CHAPTER 4

Income tax and corporation tax: treatment of certain losses and certain capital allowances

402. —(1) (a) In this section—

“functional currency” means—

(i) in relation to a company resident in the State, the currency of the primary economic environment in which the company operates, and

(ii) in relation to a company not resident in the State, the currency of the primary economic environment in which the company carries on trading activities in the State,

but, where the profit and loss account of a company for any period of account has been prepared in terms of the currency of the State, that currency shall be the functional currency of the company for that period;

“profit and loss account” and “rate of exchange” have the same meanings respectively as in section 79 ;

“representative rate of exchange” means a rate of exchange of a currency for another currency equal to the mid-market rate at close of business recorded by the Central Bank of Ireland, or by a similar institution of another State, for those 2 currencies.

(b) For the purposes of this section, the currency of the primary economic environment of a company shall be determined—

(i) in the case of a company resident in the State, with reference to the currency in which—

(I) revenues and expenses of the company are primarily generated, and

(II) the company primarily borrows and lends, and

(ii) in the case of a company not so resident which carries on trading activities in the State, with reference to the currency in which—

(I) revenues and expenses of those activities are primarily generated, and

(II) the company primarily borrows and lends for the purposes of those activities.

(c) For the purposes of this section, the day on which any expenditure is incurred shall be taken to be the day on which the sum in question becomes payable.

(2) (a) Subject to paragraph (b), the amount (which may be nil) of any allowance or charge to be made for any accounting period—

(i) in taxing a trade of a company, and

(ii) by reference to capital expenditure incurred by the company on or after the 1st day of January, 1994,

shall be—

(I) computed in terms of the functional currency of the company by reference to amounts expressed in that currency, and

(II) given effect, in accordance with section 307 (2)(a), by being treated as a trading expense or receipt, as the case may be, of the trade in computing the trading income or loss, expressed in that functional currency, of the trade for that accounting period.

(b) (i) For the purposes of the computation of an allowance or charge to be made for an accounting period (in this paragraph referred to as “the first-mentioned period”) by reference to capital expenditure incurred by a company on or after the 1st day of January, 1994, and

(ii) without prejudice to any allowance made by reference to that expenditure for an accounting period earlier than the first-mentioned period,

where that expenditure was incurred, or an allowance referable to that expenditure was computed, in terms of a currency other than the functional currency of the company for the first-mentioned period, then, that expenditure or allowance, as the case may be, shall be expressed in terms of that functional currency by reference to a representative rate of exchange of that functional currency for the other currency for the day on which that expenditure was incurred.

(3) (a) Subject to paragraph (b), for the purposes of sections 396 and 397 , the amount (which may be nil) of any set-off due to a company against income or profits of an accounting period in respect of a loss from a trade incurred by the company in an accounting period shall—

(i) be computed in terms of the company's functional currency by reference to amounts expressed in that currency, and

(ii) then be expressed in terms of the currency of the State by reference to the rate of exchange which—

(I) is used to express in terms of the currency of the State the amount of the income from the trade for the accounting period in which the loss is to be set off, or

(II) would be so used if there were such income.

(b) (i) For the purposes of the computation of any set-off due to a company against income or profits of an accounting period (in this paragraph referred to as “the first-mentioned period”) in respect of a loss from a trade incurred by the company in an accounting period, and

(ii) without prejudice to any set-off made against the income or profits of an accounting period earlier than the first-mentioned period by reference to that loss,

where that loss, or any set-off referable to that loss, was computed in terms of a currency other than the functional currency of the company for the first-mentioned period, then, that loss or set-off, as the case may be, shall be expressed in terms of that functional currency by reference to a rate of exchange of that functional currency for the other currency, being an average of representative rates of exchange of that functional currency for the other currency during the accounting period in which the loss was incurred.

403. —(1) (a) In this section—

“chargeable period or its basis period” has the same meaning as in section 321 (2);

“lessee” and “lessor”, in relation to machinery or plant provided for leasing, mean respectively the person to whom the machinery or plant is or is to be leased and the person providing the machinery or plant for leasing, and “lessee” and “lessor” include respectively the successors in title of a lessee or a lessor;

“the relevant period” has the meaning assigned to it by subsection (9)(b);

“the specified capital allowances” means capital allowances in respect of—

(i) expenditure incurred on machinery or plant provided on or after the 25th day of January, 1984, for leasing in the course of a trade of leasing, or

(ii) the diminished value of such machinery or plant by reason of wear and tear,

other than capital allowances in respect of machinery or plant to which subsection (6), (7), (8) or (9) applies;

“trade of leasing” means—

(i) a trade which consists wholly of the leasing of machinery or plant, or

(ii) any part of a trade treated as a separate trade by virtue of subsection (2).

(b) For the purposes of this section—

(i) letting on charter a ship or aircraft which has been provided for such letting, and

(ii) letting any item of machinery or plant on hire,

shall be regarded as leasing of machinery or plant if apart from this paragraph it would not be so regarded.

(c) Where a company carries on a trade of operating ships in the course of which a ship is let on charter, paragraph (b) shall not apply so as to treat the letting on charter as the leasing of machinery or plant if apart from this section the letting would be regarded for the purposes of Case I of Schedule D as part of the activities of the trade.

(2) Where in any chargeable period or its basis period a person carries on as part of a trade any leasing of machinery or plant, that leasing shall be treated for the purposes of the Tax Acts, other than any provision of those Acts relating to the commencement or cessation of a trade, as a separate trade distinct from all other activities carried on by such person as part of the trade, and any necessary apportionment shall be made of receipts or expenses.

(3) (a) Notwithstanding section 381 , where relief is claimed under that section in respect of a loss sustained in a trade of leasing, the amount of that loss, in so far as by virtue of section 392 it is referable to the specified capital allowances, shall be treated for the purposes of subsections (1) and (3)(b) of section 381 as reducing profits or gains of that trade of leasing only and shall not be treated as reducing any other income.

(b) Where paragraph (a) applies in the case of any claimant to relief under section 381 —

(i) any limitation imposed by section 393 on the amount of capital allowances which may be taken into account under section 392 shall be referred, as far as may be, to the specified capital allowances rather than to any other capital allowances, and

(ii) notwithstanding section 392 (2) (but without prejudice to paragraph (a) and to the order in which income is to be treated as reduced under section 381 (3)(b)),the claimant may specify the extent to which any reduction of income treated as occurring by virtue of section 381 is to be referred to so much of the loss as is attributable to the loss, if any, actually sustained in the trade of leasing, the specified capital allowances or any other capital allowances, and, where the claimant so specifies, section 394 shall apply in accordance with the claimant's specification and not in accordance with section 392 (2).

(4) (a) Where in an accounting period a company carrying on a trade of leasing incurs a loss in that trade and any specified capital allowances have been treated by virtue of section 307 or 308 as trading expenses in arriving at the amount of the loss, the relevant amount of the loss shall not be available—

(i) for relief under section 396 (2), except to the extent that it can be set off under that section against the company's income from the trade of leasing only, or

(ii) to be surrendered by means of group relief.

(b) For the purposes of paragraph (a), the relevant amount of the loss shall be the full amount of the loss or, if it is less, an amount equal to—

(i) where no capital allowances, other than the specified capital allowances, have been treated by virtue of section 307 or 308 as trading expenses in arriving at the amount of the loss, the amount of the specified capital allowances, or

(ii) where, in addition to the specified capital allowances, other capital allowances have been so treated by virtue of section 307 or 308 , the lesser of—

(I) the amount of the specified capital allowances, and

(II) the amount by which the loss exceeds the amount of the other capital allowances;

but, where the amount of the loss does not exceed the amount of the other capital allowances, the relevant amount of the loss shall be nil.

(5) Sections 305 (1)(b), 308 (4) and 420 (2) shall not apply in relation to capital allowances—

(a) in respect of expenditure incurred on or after the 25th day of January, 1984, on the provision of machinery or plant, or

(b) in respect of the diminished value of machinery or plant by reason of wear and tear, if that machinery or plant was first acquired on or after the 25th day of January, 1984, by the person to whom the capital allowances are to be or have been made,

other than capital allowances in respect of machinery or plant to which subsection (6) or (7) applies.

(6) References in this section to machinery or plant to which this subsection applies are references to machinery or plant provided on or after the 25th day of January, 1984, for leasing where the expenditure incurred on the provision of the machinery or plant was incurred under an obligation entered into by the lessor and the lessee before—

(a) the 25th day of January, 1984, or

(b) the 1st day of March, 1984, pursuant to negotiations which were in progress between the lessor and the lessee before the 25th day of January, 1984.

(7) References in this section to machinery or plant to which this subsection applies are references to machinery or plant provided on or after the 25th day of January, 1984, for leasing where the expenditure incurred on the provision of the machinery or plant (or, in the case of a film to which section 6 or 7 of the Irish Film Board Act, 1980 , applies, the cost of the making of the film) has been or is to be met directly or indirectly, wholly or partly, by the Industrial Development Authority, the Irish Film Board, the Shannon Free Airport Development Company Limited, or Údarás na Gaeltachta; but this subsection shall not apply to machinery or plant provided for leasing on or after the 13th day of May, 1986, unless—

(a) the machinery or plant is a film to which section 6 or 7 of the Irish Film Board Act, 1980 , applies, or

(b) the expenditure incurred on the provision of the machinery or plant (not being a film of the kind mentioned in paragraph (a)) was incurred under an obligation entered into by the lessor and the lessee before—

(i) the 13th day of May, 1986, or

(ii) the 1st day of September, 1986, pursuant to negotiations which were in progress between the lessor and the lessee before the 13th day of May, 1986.

(8) The reference in the definition of “the specified capital allowances” to machinery or plant to which this subsection applies is a reference to machinery or plant provided for leasing by a lessor to a lessee in the course of the carrying on by the lessor of relevant trading operations within the meaning of section 445 or 446 , and—

(a) in respect of the expenditure on which no allowance has been or will be made under section 283 , or

(b) in respect of which no allowance on account of wear and tear to be made under section 284 has been or will be increased under section 285 .

(9) (a) (i) In this subsection, “specified trade”, in relation to a lessee, means a trade which throughout the relevant period consists wholly or mainly of the manufacture of goods (including activities which, if the lessee were to make a claim for relief in respect of the trade under Part 14 , would be regarded for the purposes of that Part as the manufacture of goods).

(ii) For the purposes of subparagraph (i), a trade shall be regarded, as respects the relevant period, as consisting wholly or mainly of particular activities only if the total amount receivable by the lessee fromsales made or, as the case may be, in payment for services rendered in the course of those activities in the relevant period is not less than 75 per cent of the total amount receivable by the lessee from all sales made or, as the case may be, in payment for all services rendered in the course of the trade in the relevant period.

(iii) As respects a person who carries on a trade of leasing and who incurred expenditure on the provision before the 20th day of April, 1990, of machinery or plant for leasing under an obligation entered into before that date by the lessor and a lessee who carries on a trade which but for section 443 (6) would be a specified trade, this subsection shall apply as if the trade carried on by the lessee were a specified trade.

(iv) For the purposes of subparagraph (iii), an obligation shall be treated as entered into before the 20th day of April, 1990, only if before that date there were in existence a binding contract in writing under which that obligation arose.

(b) The reference in the definition of “the specified capital allowances” to machinery or plant to which this subsection applies is a reference to machinery or plant (not being a film of the kind mentioned in subsection (7)(a)) provided on or after the 13th day of May, 1986, for leasing by a lessor to a lessee (who is not a person connected with the lessor) under a lease the terms of which include an undertaking given by the lessee that, during a period (in this section referred to as “the relevant period”) which is not less than 3 years and which commences on the day on which the machinery or plant is first brought into use by the lessee, the machinery or plant so provided will be used by the lessee for the purposes only of a specified trade carried on in the State by the lessee.

(c) Any machinery or plant in respect of which an undertaking mentioned in paragraph (b) has been given by a lessee, and which at any time has been treated as machinery or plant to which this subsection applies, shall at any later time cease to be machinery or plant to which this subsection applies if at that later time it appears to the inspector (or on appeal to the Appeal Commissioners) that the undertaking has not been fulfilled by the lessee.

(d) Where any machinery or plant ceases in accordance with paragraph (c) to be machinery or plant to which this subsection applies, such assessments or adjustments of assessments shall be made to recover from the lessor any relief from tax given to the lessor because the machinery or plant was treated as machinery or plant to which this subsection applies.

(e) This subsection shall not apply to machinery or plant provided for leasing on or after the 13th day of May, 1986, if the expenditure incurred on the provision of the machinery or plant was incurred under an obligation entered into by the lessor and the lessee before—

(i) the 13th day of May, 1986, or

(ii) the 1st day of September, 1986, pursuant to negotiations which were in progress between the lessor and the lessee before the 13th day of May, 1986.

(10) For the purposes of subsections (6), (7) and (9)—

(a) an obligation shall be treated as having been entered into before a particular date only if before that date there was in existence a binding contract in writing under which that obligation arose, and

(b) negotiations pursuant to which an obligation was entered into shall not be regarded as having been in progress between a lessor and a lessee before a particular date unless on or before that date preliminary commitments or agreements in relation to that obligation had been entered into between the lessor and the lessee.

404. —(1) (a) In this section—

“agricultural machinery” means machinery or plant used or intended to be used for the purposes of a trade of farming (within the meaning of section 654 ) or machinery or plant of a type commonly used for such a trade which is used or intended to be used for the purposes of a trade which consists of supplying services which normally play a part in agricultural production;

“asset” means machinery or plant;

“chargeable period”, “chargeable period related to”, and “chargeable period or its basis period” have the same meanings respectively as in section 321 (2);

“fair value”, in relation to a leased asset, means an amount equal to such consideration as might be expected to be paid for the asset at the inception of the lease on a sale negotiated on an arm's length basis, less any grants receivable by the lessor towards the purchase of the asset;

“inception of the lease” means the date on which the leased asset is brought into use by the lessee or the date from which lease payments under the lease first accrue, whichever is the earlier;

“lease payments” means the lease payments over the term of the lease to be paid to the lessor in relation to the leased asset, and includes any residual amount to be paid to the lessor at or after the end of the term of the lease and guaranteed by the lessee or by a person connected with the lessee or under the terms of any scheme or arrangement between the lessee and any other person;

“lessee” and “lessor” have the same meanings respectively as in section 403 ;

“predictable useful life”, in relation to an asset, means the useful life of the asset estimated at theinception of the lease, having regard to the purpose for which the asset was acquired and on the assumption that—

(i) its life will end when it ceases to be useful for the purpose for which it was acquired, and

(ii) it will be used in the normal manner and to the normal extent throughout its life;

“relevant lease payment” means—

(i) the amount of any lease payment as provided under the terms of the lease, or

(ii) where the lease provides for the amount of any lease payment to be determined by reference to a rate known as the Dublin Interbank Offered Rate and a record of which is kept by the Central Bank of Ireland, or a similar rate, the amount calculated by reference to that rate if the rate per cent at the inception of the lease were the rate per cent at the time of the payment;

“relevant lease payments related to a chargeable period or its basis period” means relevant lease payments under the lease or the amounts which are treated as the relevant lease payments and which, if they were the actual amounts payable under the lease, would be taken into account in computing the income of the lessor for that chargeable period or its basis period or any earlier such period;

“relevant period” means the period—

(i) beginning at the inception of the lease, and

(ii) ending at—

(I) the earliest time at which the aggregate of amounts of the discounted present value at the inception of the lease of relevant lease payments which are payable at or before that time amounts to 90 per cent or more of the fair value of the leased asset, or

(II) if it is earlier, at the end of the predictable useful life of the asset,

and, for the purposes of this definition, relevant lease payments shall be discounted at a rate which, when applied at the inception of the lease to the amount of the relevant lease payments, produces discounted present values the aggregate of which equals the amount of the fair value of the leased asset at the inception of the lease, but where the duration of the relevant period determined in accordance with the preceding provisions of this definition is more than 7 years, the relevant period shall not be the period so determined but shall bethe period which would be determined in accordance with this definition if for “90 per cent” there were substituted “95 per cent”.

(b) For the purposes of this section—

(i) a lease of an asset shall be a relevant lease unless—

(I) as respects any chargeable period or its basis period of the lessor which falls wholly or partly in the relevant period, the aggregate of the amounts of relevant lease payments related to the chargeable period or its basis period and the amounts of relevant lease payments related to any earlier chargeable period or its basis period is not less than an amount determined by the formula—

where—

P is the aggregate of the amounts of relevant lease payments payable by the lessee in relation to the leased asset in the relevant period, and

W is an amount determined by the formula—

where—

E is the length of the part of the relevant period which has expired at the end of the chargeable period or its basis period, and

R is the length of the relevant period, and

(II) except for an amount of relevant lease payments which is inconsequential, the excess of the total relevant lease payments under the lease over the aggregate of the relevant lease payments in the relevant period is payable to the lessor, or would be so payable if the relevant lease payments were the actual amounts payable under the lease, within a period the duration of which does not exceed—

(A) where the exception to the definition of “relevant period” does not apply, one-seventh of the duration of the relevant period, and

(B) where that exception does apply, one-ninth of the duration of the relevant period,

or one year, whichever is the greater, and which commences immediately after the end of the relevant period,

(ii) a lease, the duration of the relevant period in respect of which exceeds 10 years and which apart from this subparagraph would be a relevant lease, shall not be a relevant lease if it is a lease of an asset, being an asset—

(I) provided for the purposes of a project, specified in the list referred to in section 133 (8)(c)(iv), which has been approved for grant aid by the Industrial Development Authority, the Shannon Free Airport Development Company Limited or Udarás na Gaeltachta, and

(II) to which section 283(5) or 285(7)(a)(i) applies,

and it would not be a relevant lease if for clauses (I) and (II) of subparagraph (i) there were substituted the following:

“(I) the aggregate of the relevant lease payments related to a chargeable period or its basis period of the lessor which falls wholly or partly in the period (in this subsection referred to as the ‘first period’) of 3 years beginning at the inception of the lease is not less than an amount determined by the formula—

where—

D is the rate per cent at the inception of the lease of the rate known as the 6 month Dublin Interbank Offered Rate and a record of which is maintained by the Central Bank of Ireland, expressed as a rate per annum,

M is the number of months in the chargeable period or its basis period, and

V is the fair value of the asset at the inception of the lease,

(II) as respects any chargeable period or its basis period of the lessor which falls wholly or partly in the period (in this subsection referred to as ‘the second period’) commencing immediately after the first period and ending at the end of the relevant period, the aggregate of the amounts of relevant lease payments related to the chargeable period or its basis period and the amounts of relevant lease payments related to any earlier chargeable period or its basis period falling wholly or partly in the second period is not less than an amount determined by the formula—

where—

E is the length of the part of the second period which has expired at the end of the chargeable period or its basis period,

P is the aggregate of the amounts of relevant lease payments payable by the lessee in relation to the leased asset in the second period, and

R is the length of the second period, and

(III) except for an amount of relevant lease payments which is inconsequential, the excess of the total relevant lease payments under the lease over the aggregate of the relevant lease payments in the relevant period is payable to the lessor, or would be so payable if the relevant lease payments were the actual amounts payable under the lease, within aperiod of one year after the end of the relevant period.”,

(iii) an amount of relevant lease payments shall be treated as inconsequential if the aggregate of amounts, estimated at the inception of the lease, of discounted value, at the end of the period specified in clause (II) of subparagraph (i) or clause (III) of that subparagraph (construed in accordance with subparagraph (ii)), as the case may be, of the relevant lease payments after that time does not exceed 5 per cent of the fair value of the leased asset or £2,000, whichever is the lesser, and, for the purposes of this subparagraph, relevant lease payments shall be discounted at the rate specified in the definition of “relevant period”, and

(iv) where a chargeable period or its basis period, being an accounting period of a company, begins before and ends after a date, being the commencement of the relevant period, the first period or the second period or the end of such a period, as the case may be, it shall be divided into one part beginning on the day on which the accounting period begins and ending at the beginning or the end, as the case may be, of the relevant period, the first period or the second period, and another part beginning immediately after that time and ending on the day on which the accounting period ends, and both parts shall be treated as if they were separate accounting periods.

(2) (a) Where in the course of a trade an asset is provided by a person for leasing under a relevant lease, the letting of the asset under that relevant lease shall be treated as a separate trade of leasing (in this subsection referred to as a “specified leasing trade”) distinct from all other activities, including other leasing activities, of the person, and section 403 , apart from subsections (5) to (9) of that section, shall apply in relation to a specified leasing trade as it applies in relation to a trade of leasing within the meaning of that section.

(b) Sections 305 (1)(b), 308 (4) and 420 (2) shall not apply in relation to capital allowances—

(i) in respect of expenditure incurred on the provision of an asset, or

(ii) on account of the wear and tear of an asset,

which is provided by a person for leasing under a relevant lease.

(3) Notwithstanding subsection (1)(b), a lease of an asset which consists of agricultural machinery or plant shall not be a relevantlease unless it would be such a lease if the amounts of relevant lease payments related to any chargeable period or its basis period were taken to be an amount equal to 50 per cent of the aggregate of the amounts of relevant lease payments related to that chargeable period or its basis period and the amounts of relevant lease payments related to a period equal in length to, and ending immediately before the commencement of, that period.

(4) (a) Where at any time after the 11th day of April, 1994, either of the following events occurs—

(i) the terms of a lease of an asset entered into before that day are altered, or

(ii) a lessor and a lessee agree to terminate a lease of an asset and, at or about that time, a further agreement to lease the asset is entered into by the lessor and the lessee or an agreement is entered into by the lessor and a person connected with the lessee, by the lessee and a person connected with the lessor or by a person connected with the lessor and a person connected with the lessee,

such that the aggregate of the amounts of the lease payments which are payable, or which would be payable if the relevant lease payments were the actual amounts payable under the lease, after any time exceeds the aggregate of the amounts of such relevant lease payments which would have been payable after that time if the events in subparagraph (i) or (ii) had not taken place, then, notwithstanding subsection (6)(a), unless it is shown that the change or the termination was effected for bona fide commercial reasons, the lease (including the terminated lease) shall be treated as if it were at all times a relevant lease, and relief given under Part 9 , Chapter 1 or 2 of this Part, or section 396 or 420 , which would not have been given if the lease was a relevant lease, shall be withdrawn.

(b) The withdrawal of an allowance or relief under paragraph (a) shall be made—

(i) for the chargeable period related to the event giving rise to the withdrawal of the relief, and

(ii) in accordance with paragraph (c), and both—

(I) details of the event giving rise to the withdrawal of the allowance or relief, and

(II) the amount to be treated as income under paragraph (c),

shall be included in the return required to be made by the lessor under section 951 for that chargeable period.

(c) (i) Notwithstanding any other provision of the Tax Acts, where relief is to be withdrawn under paragraph (a) in respect of—

(I) any amount which was set off against income under section 305 ,

(II) the amount of any loss which was set off under section 307 , 308 , 396 or 420 against profits, or

(III) the amount of any loss which was treated by virtue of a claim under section 381 as reducing income,

and which would not have been so set off or treated if the lease were a relevant lease, such amount (in this subsection referred to as “the relevant amount”) as would not have been so set off or treated, increased in accordance with subparagraph (ii), shall be treated as income arising in the chargeable period specified in paragraph (b)(i).

(ii) The amount by which the relevant amount is to be increased under subparagraph (i) shall be an amount determined by the formula—

where—

A is the relevant amount,

M is the number of months in the period beginning on the date on which tax for the chargeable period in which the losses were treated as reducing income, or set off against profits, as the case may be, was due and payable and ending on the date on which tax for the chargeable period for which the withdrawal of relief is to be made is due and payable, and

R is the rate per cent specified in section 1080 (1).

(5) Notwithstanding subsection (1)(b), where at any time on or after the 11th day of April, 1994, a person (in this subsection referred to as “the lessor”) acquires an asset from another person who before that date was the owner of the asset and at or about that time the lessor or a person connected with the lessor leases the asset to the other person or a person connected with the other person, then, unless—

(a) the asset is new and unused, or

(b) the lease would not be a relevant lease if—

(i) for the first formula in subsection (1)(b)(i)(I) there were substituted “W × P”, and

(ii) subsection (1)(b)(ii) had not been enacted,

the lease shall be a relevant lease for the purposes of this section.

(6) This section shall apply as on and from the 23rd day of December, 1993; but a lease of an asset shall not be a relevant lease if—

(a) a binding contract in writing for the letting of the asset was concluded before that day,

(b) the leasing of the asset is carried on in the course of relevant trading operations within the meaning of section 445 or 446 , or

(c) subject to subsections (4) and (5)—

(i) the relevant period does not exceed 5 years,

(ii) the fair value of the asset does not exceed £50,000 and, except where the assets are separate and distinct assets used independently of each other and the use of one is not an integral part of the use of the other, the fair value of an asset which is leased by a lessor to a lessee shall for the purposes of this subparagraph be treated as exceeding £50,000 if the aggregate of the fair value of such an asset and the fair value of any other asset leased by the lessor to the lessee in the period of 12 months ending at the inception of the lease of such an asset exceeds £50,000, and

(iii) the lease provides for lease payments to be made at annual or more frequent regular intervals throughout the period of the lease such that none of those payments, other than a payment which consists of the consideration for the disposal of the asset for an amount equal to its market value (being its market value if it were not subject to any lease) at the time of disposal, is significantly greater than any of the lease payments payable before it.

405. —(1) Subject to subsection (2), where on or after the 24th day of April, 1992, a person incurs capital expenditure on the acquisition or construction of a building or structure which is or is to be an industrial building or structure by virtue of being a holiday cottage within the meaning of section 268 , and an allowance is to be made in respect of that expenditure under section 271 or 272 —

(a) neither section 305 (1)(b) nor section 308 (4) shall apply as respects that allowance, and

(b) neither section 381 nor section 396 (2) shall apply as respects the whole or part (as the case may be) of any loss which would not have arisen but for the making of that allowance.

(2) This section shall not apply to expenditure incurred before the 6th day of April, 1993, on the acquisition or construction of a building or structure (in this subsection referred to as “the holiday cottage”) which is or is to be an industrial building or structure by virtue of being a holiday cottage within the meaning of section 268 if before the 24th day of April, 1992—

(a) a binding contract in writing for the construction of the holiday cottage was entered into, or

(b) (i) a binding contract in writing for the purchase or lease of land for the construction of the holiday cottage was entered into, and

(ii) an application for planning permission for the construction of the holiday cottage was received by a planning authority.

406. —Where a person incurs capital expenditure of the type to which subsection (7) of section 284 applies and an allowance is to be made in respect of that expenditure under that section—

(a) section 308 (4) shall not apply as respects that allowance, and

(b) section 396 (2) shall not apply as respects the whole or part (as the case may be) of any loss which would not have arisen but for the making of that allowance.

407. —(1) In this section—

“lessee”, in relation to a ship provided for leasing, means the person to whom the ship is or is to be leased and includes the successors in title of a lessee;

“qualifying ship” means a seagoing vessel which—

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

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

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

(c) is of not less than 100 tons gross tonnage, and

(d) is self-propelled,

but, notwithstanding anything in paragraph (a), (b), (c) or (d), does not include—

(i) a fishing vessel, other than a vessel normally used for the purposes of an activity mentioned in paragraph (d) of the definition of “qualifying shipping activities”,

(ii) a tug, other than a tug in respect of which a certificate has been given by the Minister for the Marine and Natural Resources certifying that in the opinion of the Minister the tug is capable of operating in seas outside the portion of the seas which are, for the purposes of the Maritime Jurisdiction Act, 1959 (as amended by the Maritime Jurisdiction (Amendment) Act, 1988), the territorial seas of the State,

(iii) a vessel (including a dredger) used primarily as a floating platform for working machinery or as a diving platform, and

(iv) any other vessel of a type not normally used for the purposes of qualifying shipping activities;

“qualifying shipping activities” means activities carried on by a company in the course of a trade and which consist of—

(a) the use of a qualifying ship for the purpose of carrying by sea passengers or cargo for reward,

(b) the provision on board the qualifying ship of services ancillary to that use of the qualifying ship,

(c) the granting of rights by virtue of which another person provides or will provide those services on board that qualifying ship,

(d) the subjecting of fish to a manufacturing process on board a qualifying ship,

(e) the letting on charter of a qualifying ship for use for those purposes where the operation of the ship and the crew of the ship remain under the direction and control of the company, or

(f) the use of a qualifying ship for the purposes of transporting supplies or personnel to, or providing services in respect of, a mobile or fixed rig, platform, vessel or installation of any kind at sea;

“qualifying shipping trade” means a trade, the income from which is within the charge to corporation tax, carried on in the relevant period, which consists solely of the carrying on of qualifying shipping activities or, in the case of a trade consisting partly of the carrying on of such activities and partly of the carrying on of other activities, that part of the trade consisting solely of the carrying on of qualifying shipping activities and which is treated by virtue of subsection (3) as a separate trade;

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

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

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

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

and

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

“the relevant period” means the period from the 1st day of January, 1987, to the 31st day of December, 2000;

“specified capital allowances” means capital allowances in respect of—

(a) expenditure incurred by any person in the relevant period on the provision of a qualifying ship which is in use in or is intended to be used in a qualifying shipping trade, or

(b) the diminished value by reason of wear and tear during the relevant period of a qualifying ship in use for the purposes of a qualifying shipping trade,

notwithstanding that any such capital allowances are not treated as trading expenses of the qualifying shipping trade.

(2) Before issuing a relevant certificate, the Minister for the Marine and Natural Resources shall be satisfied that the lease concerned is for bona fide commercial purposes and not part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax.

(3) (a) Subject to paragraph (b), where during the relevant period a company carries on qualifying shipping activities as part of a trade, those activities shall be treated for the purposes of the Tax Acts, other than any provision of those Acts relating to the commencement or cessation of a trade, as a separate trade distinct from all other activities carried on by the company as part of the trade, and any necessary apportionment shall be made of receipts or expenses.

(b) This subsection shall not apply in relation to a claim by the company for the set-off under section 396 (1)—

(i) against income arising during the relevant period, of a loss incurred before the commencement of the relevant period, and

(ii) against income arising after the end of the relevant period, of a loss incurred during the relevant period.

(4) Notwithstanding any other provision of the Tax Acts apart from subsection (5), for the purposes of granting relief from tax in respect of any income or profits arising in the relevant period or for the purposes of determining the amount of such income or profits which is chargeable to tax—

(a) specified capital allowances shall be allowed only—

(i) in computing the income from a qualifying shipping trade, or

(ii) in computing or charging to tax any income arising from the letting on charter of the qualifying ship to which the specified capital allowances refer, other than letting on charter which is a qualifying shipping activity,

and shall not be allowed in computing any other income or profits or in taxing any other trade or in charging any other income to tax,

(b) a loss incurred in the relevant period in a qualifying shipping trade shall not be set off—

(i) against any profits under section 396 (2), except to the extent of the amount of income from a qualifying shipping trade included in those profits, or

(ii) against the total profits of a claimant company under section 420 (1), except to the extent of the amount of income from a qualifying shipping trade included in those total profits,

and

(c) the letting on charter of a ship referred to in paragraph (a)(ii) in the course of a trade shall be deemed, notwithstanding subsection (1)(c) of section 403 , to be a trade of leasing for the purposes of that section and to be a separate trade as provided for in subsection (2) of that section.

(5) As respects a ship a binding contract in writing for the acquisition or construction of which was concluded on or after the 1st day of July, 1996, subsection (4)(c) shall not apply in the case of a letting on charter of a ship referred to in that subsection where the lease in respect of the ship is a lease the terms of which comply with clauses (I) and (II) of section 404 (1)(b)(i), and where the lessee produces to the Revenue Commissioners a relevant certificate.

(6) A qualifying shipping trade shall not be regarded as a specified trade for the purposes of section 403 .

408. —(1) In this section—

“property investment scheme” means any scheme or arrangement made for the purpose, or having the effect, of providing facilities, whether promoted by means of public advertisement or otherwise, for the public or a section of the public to share, either directly or indirectly and whether as beneficiaries under a trust or by any other means, in income or gains arising or deriving from the acquisition, holding or disposal of, or of an interest in, a building or structure or a part of a building or structure, but does not include a scheme or arrangement as respects which the Revenue Commissioners or, on appeal, the Appeal Commissioners, having regard to such information as may be produced to them, are of the opinion that—

(a) the manner in which persons share in the income or gains, and

(b) the number of persons who so share,

are in accordance with a practice which commonly prevailed in the State during the period of 5 years ending immediately before the 30th day of January, 1991, for the sharing of such income or gains by persons resident in the State and such that the persons so sharing qualified for relief under section 305 (1)(b) or 308 (4);

“specified interest” means an interest in or deriving from a building or structure held by a person pursuant to a property investment scheme.

(2) Where a person holds a specified interest, then, as respects expenditure incurred or deemed to be incurred on or after the 30th day of January, 1991, sections 305 (1)(b) and 308 (4) shall not apply as respects an allowance under section 271 or 272 which is to be madeto the person by reason of the holding by the person of the specified interest.

(3) The Appeal Commissioners shall hear and determine an appeal made to them under this section as if it were an appeal against an assessment to income tax, and the provisions of the Income Tax Acts relating to the rehearing of an appeal and to the statement of a case for the opinion of the High Court on a point of law shall apply accordingly with any necessary modifications.

409. —(1) In this section—

“hotel investment” means capital expenditure incurred either on the construction of, or the acquisition of a relevant interest in, a building or structure which is to be regarded as an industrial building or structure within the meaning of subsection (1)(d) of section 268 , other than a building or structure to which subsection (3) of that section relates;

“hotel partnership” includes any syndicate, group or pool of persons, whether or not a partnership, through or by means of which a hotel investment is made;

“market value” shall be construed in accordance with section 548 ;

“member”, in relation to a hotel partnership, includes every person who participates in that partnership or who has contributed capital, directly or indirectly, to that partnership;

“preferential terms”, in relation to the acquisition of an interest referred to in subsection (3)(a)(i), means terms under which such interest is acquired for a consideration which, at the time of the acquisition, is or may be other than its market value.

(2) This section is for the purpose of counteracting any room ownership scheme entered into in connection with a hotel investment by a hotel partnership.

(3) For the purposes of this section—

(a) a scheme shall be a room ownership scheme in connection with a hotel investment if, at the time a hotel investment is made by a hotel partnership, there exists any agreement, arrangement, understanding, promise or undertaking (whether express or implied and whether or not enforceable or intended to be enforceable by legal proceedings) under or by virtue of which any member of that hotel partnership, or a person connected with such member, may—

(i) acquire on preferential terms an interest in, or

(ii) retain for use other than for the purposes of the trade of hotel-keeping,

any room or rooms in, or any particular part of, the building or structure which is the subject of the hotel investment, and

(b) where a hotel investment is made by one or more than one member of a hotel partnership, it shall be deemed to be made by the hotel partnership.

(4) Subject to subsection (5), no allowance shall be made under Chapter 1 of Part 9 in respect of a hotel investment by a hotel partnership where, in connection with any such investment, there exists a room ownership scheme.

(5) (a) Except where provided for in paragraph (b), this section shall apply to a hotel investment the capital expenditure in respect of which is incurred on or after the 26th day of March, 1997.

(b) This section shall not apply to a hotel investment if, before the 26th day of March, 1997, in respect of a building or structure which is the subject of such investment—

(i) a binding contract in writing was entered into for the construction of, or the acquisition of a relevant interest in, the building or structure, or

(ii) an application for planning permission for the construction of the building or structure was received by a planning authority.