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7 1976

CORPORATION TAX ACT, 1976

PART III

Special Classes of Companies

Reduction of corporation tax liability of small companies.

28. —(1) Where in any accounting period the profits of a company resident in the State do not exceed the lower relevant maximum amount, the company may claim that the corporation tax charged on its income for that period shall be calculated as if the rate of corporation tax for the financial year 1974 and each subsequent financial year were 40 per cent. (instead of being the rate fixed for companies generally).

(2) Where in any accounting period the profits of any such company exceed the lower relevant maximum amount but do not exceed the upper relevant maximum amount, the company may claim that the corporation tax charged on its income for that period shall be reduced by a sum equal to 10 per cent. of the following amount—

I

(M − P) × __

P

where M is the upper relevant maximum amount, P is the amount of the profits and I is the amount of the income.

(3) The lower and upper relevant maximum amounts mentioned in the foregoing subsections shall be determined as follows—

(a) where the company has no associated company in the accounting period those amounts are £5,000 and £10,000 respectively;

(b) where the company has one or more associated companies in the accounting period, the lower relevant maximum amount is £5,000 divided by one plus the number of those associated companies and the upper relevant maximum amount is £10,000 divided by one plus the number of those associated companies.

(4) In applying subsection (3) to any accounting period of a company, an associated company which 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) 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 time one of the two has control of the other or both are under the control of the same person or persons.

In this subsection “control” shall be construed in accordance with section 102 (meaning of “associated company” and “control”).

(5) 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.

(6) For an accounting period of less than twelve months the relevant maximum amounts determined in accordance with subsection (3) shall be proportionately reduced.

(7) For the purposes of the foregoing subsections the profits of a company for an accounting period shall be taken to be the amount of its profits for that period on which corporation tax falls finally to be borne, with the addition of franked investment income other than franked investment income which the company (if a member of a group) receives from companies within the group.

(8) For the purposes of this section the income of a company for an accounting period shall be taken to be the amount of its profits for that period on which corporation tax falls finally to be borne exclusive of the part of the profits attributable 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.

Companies carrying on mutual business, or not carrying on a business.

29. —(1) Subject to subsection (2), where a company carries on any business of mutual trading or mutual insurance or other mutual business, the provisions of this Act relating to distributions shall apply to distributions made by the company notwithstanding that they are made to persons participating in the mutual activities of that business and derive from those activities, but shall so apply only to the extent to which the distributions are made out of profits of the company which are brought into charge to corporation tax or out of franked investment income.

(2) In the case of a company carrying on any mutual life assurance business, the provisions of this Act relating to distributions shall not apply to distributions made to persons participating in the mutual activities of that business and derived from those activities; but if the business includes annuity business, the annuities payable in the course of that business shall not be treated as charges on the income of the company to any greater extent than if the business were not mutual but were being carried on by the company with a view to the realisation of profits for the company.

(3) Subject to the preceding subsections, the fact that a distribution made by a company carrying on any such business is derived from the mutual activities of that business and the recipient is a person participating in those activities shall not affect the character which the payment or other receipt has for purposes of corporation tax or income tax in the hands of the recipient.

(4) Where a company does not carry on, and never has carried on, a trade or a business of holding investments, and is not established for purposes which include the carrying on of a trade or of such a business, the provisions of this Act relating to distributions shall apply to distributions made by the company only to the extent to which the distributions are made out of profits of the company which are brought into charge to corporation tax or out of franked investment income.

Industrial and provident societies.

30. —(1) The provisions of section 218 of the Income Tax Act, 1967 (industrial and provident societies: interpretation), shall have effect for the interpretation of this section.

(2) Notwithstanding anything in the Tax Acts, any share or loan interest paid by a society—

(a) shall be paid without deduction of income tax and shall be charged under Case III of Schedule D, and

(b) shall not be treated as a distribution:

Provided that paragraph (a) shall not apply to any share interest or loan interest payable to a person whose usual place of abode is not within the State.

(3) In computing the corporation tax payable for any accounting period of a society, section 10 (allowance of charges on income) shall have effect subject to—

(a) the insertion of “the appropriate proportion of” in subsection (1) after the word “company” where it first occurs, and

(b) the deletion of the word “yearly” from subsection (3) (a).

(4) For the purposes of section 10 as modified by subsection (3) of this section, “the appropriate proportion” of any amount of charges on income paid by a society in an accounting period means the portion of that amount which bears to the whole the same proportion as the aggregate amount of the society's income and franked investment income for the accounting period bears to what would, but for section 220 of the Income Tax Act, 1967 (disregard of profits or losses attributable to certain transactions), have been the aggregate amount of the society's income and franked investment income for that accounting period:

Provided that in relation to the aggregate amount of interest paid in any accounting period the appropriate proportion of that interest shall not exceed £2,000 if the accounting period is a period of twelve months, and shall not exceed a proportionate part of £2,000 if the accounting period is a period of less than twelve months.

(5) In section 219 of the Income Tax Act, 1967 (deduction as expenses of certain sums, etc.)—

(a) in subsection (4) (b) for “any annual allowance” there shall be substituted “any writing-down allowance”, and for “any year of assessment” there shall be substituted “any chargeable period”, and

(b) in subsection (4) (c) for “any year of assessment” there shall be substituted “any chargeable period”.

(6) Section 220 of the Income Tax Act, 1967 (disregard of profits or losses attributable to certain transactions), is hereby amended by the substitution of the following subsection for subsection (5)—

“(5) Where for any chargeable period any capital allowances or any balancing charges under Part XVI fall to be made in taxing the trade of a society and a proportion of the profits, or as the case may be, the loss of that period is disregarded under this section, the amount of allowances or the amount of charges which, but for this subsection, would have been made shall be diminished in like proportion.”.

(7) All amounts receivable by an agricultural society or a fishery society from the sale of goods, being amounts which are so receivable by virtue of exempted transactions, shall be disregarded for the purposes of section 58 (export sales relief: basis of relief from corporation tax) and in this subsection “agricultural society” and “fishery society” have the same meaning as in section 220 of the Income Tax Act, 1967 .

(8) Section 220 (7) of the Income Tax Act, 1967 , shall apply in relation to corporation tax as it applies in relation to income tax.

(9) On or before the 1st day of May in each year, every society shall deliver to the inspector a return in such form as the Revenue Commissioners may prescribe, showing—

(a) the name and place of residence of every person to whom share interest or loan interest amounting to the sum of £70 or more has been paid by the society in the year of assessment which ended next before the said 1st day of May, and

(b) the amount of such share interest or loan interest paid in that year to each of those persons,

and if such a return is not duly made as respects any year of assessment the society shall not be entitled to any deduction under section 219 (1) (deduction as expenses of certain sums etc.) or 81 (5) (e) of the Income Tax Act, 1967 (taxation of rents under short leases: deduction of loan interest), or section 10 (allowance of charges on income) in respect of any payments of share interest or loan interest which it was required to include in the return, and all such assessments and additional assessments shall be made as may be necessary to give effect to this subsection.

(10) The amendments made by subsections (5) and (6) shall not have effect in relation to income tax for the year 1975-76 or any earlier year of assessment.

Building societies.

31. —(1) The Revenue Commissioners and any building society may, as respects 1976-77 and any later year of assessment, enter into arrangements whereby—

(a) on such sums as may be determined in accordance with the arrangements the society is liable to account for and pay an amount representing income tax calculated in part at the standard rate and in part at a reduced rate which takes into account the operation of the subsequent provisions of this section; and

(b) provision is made for any incidental or consequential matters,

and any such arrangements shall have effect notwithstanding anything in this Act:

Provided that in exercising their powers of entering into arrangements under this section, the Revenue Commissioners shall, subject to subsection (3) (c) and paragraph (i) of the proviso to the said subsection, at all times aim at securing that (if the amount so payable by the society under the arrangements is regarded as income tax for the year of assessment) the total income tax becoming payable to, and not becoming repayable by, the State is, when regard is had to the operation of the subsequent provisions of this section, as nearly as may be the same in the aggregate as it would have been if those powers had never been exercised.

(2) Where for any year of assessment a building society enters into arrangements under this section, dividends or interest payable in respect of shares in, or deposits with or loans to, the society shall be dealt with for the purposes of corporation tax as follows—

(a) in computing for any accounting period ending in the year of assessment the total profits of the society there shall be allowed as a deduction the actual amount paid or credited in the accounting period of any such dividends or interest, together with the amount accounted for and paid by the society in respect thereof as representing income tax,

(b) in computing the income of a company which is paid or credited in the year of assessment with any such dividends or interest, the company shall be treated as having received an amount which, after deduction of income tax at the standard rate for the year of assessment, is equal to the amount paid or credited, and shall be entitled to a set-off or repayment of income tax accordingly,

(c) no part of any such dividends or interest paid or credited in the year of assessment shall be treated as a distribution of the society or as franked investment income of any company resident in the State.

(3) Notwithstanding anything in the Tax Acts, where any arrangements under this section are in force in the case of any society as respects any year of assessment—

(a) income tax shall not be deducted from any dividends or interest payable in that year in respect of shares in or deposits with or loans to that society,

(b) subject to subsection (2) (b), no repayment of income tax and, subject to paragraph (i) of the proviso to this subsection, no assessment to income tax shall be made in respect of any such dividends or interest to or on the person receiving or entitled to the dividends or interest,

(c) any amounts paid or credited in respect of any such dividends or interest, and no more, shall be treated as income in computing the total income of an individual entitled to those amounts, and

(d) subject to section 3 (1) (income tax on payments made or received by a company resident in the State), the amounts so paid or credited (and no more) shall, in applying section 433 (yearly interest, etc., payable wholly out of taxed profits) of the Income Tax Act, 1967 , to other payments, be treated as profits or gains which have been brought into charge to income tax:

Provided that—

(i) paragraph (b) shall not prevent an assessment in respect of income tax at the higher rates and for the purpose of charging to tax at the higher rates any amounts treated as income in accordance with paragraph (c), credit under section 4 (e) of the Finance Act, 1974 (charge to tax of income from which tax has been deducted), shall be given as if, by virtue of the provisions of Schedule D, tax had been deducted (at the standard rate for the year of assessment in which those amounts were paid or credited) from the amounts charged to tax at the higher rates:

(ii) the provisions of this subsection shall not apply in relation to interest on any bank loan; and

(iii) the provisions of this subsection shall not apply in relation to any interest which is payable in respect of a loan to the society under a contract made before the beginning of the first year of assessment as respects which the society enters into arrangements under subsection (1), if and to the extent that, both at the time of the making of the contract and at the time when the interest becomes payable, it is contemplated by the parties that tax shall be deducted on payment of the interest.

(4) Where any arrangements made under this section are in force in the case of any society as respects any year of assessment then, notwithstanding anything in the Tax Acts, income tax shall not be deducted upon payment to the society of any interest on advances, being interest payable in that year.

(5) If in the course of, or as part of, a union or amalgamation of two or more building societies, or a transfer of engagements from one building society to another, there is a disposal of an asset by one society to another, both shall be treated for purposes of corporation tax in respect of chargeable gains as if the asset were acquired from the one making the disposal for a consideration of such amount as would secure that on the disposal neither a gain nor a loss would accrue to the one making the disposal.

(6) Any arrangements made under this section as respects any year of assessment shall, if made after the beginning of that year, be deemed to have come into force at the beginning thereof, and any necessary adjustments shall be made in relation to any sums paid or credited before the date of the making of the arrangements.

(7) In this section “dividend” includes any distribution as defined for the purposes of this Act whether described as a dividend or otherwise.

(8) In this section “building society” means a building society within the meaning of the Building Societies Acts, 1874 to 1974.

(9) Notwithstanding anything in this Act, where for any year of assessment a building society enters into any arrangement under this section, the profits of the society in so far as they consist of income, shall, for any accounting period ending in the year of assessment be charged to corporation tax at the reduced rate provided for by section 79 (reduced rate of corporation tax for certain income), and, for the purposes of this subsection, the income of a society for an accounting period is its income for that period as defined in section 28 (8) for the purposes of that section.

(10) Where, under this section, a building society enters into arrangements for the year of assessment 1976-77 and is within the charge to corporation tax in respect of an accounting period which ends before the 6th day of April, 1976, subsection (2) (a) shall have effect in relation to such accounting period with the substitution for the reference to the amount accounted for and paid by the society in respect of the dividends and interest as representing income tax of a reference to the amount computed by reference to the dividends or interest in accordance with the provision made by any arrangements subsisting between such society and the Revenue Commissioners for the year 1975-76 with reference to dividends and interest for charging the society to income tax for that year.

Partnerships involving companies.

32. —(1) Subject to this section, the provisions of section 71 (1) (2) (a) (3) of the Income Tax Act, 1967 (separate assessment of partners), shall have effect for purposes of corporation tax as they have effect for purposes of income tax.

(2) Where the whole or part of an accounting period of a company is, or is part of, a period for which an account of a partnership trade has been made up, any necessary apportionments shall be made in computing the profits from or loss sustained in the company's several trade for the accounting period of the company.

(3) (a) Where a capital allowance equal to an appropriate share of a joint allowance would be made, if section 1 (2) (introduction for companies of corporation tax in place of income tax and corporation profits tax) had not been enacted, in charging to income tax the profits of a company's several trade for any year of assessment, the relevant amount shall for corporation tax purposes be treated as a trading expense of the company's several trade for any accounting period of the company any part of which falls within that year of assessment.

(b) Where a balancing charge equal to an appropriate share of a joint charge would be made, if section 1 (2) had not been enacted, in charging to income tax the profits of a company's several trade for any year of assessment, the relevant amount shall for corporation tax purposes be treated as a trading receipt of the company's several trade for any accounting period of the company any part of which falls within that year of assessment.

(c) In this subsection the “relevant amount” means—

(i) where the year of assessment and the accounting period coincide, the whole amount of the appropriate share of the joint allowance, or, as the case may be, the whole amount of the appropriate share of the joint charge, and

(ii) where part only of the year of assessment falls within the accounting period, such portion of the appropriate share of the joint allowance, or, as the case may be, such portion of the appropriate share of the joint charge as is apportioned to that part of the year of assessment which falls within the accounting period:

Provided that the relevant amount shall not include any part of the appropriate share of a joint allowance, or, as the case may be, any part of the appropriate share of a joint charge which was made in charging the profits of the company's several trade for the year 1974-75 or 1975-76.

(d) Notwithstanding the provisions of section 72 (8) of the Income Tax Act, 1967 (capital allowances and balancing charges in partnership cases), any reference in this subsection to a joint allowance for a year of assessment does not include a reference to any capital allowance which is or could be brought forward from a previous year of assessment.

(4) Where, under this section, an amount falls to be apportioned to a part of an accounting period of a company, to a part of a period for which an account of a partnership trade has been made up or to a part of a year of assessment, the apportionment shall be made by reference to the number of months or fractions of months contained in that part, and in the remainder of that period or year.

(5) In this section profits shall not be taken as including chargeable gains.

Expenses of management of assurance companies.

33. —(1) Subject to the provisions of sections 34 and 35, section 15 (deduction of management expenses of investment companies) shall apply for computing the profits of a company carrying on life business, whether mutual or proprietary, (and not charged to corporation tax in respect of it under Case I of Schedule D), whether or not the company is resident in the State, as that section applies in relation to an investment company except that—

(a) there shall be deducted from the amount treated as expenses of management for any accounting period the amount of any fines, fees or profits arising from reversions and in calculating profits arising from reversions the company may set off against those profits any losses arising from reversions in any previous accounting period during which any enactment granting this relief was in operation so far as they have not already been so set off, and

(b) no deduction shall be made under the proviso to section 15 (1).

(2) Relief under subsection (1) shall not be given to any such company, so far as it would, if given in addition to all other reliefs to which the company is entitled, reduce the corporation tax borne by the company on the income and gains of its life business for any accounting period to less than would have been paid if the company had been charged to tax in respect of that business under Case I of Schedule D; and where relief has been withheld in respect of any accounting period by virtue of this subsection, the excess to be carried forward by virtue of section 15 (2) shall be increased accordingly.

For the purposes of this subsection—

(a) any tax credit to which the company is entitled in respect of a distribution received by it shall be treated as an equivalent amount of corporation tax borne or paid in respect of that distribution; and

(b) any payment in respect of that credit under section 15 (4), 25 (set-off of losses etc. against franked investment income) or 26 (set-off of loss brought forward or terminal loss against franked investment income of financial concerns) shall be treated as reducing the tax so treated as borne or paid; and

(c) section 38 shall apply for the purposes of computing the profits of the life assurance business or the industrial assurance business, as the case may be, which would have been charged to tax under Case I of Schedule D.

The reference in paragraph 2 (1) of Schedule 1 to the Capital Gains Tax Act, 1975 (exclusion from consideration for disposals of sums chargeable to income tax), to computing income or profits or gains or losses shall not be taken as applying to a computation of a company's income for the purposes of this subsection.

Companies carrying on life business.

34. —(1) Where an assurance company carries on life business in conjunction with insurance business of any other class, the life business shall, for the purposes of corporation tax, be treated as a separate business from any other class of business carried on by the company.

(2) In ascertaining for the purposes of section 16 or 18 (relief for losses) whether and to what extent a company has incurred a loss on its life business any profits derived from the investments of its life assurance fund (including franked investment income of a company resident in the State) shall be treated as part of the profits of that business.

Profits of life business.

35. —(1) Where the profits of an assurance company in respect of its life business are, for the purposes of this Act, computed in accordance with the provisions applicable to Case I of Schedule D, the following provisions shall have effect—

(a) such part of those profits as belongs or is allocated to, or is expended on behalf of, policy holders or annuitants shall be excluded in making the computation;

(b) such part of those profits as is reserved for policy holders or annuitants shall also be excluded in making the computation, but if any profits so excluded as being so reserved cease at any time to be so reserved and are not allocated to, or expended on behalf of, policy holders or annuitants then those profits shall be treated as profits of the company for the accounting period in which they ceased to be so reserved.

(2) Where an assurance company carries on both life assurance business and industrial assurance business, the business of each such class shall, for the purposes of this Act, be treated as though it were a separate business and section 33 shall apply separately to each such class of business.

Investment income reserved for policy holders.

36. —(1) A claim may be made under this section by an assurance company carrying on life business in respect of unrelieved income from investments held in connection with that business.

(2) If on the claim the company proves that it has, for any financial year for which the rate of corporation tax exceeds the standard rate of income tax for the year of assessment in which that year ends, borne corporation tax in respect of any of the said unrelieved income, the company shall be entitled to repayment of so much of that tax borne by it for that year as is equal to the amount by which—

(a) the corporation tax borne by the company for that year in respect of the part specified in subsection (5) of the said unrelieved income,

exceeds—

(b) the corporation tax which would have been so borne in respect of that part of that income if the rate of corporation tax for that year had been equal to the standard rate of income tax for the said year of assessment.

(3) For the purposes of this section and section 37—

(a) “unrelieved income” means income which has not been excluded from charge to tax by virtue of any provision and against which no relief has been allowed by deduction or set-off;

(b) the amount of tax which has been or would be borne by a company shall be taken to be the amount of tax which has been or would be so borne after allowance of any relief to which the company is or would be entitled otherwise than under the provisions of this section.

(4) The franked investment income from investments held in connection with a company's life business shall be apportioned between policy holders or annuitants and shareholders by attributing to policy holders or annuitants such fraction of the said income as the fraction of the profits of the company's life business which, on a computation of such profits in accordance with the provisions applicable to Case I of Schedule D (whether or not the company is in fact charged to tax under that Case for the relevant accounting period or periods) would be excluded under section 35 (1) (a) (b):

Provided that, if the franked investment income exceeds the profits as computed in accordance with those provisions other than section 35, the part attributable to policy holders or annuitants shall be that fraction of the income so far as not exceeding the profits, together with the amount of the excess.

(5) (a) Where the aggregate of the said unrelieved income and the shareholders' part of the franked investment income exceeds the profits of the company in respect of its life business for the relevant accounting periods computed in accordance with the provisions of Case I of Schedule D as extended by sections 35 and 38 (whether or not the company is charged to tax under that Case) the said part shall be the amount of that excess or the unrelieved income whichever is the less, and

(b) where the said aggregate is less than the profits of the company's life business as so computed the provisions of subsection (2) shall not apply.

Chargeable gain reserved for policy holders.

37. —(1) The policy holders' share of the life assurance gains shall not be reduced under section 13 (computation of chargeable gains) but corporation tax charged on so much of that share as remains after setting against it the amounts referred to in subsection (2) (c) shall be calculated as if the rate of corporation tax were 26 per cent.

(2) For the purposes of this section there shall be ascertained the policy holders' share and the remainder (in this section referred to as the residual part) of the life assurance gains and of the relevant reliefs; and—

(a) the residual part of the relevant reliefs shall be set against so much of the residual part of those gains as remains after reducing it in accordance with section 13; and

(b) if the residual part of the relevant reliefs exceeds the residual part, as so reduced, of those gains, the excess (or so much of it as does not, together with the policy holders' share of the relevant reliefs, exceed the policy holders' share of those gains) shall be added to the policy holders' share of the relevant reliefs; and—

(c) the policy holders' share of the relevant reliefs, with any addition made under paragraph (b), shall be set against the policy holders' share of the life assurance gains.

(3) For the purposes of this section—

(a) the life assurance gains are such part of the amount which, if the words “reduced by 48 per cent. thereof” in section 13 (1) were deleted, would be included in the company's total profits as is attributable to gains from investments held in connection with the company's life business;

(b) the relevant reliefs are such of the sums to be deducted from or set off against the company's profits as are deducted from or set off against the life assurance gains;

(c) (i) where paragraph (a) of section 36 (5) applies to unrelieved income, the amount of the policy holders' share of the life assurance gains or of the relevant reliefs is the full amount; and

(ii) where paragraph (b) of section 36 (5) applies to unrelieved income, all the life assurance gains and relevant reliefs shall be included in the residual part.

Life business: computation of profits.

38. —For the purposes of sections 33, 36 and 37 the exclusion by section 2 from the charge to corporation tax of franked investment income shall not prevent such income of a company resident in the State which is attributable to the investments of the company's life assurance fund from being taken into account as part of the profits in computing trading income in accordance with the provisions applicable to Case I of Schedule D.

Annuity business: separate charge on profits.

39. —(1) Except in the case of an assurance company charged to tax in accordance with the provisions applicable to Case I of Schedule D in respect of the profits of its life assurance business, profits arising to an assurance company from pension business or from general annuity business, shall be treated as annual profits or gains within Schedule D, and be chargeable to corporation tax under Case IV of that Schedule, and for that purpose—

(a) the business of each such class shall be treated separately, and

(b) subject to the foregoing paragraph and subsection (2), the profits therefrom shall be computed in accordance with the provisions applicable to Case I of Schedule D.

(2) In making the said computation—

(a) section 35 (1) shall apply with the necessary modifications and, in particular, with the omission therefrom of all references to policy holders other than holders of policies referable to pension business, and

(b) no deduction shall be allowed in respect of any expense being an expense of management referred to in section 33 or 47, and

(c) there may be set off against the profits of pension business or general annuity business any loss, to be computed on the same basis as the profits, which was sustained in the same class of business in any previous accounting period while the company was within the charge to corporation tax in respect of that class of business so far as it has not already been so set off.

(3) Section 19 (losses in transactions from which income would be chargeable under Case IV or V of Schedule D) shall not be taken as applying to a loss sustained by a company on its general annuity business or pension business.

(4) The treatment of an annuity as containing a capital element for the purposes of section 239 of the Income Tax Act, 1967 (capital element in certain purchased annuities), shall not prevent the full amount of the annuity from being deductible in computing profits or from being treated as a charge on income for the purposes of the Corporation Tax Acts.

General annuity business.

40. —(1) In the case of a company carrying on general annuity business, the annuities paid by the company, so far as referable to that business and so far as they do not exceed the taxed income of the part of the annuity fund so referable, shall be treated as charges on income.

(2) In computing under section 39 the profits arising to an assurance company from general annuity business—

(a) taxed income shall not be taken into account as part of those profits, and

(b) of the annuities paid by the company and referable to general annuity business—

(i) those which under subsection (1) are treated as charges on income shall not be deductible, and

(ii) those which are not so treated shall, notwithstanding section 11 (computation of income: application of income tax principles), be deductible.

(3) In this section “taxed income” means income charged to corporation tax otherwise than under section 39, and franked investment income.

(4) A company which is not resident in the State but carries on through a branch or agency there any general annuity business shall not be entitled to treat any part of the annuities paid by it which are referable to that business as paid out of profits or gains brought into charge to income tax.

Pension business.

41. —(1) Exemption from corporation tax shall be allowed in respect of income from, and chargeable gains in respect of, investments and deposits of so much of an assurance company's life assurance fund and separate annuity fund, if any, as is referable to pension business.

(2) The exemption from tax conferred by subsection (1) shall not exclude any sums from being taken into account as receipts in computing profits or losses for any purpose of the Corporation Tax Acts.

(3) Subject to subsection (4) the exclusion by section 2 from the charge to corporation tax of franked investment income shall not prevent such income being taken into account as part of the profits in computing under section 39 income from pension business.

(4) If for any accounting period there is, apart from this subsection, a profit arising to an assurance company from pension business (computed in accordance with the provisions of section 39) and the company so elects as respects all or any part of its franked investment income arising in that period, being an amount of franked investment income not exceeding the amount of the said profit, subsections (1) and (3) shall not apply to the franked investment income to which the election relates.

An election under this subsection shall be made by notice in writing given to the inspector not later than two years after the end of the accounting period to which the election relates, or within such longer period as the Revenue Commissioners may by notice in writing allow.

(5) In computing under section 39 the profits from pension business, annuities shall be deductible notwithstanding section 11 (5) and a company shall not be entitled to treat as paid out of profits or gains brought into charge to income tax any part of the annuities paid by the company which is referable to pension business.

Foreign life assurance funds.

42. —(1) Corporation tax under Case III of Schedule D on income arising from securities and possessions in any place outside the State which form part of the investments of the foreign life assurance fund of an assurance company shall be computed on the full amount of the actual sums received in the State from remittances payable in the State, or from property imported, or from money or value arising from property not imported, or from money or value so received on credit or on account in respect of such remittances, property, money or value brought into the State without any deduction or abatement.

(2) Where—

(a) any securities issued by the Minister for Finance with a condition in the terms specified in section 464 of the Income Tax Act, 1967 (issue of securities with exemption from tax), or

(b) any stocks or other securities to which section 474 (exemption of certain securities from tax) of the said Act applies and which are issued with either or both of the conditions specified in subsection (2) of that section,

for the time being form part of the investments of the foreign life assurance fund of an assurance company, the income arising from any of those stocks or securities, if applied for the purposes of that fund or reinvested so as to form part of that fund, shall not be liable to tax.

(3) Where the Revenue Commissioners are satisfied that any income arising from the investments of the foreign life assurance fund of an assurance company has been remitted to the State and invested, as part of the investments of that fund, in any stocks or securities issued as aforesaid, that income shall not be liable to tax and any tax paid thereon shall, if necessary, be repaid to the company on the making of a claim.

(4) Where income from the investments of the foreign life assurance fund of an assurance company has been relieved from tax in pursuance of the provisions of this section a corresponding reduction shall be made—

(a) in the relief granted under section 33 in respect of expenses of management, and

(b) in any amount on which the company is chargeable to tax by virtue of section 39—

(i) in respect of general annuity business, or

(ii) in respect of pension business,

in so far as the investment income relieved is referable to general annuity business or pension business as the case may be.

(5) In this section “foreign life assurance fund”—

(a) means any fund representing the amount of the liability of an assurance company in respect of its life business with policy holders and annuitants residing outside the State whose proposals were made to, or whose annuity contracts were granted by, the company at or through a branch or agency outside the State, and

(b) where such a fund is not kept separately from the life assurance fund of the company, means such part of the life assurance fund as represents the liability of the company under such policies and annuity contracts, such liability being estimated in the same manner as it is estimated for the purposes of the periodical returns of the company.

(6) While agreements mentioned in Part I of Schedule 6 to the Income Tax Act, 1967 , remain in force, subsection (5) shall have effect as if after “State” in each place where it occurs, there were inserted “, Northern Ireland and Great Britain”.

(7) Where an assurance company having its head office in the State carries on business in Northern Ireland or Great Britain and under provisions of the law therein corresponding with section 41 exemption from corporation tax is allowable in respect of income from investments and deposits referable to pension business, this section shall have effect in relation to the income so exempt in Northern Ireland and Great Britain with the omission of subsection (6).

(8) Where this section has effect in relation to income arising from investments of any part of an assurance company's life assurance fund, it shall have the like effect in relation to chargeable gains accruing from the disposal of any such investments, and losses so accruing shall not be allowable losses.

Overseas life assurance companies: investment income.

43. —(1) Any income of an overseas life assurance company from the investments of its life assurance fund (excluding the pension fund and general annuity fund, if any), wherever received, shall, to the extent provided in this section, be deemed to be profits comprised in Schedule D and shall be charged to corporation tax under Case III of Schedule D.

(2) Distributions received from companies resident in the State shall be brought into account under this section notwithstanding their exclusion from the charge to corporation tax.

(3) A portion only of the income from the investments of the life assurance fund (excluding the pension fund and general annuity fund, if any) shall be charged in accordance with subsection (1), and for any accounting period that portion shall be determined by the formula

A × B

_____

C

where—

A is the total income from those investments for that period,

B is the average of the liabilities for that period to policy holders resident in the State and to policy holders resident outside the State whose proposals were made to the company at or through its branch or agency in the State, and

C is the average of the liabilities for that period to all the company's policy holders,

but any reference in this subsection to liabilities does not include liabilities in respect of general annuity and pension business.

(4) For the purposes of this section—

(a) the liabilities of an assurance company attributable to any business at any time shall be ascertained by reference to the net liabilities of the company as valued by an actuary for the purposes of the relevant periodical return, and

(b) the average of any liabilities for an accounting period shall be taken as one-half of the aggregate of the liabilities at the beginning and end of the valuation period which coincides with that accounting period or in which that accounting period falls.

(5) (a) Where the average of branch liabilities for an accounting period exceeds the mean value for the accounting period of the assets to which this subsection applies, the amount to be included in profits under section 13 (1), or that subsection as modified by section 37, shall be an amount determined by the formula

A × B

_____

C

where—

A is the amount which apart from this subsection would be so included in profits,

B is the average of branch liabilities for the accounting period, and

C is the mean value for the accounting period of the assets to which this subsection applies.

(b) For the purposes of this subsection—

(i) “the average of branch liabilities for an accounting period” means the aggregate of the amounts represented by B in subsection (3), B in section 44 (2) and the average of the liabilities attributable to pension business for the accounting period, and

(ii) “the assets to which this subsection applies” are assets the gains from the disposal of which are chargeable to corporation tax by virtue of section 4 (2) (6) (8) (a) of the Capital Gains Tax Act, 1975 , with the addition of assets the gains from the disposal of which would, but for sections 19 and 24 of, and paragraph 2 of Schedule 1 to, that Act, be so chargeable.

(6) Section 75 (1) of the Income Tax Act, 1967 (income chargeable under Case III), as applied to corporation tax, shall not apply to income to which subsection (1) applies.

Overseas life assurance companies: general annuity and pension businesses.

44. —(1) Nothing in the Corporation Tax Acts shall prevent the distributions of companies resident in the State from being taken into account as part of the profits in computing, under section 39, the profits arising from pension business and general annuity business to an overseas life assurance company.

(2) Any charge to tax under section 39 for any accounting period on profits arising to an overseas life assurance company from general annuity business shall extend only to a portion of the profits arising from that business and that portion shall be determined by the formula

A × B

_____

C

where—

A is the total amount of those profits,

B is the average of the liabilities attributable to that business for the relevant accounting period in respect of contracts with persons resident in the State or contracts with persons resident outside the State whose proposals were made to the company at or through its branch or agency in the State, and

C is the average of the liabilities attributable to that business for that accounting period in respect of all contracts.

(3) For the purposes of this section—

(a) the liabilities of an assurance company attributable to general annuity business at any time shall be ascertained by reference to the net liabilities of the company as valued by an actuary for the purposes of the relevant periodical return, and

(b) the average of any liabilities for an accounting period shall be taken as one-half of the aggregate of the liabilities at the beginning and end of the valuation period which coincides with that accounting period or in which that accounting period falls.

Overseas life assurance companies: income tax, foreign tax and tax credit.

45. —(1) Section 12 (6) (miscellaneous special rules for computation of income) shall not affect the liability to tax of an overseas life assurance company in respect of the investment income of its life assurance fund under section 43 or in respect of the profits of its annuity business under the provisions of sections 39, 41 and 44.

(2) For the purposes of section 8 (3) (set-off by non-resident companies of income tax deducted from payments received against corporation tax), as it applies to life business, the amount of the income tax referred to in that subsection which shall be available for set-off under that subsection in an accounting period shall be limited in accordance with subsections (3) and (4).

(3) If the company is chargeable to corporation tax for an accounting period in accordance with section 43 in respect of the income from the investments of its life assurance fund, the amount of income tax available for set-off against any corporation tax assessed for that period on that income shall not exceed an amount equal to income tax at the standard rate on the portion of income from investments which is chargeable to corporation tax by virtue of subsection (3) of that section.

(4) If the company is chargeable to corporation tax for an accounting period in accordance with section 44 on a proportion of the total amount of the profits arising from its general annuity business, the amount of income tax available for set-off against any corporation tax assessed for that period on those profits shall not exceed an amount equal to income tax at the standard rate on the like proportion of the income from investments included in computing those profits.

(5) Where an overseas life assurance company receives a distribution in respect of which it is entitled to a tax credit the company may claim to have that credit set off against any corporation tax assessed on the company under section 43 or 44 for the accounting period in which the distribution is received, but the restriction in subsections (3) and (4) on the amount of income tax that may be set off against corporation tax assessed under the said section 43 or 44 shall apply to the aggregate of that income tax and of the tax credit that can be so set off by virtue of this subsection.

(6) Paragraph 3 (6) of Schedule 1 to the Capital Gains Tax Act, 1975 (rules for computation of capital gains), shall not affect the liability to tax under section 43 of an overseas life assurance company in respect of gains from the disposal of investments held in connection with its life business.

Overseas life assurance companies: distributions set off against income.

46. —(1) Where an overseas life assurance company receives a distribution from a company resident in the State and relief in respect of the distribution is not available or is not claimed under arrangements made under section 361 of the Income Tax Act, 1967 (agreements for relief from double taxation of income), as applied for purposes of corporation tax, the overseas life assurance company shall be deemed for the purposes of sections 39, 41, 43, 44 and 45 to be entitled to such a tax credit in respect of the distribution as it would be entitled to if it were a company resident in the State; and accordingly for the purposes of those provisions the income represented by the distribution shall be the aggregate of the distribution and the tax credit.

(2) Where under subsection (1) an overseas life assurance company is deemed to be entitled to a tax credit in respect of a distribution, it may claim to have the income represented by the distribution set off, subject to subsection (3), against its profits chargeable to tax under section 39 or against its income chargeable to tax in accordance with section 43 or partly against the one and partly against the other; but to the extent that any income is so set off the tax credit included in it shall not be payable and shall not be set off against corporation tax under section 45 (5).

(3) The amounts that an overseas life assurance company may by virtue of this section set off against profits or income of any description shall not exceed the amount of the profits or income of that description and shall be further limited as follows—

(a) the amount set off against profits arising from general annuity business shall not exceed a portion of the company's income from investments referable to that business, and that portion shall be determined by the same formula as determines under section 44 the portion of those profits which is chargeable to tax; and

(b) the amount set off against profits from pension business shall not exceed such of its income referable to that business as is represented by distributions in respect of which the company is deemed to be entitled to a tax credit by virtue of this section, and shall not reduce any other income.

(4) Where by virtue of a set-off under this section income or profits of any description are reduced by any amount, that amount shall be left out of account in determining the amount of income tax which is available for set-off against corporation tax under section 8 (3).

(5) A claim under this section in respect of a distribution shall not prevent the making of a subsequent claim for relief in respect of that distribution under arrangements made under the said section 361; but where such a subsequent claim is made the claim under this section shall be deemed never to have been made, and no adjustment (whether by additional assessments or otherwise) to which the subsequent claim gives rise shall be out of time if it is made within twelve months after the making of the subsequent claim.

Overseas life assurance companies: expenses of management.

47. —(1) For the purposes of relief under section 33, the expenses of management of an overseas life assurance company shall be apportioned between its pension business, its general annuity business and its life assurance business (excluding such pension business and general annuity business) and the amount referable to each such class of business shall be such amount as bears to the total expenses of management the same proportion as the average of the liabilities for the accounting period attributable to that class in respect of policies and contracts bears to the average of liabilities of the company for that period in respect of all policies and contracts of its life assurance business.

(2) Where an overseas life assurance company is charged to corporation tax under Case III of Schedule D on a proportion of the income from investments of its life assurance fund in accordance with section 43, relief under section 33 in respect of the expenses of management referable to that class of business under subsection (1) shall be computed by reference to a like proportion of the expenses so referable.

(3) Where an overseas life assurance company is charged to corporation tax under Case IV of Schedule D on a proportion of the profits of its general annuity business in accordance with section 44, the relief under section 33 in respect of expenses of management referable to that class of business under subsection (1) shall be computed by reference to a like proportion of such expenses so referable.

(4) Where an overseas life assurance company is charged to corporation tax under Case IV of Schedule D in respect of pension business, relief under section 33 in respect of the expenses of management referable to that class of business under subsection (1) shall be computed by reference to the full amount of expenses so referable.

(5) For the purposes of this section the liabilities of an assurance company attributable to any business at any time shall be ascertained by reference to the net liabilities of the company as valued by an actuary for the purposes of the relevant periodical return.

(6) For the purposes of this section, the average of any liabilities for an accounting period shall be taken as one-half of the aggregate of the liabilities at the beginning and end of the valuation period which coincides with that accounting period or in which that accounting period falls.

Life policies carrying rights not in money.

48. —Where any investments or other assets are, in accordance with a policy issued in the course of life business carried on by an assurance company, transferred to the policy holder, the policy holder's acquisition of the assets, and the disposal of them to him, shall be deemed to be for a consideration equal to the market value of the assets—

(a) for the purposes of the Capital Gains Tax Act, 1975 , and

(b) for the purposes of computing income in accordance with Case I or IV of Schedule D.

Benefits from life policies issued before 6th April, 1974.

49. —(1) This section applies in relation to policies of life assurance issued before the 6th day of April, 1974, by a company carrying on life business, being policies which—

(a) provide for benefits consisting to any extent of investments of a specified description or of a sum of money to be determined by reference to the value of such investments, but

(b) do not provide for the deduction from those benefits of any amount by reference to tax chargeable in respect of chargeable gains.

(2) Where—

(a) the investments of the company's life assurance fund, so far as referable to those policies, consist wholly or mainly of investments of the description so specified, and

(b) on the company becoming liable under any of those policies for any such benefits (including benefits to be provided on the surrender of a policy), a chargeable gain accrues to the company from the disposal, in meeting or for the purpose of meeting that liability, of investments of that description forming part of its life assurance fund, or would so accrue if the liability were met by or from the proceeds of such a disposal,

then the company shall be entitled as against the person receiving the benefits to retain thereout a part thereof not exceeding in amount or value corporation tax at the full rate in respect of the chargeable gain referred to in paragraph (b) computed without regard to any amount retained under this subsection and reduced in accordance with section 13 (1).

Interpretation.

50. —(1) This section has effect for the interpretation of sections 33 to 49 and this section.

(2) Unless the context otherwise requires—

actuary” has the meaning assigned to it in section 3 of the Insurance Act, 1936 ;

annuity business” means the business of granting annuities on human life;

annuity fund” means, where an annuity fund is not kept separately from the life assurance fund of an assurance company, such part of the life assurance fund as represents the liability of the company under its annuity contracts, as stated in its periodical returns;

assurance company” has the meaning assigned to it in section 3 of the Insurance Act, 1936 ;

general annuity business” means any annuity business which is not pension business and “pension business” shall be construed in accordance with subsections (3) and (4);

life business” includes “life assurance business” and “industrial assurance business” which have the meanings assigned to them in section 3 of the Insurance Act, 1936 , and where a company carries on both businesses may mean either;

life assurance fund” and “industrial assurance fund” have the meanings assigned to them in the Insurance Acts, 1909 to 1969, and life assurance fund, in relation to industrial assurance business, means the industrial assurance fund;

overseas life assurance company” means an assurance company having its head office outside the State but carrying on life assurance business through a branch or agency in the State;

pension fund” and “general annuity fund” shall be construed in accordance with subsection (3);

periodical return”, in relation to an assurance company, means a return deposited with the Minister for Industry and Commerce under the Assurance Companies Act, 1909, and the Insurance Act, 1936 ;

policy” and “premium” have the meanings assigned to them in section 3 of the Insurance Act, 1936 ;

valuation period” means the period in respect of which an actuarial report is made under section 5 of the Assurance Companies Act, 1909, as extended by section 55 of the Insurance Act, 1936 .

(3) Any division to be made between general annuity business, pension business and other life assurance business shall be made on the principle of—

(a) referring to pension business any premiums falling within subsection (4), together with the incomings, outgoings and liabilities referable to those premiums, and the policies and contracts under which they are or have been paid,

(b) allocating to general annuity business all other annuity business,

and references to “pension fund” and “general annuity fund” shall be construed accordingly whether or not such funds are kept separately from the assurance company's life assurance fund.

(4) The premiums to be referred to pension business are those payable under contracts falling (at the time when the premium is payable) within one or other of the following descriptions, that is to say—

(a) any contract with an individual who is, or would but for an insufficiency of profits or gains be, chargeable to tax in respect of relevant earnings (as defined in section 235 of the Income Tax Act, 1967 (retirement annuities: relief for premiums)) from a trade, profession, office or employment carried on or held by him, being a contract approved by the Revenue Commissioners under that section or section 235A (approval of contracts for dependants or for life assurance) of the Income Tax Act, 1967 (inserted by section 66 of the Finance Act, 1974 );

(b) any contract (including a contract of assurance) entered into for the purposes of, and made with the persons having the management of, an exempt approved scheme as defined in Chapter II of Part I of the Finance Act, 1972 , being a contract so framed that the liabilities undertaken by the assurance company under the contract correspond with liabilities against which the contract is intended to secure the scheme;

(c) any contract with the trustees or other persons having the management of a superannuation fund within the meaning of section 222 of the Income Tax Act, 1967 (exemption of superannuation funds), or of a scheme approved under section 235 or 235A of that Act or under both of those sections, being a contract which—

(i) was entered into for the purposes only of that fund or scheme or, in the case of a fund part only of which is approved under the said section 222, then for the purposes only of that part of that fund, and

(ii) (in the case of a contract entered into or varied on or after the 6th day of April, 1958) is so framed that the liabilities undertaken by the assurance company under the contract correspond with liabilities against which the contract is intended to secure the fund (or the relevant part of it) or the scheme,

and in this and the last preceding subsection “premium” includes any consideration for an annuity.

Treatment of tax-free income of non-resident banks, etc.

51. —(1) Where a banking business, an insurance business or a business consisting wholly or partly in dealing in securities is carried on in the State by a person not resident therein, then—

(a) in computing for the purposes of this Act the profits arising from, or loss sustained in, the business, and

(b) in the case of an insurance business, also in computing the profits or loss from pension business and general annuity business under section 39,

the provisions of section 11 shall not prevent the inclusion of interest, dividends and other payments to which section 50 (securities of foreign territories) or 462 (exemption of dividends of non-residents) of the Income Tax Act, 1967 , extends notwithstanding the exemption from tax conferred by those sections respectively.

(2) Where—

(a) any such business as aforesaid is carried on in the State by a person not ordinarily resident therein, and

(b) in making any such computation as aforesaid with respect to that business, interest on tax-free securities is excluded by virtue of a condition of the issue of such securities,

any expenses attributable to the acquisition or holding of, or to any transaction in, the securities (but not including in those expenses any interest on borrowed money), and any profits or losses so attributable, shall also be excluded in making that computation.

(3) In the case of an overseas life assurance company as defined in section 50—

(a) in computing for the purposes of section 43 the income from the investments of the life assurance fund of the company, any interest, dividends and other payments to which section 50 or 462 of the Income Tax Act, 1967 , extends shall be included notwithstanding the exemption from tax conferred by those sections respectively.

(b) where in computing the said income interest on any tax-free securities is excluded by virtue of a condition of the issue of such securities, the relief under section 47 (2) shall be reduced so as to bear to the amount of relief which would be granted but for this paragraph the same proportion as the amount of that income, excluding the said interest, bears to the amount of that income including that interest, and

(c) where subsection (2) applies to the pension business or general annuity business of the company the relief under section 47 (3) or (4), as the case may be, shall be reduced so as to bear to the amount of the relief which would be so granted but for this paragraph the same proportion as the amount of the income (excluding interest on tax-free securities) from investments and deposits of the company's life assurance fund and separate annuity fund, if any, referable to that business bears to the said income so referable including such interest.

(4) In this section and in section 52 “tax-free securities” means securities to which section 464 (issue of securities with exemption from tax), 470 (securities of Irish local authorities issued abroad) or 474 (exemption of certain securities from tax) of the Income Tax Act, 1967 , applies and which were issued with a condition regulating the treatment of the interest thereon for tax purposes such that interest on the securities is excluded in computing income or profits.

(5) In this section “insurance business” includes assurance business within the meaning of section 3 of the Insurance Act, 1936 .

(6) In subsection (1) “securities” includes stocks and shares.

Tax-free securities: exclusion of interest on borrowed money.

52. —(1) This section has effect where section 51 (2) applies to a business for any accounting period.

(2) Up to the amount determined under this section (called the amount ineligible for relief) interest becoming due for payment on or after the 6th day of April, 1976, on money borrowed for the purposes of the business—

(a) shall be excluded in any computation under this Act of the profits (or loss) arising from the business or, where subsection (5) applies, arising from any annuity business or pension business forming part of the life business, and

(b) shall be excluded from the definition of “charges on income” in section 10.

(3) In determining the amount ineligible for relief, account shall be taken of all money borrowed for the purposes of the business which is outstanding in the accounting period, up to the total cost of the tax-free securities held for the purposes of the business in that period:

Provided that account shall not be taken of any borrowed money carrying interest which, apart from subsection (2), does not fall to be included in the computations under paragraph (a) of that subsection, and is not to be treated as a charge on income for the purposes of this Act.

(4) Subject to subsection (5), the amount ineligible for relief shall be equal to a year's interest on the amount of money borrowed which is to be taken into account under subsection (3) at a rate equal to the average rate of interest in the accounting period on money borrowed for the purposes of the business, except that in the case of an accounting period of less than twelve months, interest shall be taken for that shorter period instead of for a year.

(5) Where relief for expenses of management is to be granted to an overseas life assurance company for any accounting period and that relief falls to be reduced under section 51 (3) (b) the amount ineligible for relief shall be a fraction of the amount of interest in the accounting period on money borrowed for the purposes of the life business (excluding pension business and general annuity business, if any) and that fraction shall be the fraction which is income from tax-free securities divided by total investment income of the life assurance fund.

(6) For the purposes of this section, the cost of a holding of tax-free securities which has fluctuated in the accounting period shall be the average cost of acquisition of the initial holding, and of any subsequent acquisitions in the accounting period, applied to the average amount of the holding in the accounting period, and this subsection shall be applied separately to securities of different classes.