shares of the class held by the person aforesaid are held by any other person and, if so, the number of shares so held, and

(e) any other matter which appears to them relevant for the purpose of forming an opinion under this subsection.

(8) An appeal shall lie to the Appeal Commissioners with respect to any opinion of the Revenue Commissioners under this section in like manner as an appeal would lie against an assessment to tax, and the provisions of the Income Tax Acts relating to appeals shall apply and have effect accordingly.

Transactions in certificates of deposit and assignable deposits.

55. —(1) Where, after the 3rd day of April, 1974, a person acquires a right to which this section applies, any gain arising to him from the disposal of that right or, except so far as it is a right to receive interest, from its exercise shall, if not falling to be taken into account as a trading receipt, be deemed to be annual profits or gains chargeable to tax under Case IV of Schedule D and shall be charged to tax accordingly.

(2) Where, on or before the 3rd day of April, 1974, a person acquired a right to which this section applies and disposes or disposed of, or exercises or exercised, the right after the said date, so much of any gain arising to him from that disposal or, except so far as it is a right to receive interest, from that exercise, as bears to the total amount of the gain the same proportion as the number of days from the 3rd day of April, 1974, to the date of the disposal or exercise bears to the total number of days from the date of the acquisition to the date of the disposal or exercise, shall, if not falling to be taken into account as a trading receipt, be deemed to be annual profits or gains chargeable to tax under Case IV of Schedule D and shall be charged to tax accordingly.

(3) Where a person sustains a loss in a transaction which, if profit had arisen from it, would be chargeable to tax by virtue of subsection (1) or (2), then, if he is chargeable to tax under Schedule C or D in respect of the interest payable on the amount of money the right to which has been disposed of, the amount of that interest shall be included in the amounts against which he may claim to set off the amount of his loss under section 310 of the Income Tax Act, 1967 .

(4) For the purposes of this section, profits or gains shall not be treated as falling to be taken into account as a trading receipt by reason only that they are included in the computation required by section 214 of the Income Tax Act, 1967 .

(5) This section applies to any right—

(a) to receive from any person an amount of money (with or without interest) which is stated in a certificate of deposit issued to the person who has deposited the money or to any other person, or

(b) to receive from any person an amount of money (with or without interest), being a right arising from an assignable deposit which may be assigned or transferred to another person by the person who has deposited the money or by any person who has acquired the right to do so.

(6) In this section—

assignable deposit” means a deposit of money, in any currency, which has been deposited with any person whether it is to be repaid with or without interest and which, at the direction of the depositor, may be assigned with or without interest to another person; and

certificate of deposit” means a document relating to money, in any currency, which has been deposited with the issuer or some other person, being a document which recognises an obligation to pay a stated amount to bearer or to order, with or without interest, and being a document by the delivery of which, with or without endorsement, the right to receive that stated amount, with or without interest, is transferable.

Taxation of shares issued in lieu of cash dividends.

56. —(1) In this section—

company” means any body corporate;

share” means share in the share capital of a company and includes stock and any other interest in the company.

(2) If any person, as a consequence of the exercise, whether before, on or after the declaration of a distribution of profits by a company, of an option to receive in respect of shares in the company either a sum in cash or additional share capital of the company, receives such additional share capital, he shall be deemed to have received from the company, instead of such share capital, income equal to the sum he would have received if he had received the distribution in cash instead.

(3) Any income deemed under subsection (2) to have been received from a company by a person shall—

(a) if the person's profits are chargeable to corporation profits tax, be treated as profits to which Part V of the Finance Act, 1920, applies and be charged to corporation profits tax accordingly;

(b) if the company is resident outside the State, be treated as income from securities and possessions outside the State and be assessed and charged to tax under Case III of Schedule D;

(c) if the company is resident in the State, be treated as profits or gains not falling under any other Case of Schedule D and not charged by virtue of any other Schedule and be assessed and charged to tax under Case IV of Schedule D.

(4) For the purposes of this section an option to receive either a dividend in cash or additional share capital is conferred on a person not only where he is required to choose one or the other, but also where he is offered the one subject to a right, however expressed, to choose the other instead, and a person's abandonment of, or failure to exercise, such a right is to be treated for those purposes as an exercise of the option.

Transfer of assets abroad.

57. —For the purpose of preventing the avoiding by individuals ordinarily resident in the State of liability to tax by means of transfers of assets by virtue or in consequence whereof, either alone or in conjunction with associated operations, income becomes payable to persons resident or domiciled out of the State, it is hereby enacted as follows:—

(1) Where by virtue or in consequence of any such transfer, either alone or in conjunction with associated operations, such an individual has, within the meaning of this section, power to enjoy, whether forthwith or in the future, any income of a person resident or domiciled out of the State which, if it were income of that individual received by him in the State, would be chargeable to tax by deduction or otherwise, that income shall, whether it would or would not have been chargeable to tax apart from the provisions of this section, be deemed to be income of that individual for all the purposes of the Income Tax Acts.

(2) Where, whether before or after any such transfer, such an individual receives or is entitled to receive any capital sum the payment whereof is in any way connected with the transfer or any associated operation, any income which, by virtue or in consequence of the transfer, either alone or in conjunction with associated operations, has become the income of a person resident or domiciled out of the State shall, whether it would or would not have been chargeable to tax apart from the provisions of this section, be deemed to be the income of that individual for all the purposes of the Income Tax Acts.

In this subsection “capital sum” means—

(a) any sum paid or payable by way of loan or repayment of a loan, and

(b) any other sum paid or payable otherwise than as income, being a sum which is not paid or payable for full consideration in money or money's worth.

(3) Subsections (1) and (2) shall not apply if the individual shows in writing or otherwise to the satisfaction of the Revenue Commissioners either—

(a) that the purpose of avoiding liability to taxation was not the purpose or one of the purposes for which the transfer or associated operations or any of them was effected; or

(b) that the transfer and any associated operations were bona fide commercial transactions and were not designed for the purpose of avoiding liability to taxation.

In any case where a person is aggrieved by a decision taken by the Revenue Commissioners in exercise of their functions under this subsection the person shall be entitled to appeal to the Appeal Commissioners against the decision of the Revenue Commissioners and the Appeal Commissioners shall hear and determine the appeal as if it were an appeal against an assessment to tax and the provisions of the Income Tax Acts relating to the rehearing of an appeal and the statement of a case for the opinion of the High Court on a point of law shall apply accordingly with any necessary modifications.

(4) For the purposes of this section “an associated operation” means, in relation to any transfer, an operation of any kind effected by any person in relation to any of the assets transferred or any assets representing, whether directly or indirectly, any of the assets transferred, or to the income arising from any such assets, or to any assets representing, whether directly or indirectly, the accumulations of income arising from any such assets.

(5) An individual shall, for the purposes of this section, be deemed to have power to enjoy income of a person resident or domiciled out of the State if—

(a) the income is in fact so dealt with by any person as to be calculated, at some point of time, and whether in the form of income or not, to enure for the benefit of the individual, or

(b) the receipt or accrual of the income operates to increase the value to the individual of any assets held by him or for his benefit, or

(c) the individual receives or is entitled to receive, at any time, any benefit provided or to be provided out of that income or out of moneys which are or will be available for the purpose by reason of the effect or successive effects of the associated operations on that income and on any assets which directly or indirectly represent that income, or

(d) the individual has power, by means of the exercise of any power of appointment or power of revocation or otherwise, to obtain for himself, whether with or without the consent of any other person, the beneficial enjoyment of the income, or may, in the event of the exercise of any power vested in any other person, become entitled to the beneficial enjoyment of the income, or

(e) the individual is able in any manner whatsoever, and whether directly or indirectly, to control the application of the income.

(6) In determining whether an individual has power to enjoy income within the meaning of this section, regard shall be had to the substantial result and effect of the transfer and any associated operations, and all benefits which may at any time accrue to the individual (whether or not he has rights at law or in equity in or to those benefits) as a result of the transfer and any associated operations shall be taken into account irrespective of the nature or form of the benefits.

(7) For the purposes of this section, any body corporate incorporated outside the State shall be treated as if it were resident out of the State whether it is so resident or not.

(8) For the purposes of this section—

(a) a reference to an individual shall be deemed to include the wife or husband of the individual,

(b) “assets” includes property or rights of any kind and “transfer”, in relation to rights, includes the creation of those rights,

(c) “benefit” includes a payment of any kind,

(d) references to income of a person resident or domiciled out of the State shall, where the amount of the income of a company for any year or period has been apportioned under section 530 of the Income Tax Act, 1967 , include references to so much of the income of the company for that year or period as is equal to the amount so apportioned to that person,

(e) references to assets representing any assets, income or accumulations of income include references to shares in or obligations of any company to which, or obligations of any other person to whom, those assets, that income or those accumulations are or have been transferred,

(f) “company” means any body corporate or unincorporated association.

(9) The provisions of this section shall apply for the purposes of assessment to tax for the year 1974-75 and subsequent years, and shall apply in relation to transfers of assets and associated operations whether carried out before or after the commencement of this Act.

Deductions and reliefs in relation to income chargeable to tax under section 57.

58. —(1) Tax chargeable by virtue of the preceding section shall be charged under Case IV of Schedule D.

(2) In computing the liability to tax of an individual chargeable by virtue of the preceding section, the same deductions and reliefs shall be allowed as would have been allowed if the income deemed to be his by virtue of that section had actually been received by him.

(3) Where an individual has been charged to tax on any income deemed to be his by virtue of the preceding section and that income is subsequently received by him, it shall be deemed not to form part of his income again for the purposes of the Income Tax Acts.

(4) In any case where an individual has for the purposes of the preceding section power to enjoy income of a person abroad by reason of his receiving any such benefit as is referred to in section 57 (5) (c), the individual shall be chargeable to tax by virtue of the preceding section under Case IV of Schedule D for the year of assessment in which the benefit is received on the whole of the amount or value of that benefit except in so far as it is shown that the benefit derives directly or indirectly from income on which he has already been charged to tax for that or a previous year of assessment.

Power to obtain information.

59. —(1) The Revenue Commissioners or such officer as the Revenue Commissioners may appoint may by notice in writing require any person to furnish them within such time as they may direct (not being less than twenty-eight days) with such particulars as they think necessary for the purposes of sections 57, 58 and 60.

(2) The particulars which a person must furnish under this section, if he is required by such a notice so to do, include particulars—

(a) as to transactions with respect to which he is or was acting on behalf of others, and

(b) as to transactions which in the opinion of the Revenue Commissioners or of such officer as the Revenue Commissioners may appoint it is proper that they should investigate for the purposes of sections 57, 58 and 60 notwithstanding that, in the opinion of the person to whom the notice is given, no liability to tax arises under the said sections.

(c) as to whether the person to whom the notice is given has taken or is taking any, and if so what, part in any, and if so what, transactions of a description specified in the notice.

(3) Notwithstanding anything in subsection (2), a solicitor shall not be deemed for the purposes of paragraph (c) thereof to have taken part in a transaction by reason only that he has given professional advice to a client in connection with that transaction, and shall not, in relation to anything done by him on behalf of a client, be compellable under this section, except with the consent of his client, to do more than state that he is or was acting on behalf of a client, and give the name and address of his client and also—

(a) in the case of anything done by the solicitor in connection with the transfer of any asset by or to an individual ordinarily resident in the State to or by any such body corporate as is hereinafter mentioned, or in connection with any associated operation in relation to any such transfer, the names and addresses of the transferor and the transferee or of the persons concerned in the associated operations, as the case may be;

(b) in the case of anything done by the solicitor in connection with the formation or management of any such body corporate as is hereinafter mentioned, the name and address of the body corporate;

(c) in the case of anything done by the solicitor in connection with the creation, or with the execution of the trusts, of any settlement by virtue or in consequence whereof income becomes payable to a person resident or domiciled out of the State, the names and addresses of the settlor and of that person.

The bodies corporate mentioned in the preceding provisions of this section are bodies corporate resident or incorporated outside the State which are, or if incorporated in the State would be, companies within the meaning of section 530 (6) of the Income Tax Act, 1967 .

(4) Nothing in this section shall impose on any bank the obligation to furnish any particulars of any ordinary banking transactions between the bank and a customer carried out in the ordinary course of banking business, unless the bank has acted or is acting on behalf of the customer in connection with the formation or management of any such body corporate as is mentioned in subsection (3) (b) or in connection with the creation, or with the execution of the trusts, of any such settlement as is mentioned in subsection (3) (c).

(5) In this section “settlement” and “settlor” have the meanings assigned to them by section 16 (3) (h) of the Finance (Miscellaneous Provisions) Act, 1968 .

(6) Schedule 15 to the Income Tax Act, 1967 , is hereby amended by the insertion in column 2 thereof of “Finance Act, 1974, section 59”.

Saver.

60. —Where any income of any person is by virtue of any provisions of the Income Tax Acts, and in particular, but without prejudice to the generality of the foregoing, by virtue of section 57, to be deemed to be income of any other person, that income is not exempt from tax either—

(a) as being derived from any stock or other security to which section 464 , 468 , 470 or 474 of the Income Tax Act, 1967 , applies; or

(b) by virtue of section 50 or 462 of the Income Tax Act, 1967 ,

by reason of the first-mentioned person not being resident, or not being ordinarily resident, or being neither domiciled nor ordinarily resident, in the State.

Application of provisions of Income Tax Acts.

61. —All the provisions of the Income Tax Acts relating to the charge, assessment, collection and recovery of tax, to appeals against assessments and to cases to be stated for the opinion of the High Court shall apply to tax chargeable by virtue of section 57 subject to any necessary modifications.

Taxation of rents: restriction in respect of certain rent and interest.

62. —(1) This section applies to—

(a) rent in respect of premises, or

(b) interest on borrowed money employed in the purchase, improvement or repair of premises,

payable by a person who is chargeable to tax in accordance with the provisions of section 81 of the Income Tax Act, 1967 (inserted by the Finance Act, 1969 ), on the profits or gains arising from rent in respect of those premises for a period prior to the date on which the premises are first occupied by a lessee for the purpose of a trade or undertaking or for use as a residence.

(2) No deduction shall be allowed, for the year 1974-75 or any subsequent year of assessment, under subsection (5) of the said section 81 in respect of rent or interest to which this section applies.

(3) Where, for the year 1973-74 or any earlier year of assessment—

(a) a deduction such as is referred to in subsection (2) has been allowed under subsection (5) of the said section 81 and there is a deficiency within the meaning of subsection (4) of the said section 81, or

(b) an amount falls to be treated as a loss under section 89A of the Income Tax Act, 1967 , (inserted by the Finance (Miscellaneous Provisions) Act, 1968 ), by virtue of an interest payment, so much of any such deficiency as is attributable to the allowance of the deduction aforesaid or any such amount treated as a loss or any portion of such amount shall not be carried forward, or set against profits or gains for the year 1974-75 or any subsequent year of assessment under the provisions of section 89 or 310 of the Income Tax Act, 1967 .

Amendment of section 20 of the Finance (Miscellaneous Provisions) Act, 1968.

63. —(1) Section 20 of the Finance (Miscellaneous Provisions) Act, 1968 , is hereby amended by—

(a) the substitution in subsection (1) of “development or the securing of the development of land and after the development” for “construction or the securing of the construction of a building and after the construction”,

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

“(b) at the time of the sale the company has (directly or indirectly) an interest in the development and the value of that interest and any interest which the company so has at that time in any other development (not being a development completed more than six years before that time nor a development in relation to which the condition specified in paragraph (c) is not satisfied) carried out or secured by the company amounts to one-fifth or more of the net assets of the company;”,

(c) the substitution of “development” for “building” in each place where it occurs in subsections (4), (9), (10) and (13) (c),

(d) the substitution of the following subsection for subsection (11):

“(11) Where a development has been commenced or carried out by a company on land in which a company connected with that company has an interest and after the development has commenced and not later than six years after its completion a person acquires control of the first company, then, as respects sales to that person of shares in the company having the interest in the land (whether effected before or after that person acquires control of the first company), the foregoing subsections shall apply as they apply to such a company as is therein mentioned but with the substitution for references to an interest in the development of references to an interest in the land.”, and

(e) the substitution of the following subsection for subsection (12):

“(12) For the purposes of the foregoing subsections an uncompleted development shall be taken to include so much of any materials belonging to the company as are required for the development and a development whether completed or not shall be taken to include the land related to the development.”,

and the said subsections (1), (4), (9), (10) and (13) (c), as so amended are set out in the Table to this section.

(2) Section 20 of the Finance (Miscellaneous Provisions) Act, 1968 , as amended by subsection (1), shall not apply or have effect in any case where the shares of the relevant company were sold before the 3rd day of April, 1974.

TABLE

(1) Where the activities of a company consist of or include the development or the securing of the development of land and after the development has begun and not later than six years after its completion shares in the company are sold to a person who has, or in consequence of the sale will have, control of the company, and apart from this section the consideration for the sale would not be a receipt of an income nature in the hands of the seller, the consideration shall, if the conditions specified in subsection (2) are satisfied, be deemed to be income of the seller up to the amount specified in subsection (5), and shall be chargeable under Case IV of Schedule D accordingly.

(4) Where before the sale of shares mentioned in subsection (1) the company—

(a) has disposed of its interest in the development, or of an interest which derives therefrom, to the person who is the purchaser of the shares, or to a company connected with the purchaser, or

(b) has disposed of any interest in the development to or in favour of any person, and the purchaser of the shares, or a company connected with the purchaser, acquires the interest, either before the sale or after the sale in pursuance of arrangements made not later than the sale,

subsection (1) shall apply as if the interest disposed of were still vested in the first-mentioned company at the time of the sale of the shares, and as if any assets of the company representing the consideration for the disposal of the interest were not assets of the company.

(9) Where, in consequence of a sale of shares, any amount would have, under subsection (1), been deemed to be income of the seller but for the circumstance that the condition specified in subsection (2) (c) was not satisfied, and on the sixth anniversary of the sale any interest in a development such as is mentioned in subsection (2) (b) is still held by the company, then, income of the like amount shall be deemed to have been received by the company on the said anniversary and shall be chargeable under Case IV of Schedule D accordingly.

(10) If after the sale of the shares any receipts accrue to the company from the disposal, in the course of a trade of dealing in or developing land, of an interest in a development, being an interest which the company had at the time of the sale of the shares and with respect to which the profit which would have arisen on the disposal thereof was taken into account in arriving at the amount of income chargeable to tax by reference to the sale under the foregoing provisions of this section, the receipts shall be disregarded for income tax purposes if and to the extent that is just so to do having regard to any tax charged under the said provisions.

(13) (c) there shall be disregarded any development provided for use, and brought into use, for the purposes of a bona fide trade carried on by the company, other than a trade of—

(i) dealing in or developing land, or

(ii) the provision of services for occupiers of land an interest in which is held by the company.