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6 1967

INCOME TAX ACT, 1967

Chapter III

Payments by Companies to Associated Companies in Respect of Losses

Interpretation.

323. —In this Chapter—

accounting period” means, in relation to a company, a period for which the accounts of the company have been made up;

auxiliary company” means a company incorporated not earlier than the 14th day of December, 1961, and not later than the 31st day of March, 1965, being a company—

(a) of whose ordinary share capital—

(i) a part is held beneficially by each of two or more companies, and

(ii) not less than 95 per cent. is held beneficially by companies, and

(b) which does not hold any stock, share or security issued by a company holding beneficially a part of such ordinary share capital;

capital allowances” means allowances, other than allowances falling to be made in computing profits or gains, under section 241 or Part XIV, XV, XVI or XVII;

company” means a body corporate resident in the State and carrying on a trade;

deficiency payment” means a payment made to an auxiliary company by one of its principal companies under an agreement providing for the principal company to bear, or share in, losses or a particular loss sustained by the auxiliary company in a trade carried on by it, not being a payment which, apart from this Chapter, would fall to be taken into account in computing profits or gains or losses of either company or would fall to be treated as income of the auxiliary company;

ordinary share capital” means, in relation to a company, all the issued capital (by whatever name called) of the company, other than capital the holders whereof have a right to a dividend at a fixed rate or a rate fluctuating in accordance with the rate of income tax, but have no other right to share in the profits of the company;

principal company” means, in relation to an auxiliary company a company which holds beneficially a part of the ordinary share capital of that company;

trade” means a trade carried on wholly or partly in the State.

Treatment of deficiency payments as trading receipts and trading expenses.

324. —(1) Subject to the provisions of this Chapter, where an auxiliary company—

(a) has a deficiency in a trade for an accounting period, and

(b) receives in relation to the trade a deficiency payment in respect of that period, being a deficiency payment in relation to which this subsection applies,

then, in computing for the purposes of income tax the profits or gains or losses of the company and of the principal company from which the payment was received, the payment shall be treated as a trading receipt of the auxiliary company, receivable by that company on the last day of the period, and shall be allowed as a deduction to the principal company as if it were a trading expense incurred on that day.

(2) A deficiency payment in respect of an accounting period shall be a deficiency payment in relation to which subsection (1) applies if (but only if)—

(a) at all times during the period—

(i) the payee company was an auxiliary company, and

(ii) the paying company was, in relation to the payee company, a principal company, and

(b) the payment is made not later than three years after the end of the period.

(3) If an auxiliary company receives in respect of an accounting period a deficiency payment or deficiency payments from one or more principal companies and the payment or the aggregate of the payments exceeds the deficiency in its relevant trade for that period, the excess shall be disregarded for the purposes of this Chapter; and, where payments by more than one principal company are in question, the payments shall be treated as abating in such manner as may be agreed between all the companies concerned or, in default of agreement, as may be determined by the Revenue Commissioners.

(4) Where a deficiency payment is made to an auxiliary company in respect of more than one accounting period of that company or is made by a principal company carrying on more than one trade, the apportioned part of the payment to be attributed for the purposes of this Chapter to any period or trade shall be determined by the Revenue Commissioners.

Meaning of “deficiency”.

325. —(1) For the purposes of this Chapter—

(a) a company has a deficiency in a trade for an accounting period if (but only if) the aggregate amount of—

(i) any loss sustained in the trade in the period (computed in like manner as profits or gains under the provisions, other than this Chapter, applicable to Case I of Schedule D),

(ii) any amounts referable to the period of capital allowances falling to be made in charging the profits or gains of the trade for any year of assessment of which the whole or a part is within the period, and

(iii) any payments to which section 433 or 434 applies (other than payments to which section 434 applies by virtue of section 288) being payments made wholly and exclusively for the purposes of the trade and not deductible in computing the profits or gains or losses of the trade,

exceeds the aggregate amount of—

(I) any profits or gains arising from the trade in the period (computed in accordance with the provisions, other than this Chapter, applicable to Case I of Schedule D), and

(II) any amounts referable to the period of balancing charges under Part XVI falling to be made in charging the profits or gains of the trade for any year of assessment of which the whole or a part is within the period, and

(b) if there is such an excess, the amount of the deficiency shall be taken as being equal to the amount of the excess.

(2) For the purposes of this section the amount of an allowance or charge referable to a period shall be taken to be the amount thereof to be taken into account in computing for the purposes of corporation profits tax the profits of the company for that period.

Adjustment of assessments in certain cases.

326. —(1) Where under the foregoing provisions of this Chapter a deficiency payment, or part of a deficiency payment, made by a principal company falls to be treated as an expense of a trade incurred in an accounting period of which the whole or a part—

(a) falls within the company's basis periods for more than one year of assessment, or

(b) does not fall within the company's basis period for any year of assessment,

then, such adjustments, if any, shall be made—

(i) in a case within paragraph (a), of the assessment for any year mentioned in that paragraph other than the first, or

(ii) in a case within paragraph (b), of the assessment for the year next following the end of the said accounting period or, where the trade has been permanently discontinued before the beginning of that year, for the year in which the said accounting period ends,

as may be necessary to secure that, so far as may be, the aggregate of the amounts which, disregarding this Chapter, would be the final assessments on the company is reduced by an amount neither more nor less than the amount of the deficiency payment.

(2) For the purposes of this section a company's basis period for a year of assessment is the period on the profits or gains of which income tax for that year falls to be finally computed under Case I of Schedule D in respect of the trade in question.

Method of giving effect to this Chapter.

327. —There shall be made such additional assessments, reductions of assessments or repayments of tax as may in any case be required in order to give effect to this Chapter; and where a deficiency payment reduces or extinguishes a loss in respect of which a company has received repayment of tax under section 307 or 311, so much of the repayment as would not have been made if the deficiency payment had been taken into account shall, if not otherwise made good, be recovered from the company by assessment under Case IV of Schedule D; and for the purpose of such assessment the deficiency payment, or an appropriate part thereof, shall be deemed to be income chargeable under the said Case IV for the year of assessment for which the repayment was made.

Restriction of relief for losses of auxiliary companies.

328. —This Chapter shall not have effect in relation to a loss sustained by an auxiliary company during an accounting period beginning more than five years after the date on which the company first commenced to trade; and where, after a trade has been set up or commenced by an auxiliary company, the trade, or a part of the trade, becomes carried on by any other company, the other company shall, for the purposes of this section, be deemed to have first commenced to trade on the same day as the first-mentioned company.