Number 7/2001: Chapter 4 Corporation Tax

7 2001

FINANCE ACT, 2001

Chapter 4

Corporation Tax

Amendment of provisions relating to a shipping trade.

82. —(1) The Principal Act is amended—

(a) in section 21 by the insertion after subsection (1) of the following:

“(1A) (a) In this subsection—

‘qualifying shipping activities’ and ‘qualifying shipping trade’ have the same meanings respectively as in section 407;

(b) Notwithstanding subsection (1), for the financial year 2001 and 2002, in relation to a company carrying on a qualifying shipping trade, profits from qualifying shipping activities carried on in the course of the qualifying shipping trade shall be charged to corporation tax at the rate of 12½ per cent.”,

and

(b) in section 407(1) in the definition of “relevant period” by the substitution of “1 January 1987 to 31 December 2002” for “the 1st day of January, 1987, to the 31st day of December, 2000”.

(2) This section applies as on and from 1 January 2001.

Amendment of section 22A (reduction of corporation tax in respect of certain trading income) of Principal Act.

83. —(1) Section 22A of the Principal Act is amended—

(a) in subsection (2)(b) by the substitution of the following for paragraphs (i) to (iii)—

(i) as respects an accounting period falling within the financial year 2001, 30 per cent, and

(ii) as respects an accounting period falling within the financial year, 2002, 14 per cent,”,

and

(b) in subsection (3) by the substitution of—

(i) as respects the financial year 2001 “£200,000” for “£50,000” and “£250,000” for “£75,000”, and

(ii) as respects the financial year 2002 “€254,000” for “£50,000” and “€317,500” for “£75,000”,

in both places where they each occur.

(2) This section has effect as respects the financial year 2001 and subsequent financial years.

Foundation for Investing in Communities.

84. —(1) The Principal Act is amended by the insertion of the following after section 87:

“Deductions for gifts to Foundation for Investing in Communities.

87A.—(1) In this section, ‘the Company’ means the company incorporated on 11 November 1998 as The Foundation for Investing in Communities Limited or any of its 90 per cent subsidiaries as may be approved for the purposes of this section by the Minister for Finance.

(2) This section shall apply to a gift of money which—

(a) on or before 5 April 2001 is made to the Company and accepted by it,

(b) is to be applied by the Company solely for the objects set out in its memorandum of association,

(c) apart from subsection (3), would not be deductible in computing for the purposes of corporation tax the profits or gains of a trade or profession, and

(d) is not income to which section 792 applies.

(3) (a) Subject to paragraph (b) and subsection (2), where a company (in this section referred to as a ‘donor’) makes a gift to which this section applies and claims relief from tax by reference to the gift, the net amount of the gift shall be treated for the purposes of corporation tax as—

(i) a deductible trading expense of a trade carried on by the donor, or

(ii) an expense of management deductible in computing the total profits of the donor,

incurred by it in the accounting period in which the gift is made.

(b) In determining for the purposes of paragraph (a) the net amount of the gift, the amount or value of any consideration received by a donor as a result of making the gift, whether received directly or indirectly from the Company or any other person, shall be deducted from the amount of the gift, and relief under this section shall not be given to a donor for an accounting period—

(i) if the net amount of the gift (or the aggregate of the net amounts of gifts) made by the donor in that accounting period, being a gift or gifts, as the case may be, to which this section applies, does not exceed £500,

(ii) if at the time a donor makes a gift to which this section applies the aggregate of the net amounts of all gifts to which this section applies exceeds £5,000,000.

(4) A claim under this section shall be made with the return required to be delivered under section 951 for the accounting period in which the payment is made.

(5) Where a donor makes a gift in respect of which relief is not to be given by virtue of subsection (3)(b)(ii), the Company shall, by notice in writing given to the donor within 30 days of the making of the gift, advise the donor accordingly.

(6) Where a gift to which this section applies is made by a donor in an accounting period of the donor which is less than 12 months, the amount specified in subsection (3)(b)(i) shall be proportionately reduced.”.

(2) Subsection (1) shall be deemed to have had effect from 1 August 2000.

(3) Section 87A (inserted by this section) of the Principal Act is repealed with effect from 6 April 2001.

Amendment of section 130 (matters to be treated as distributions) of Principal Act.

85. —(1) Section 130 of the Principal Act is amended by the insertion after subsection (2) of the following:

“(2A) For the purposes of subsection (2)(d)(iii)(I), the consideration given by the company for the use of the principal received shall not be treated as being to any extent dependent on the results of the company's business or any part of the company's business by reason only of the fact that the terms (however expressed) of the security provide—

(a) for the consideration to be reduced in the event of the results improving, or

(b) for the consideration to be increased in the event of the results deteriorating.”.

(2) This section applies to payments made on or after 15 February 2001.

Amendment of section 222 (certain dividends from a non-resident subsidiary) of Principal Act.

86. —Section 222 of the Principal Act is amended in subsection (1)(a) in paragraph (i) of the definition of “relevant dividends” by the substitution of “specified in a certificate given before 15 February 2001 by the Minister” for “specified in a certificate given by the Minister”.

Amendment of Chapter 2 of Part 14 of Principal Act.

87. —Chapter 2 of Part 14 of the Principal Act is amended by the substitution for section 452 of the following:

“Application of section 130 to certain interest.

452.—(1) (a) In this section—

‘arrangements’ means arrangements having the force of law by virtue of section 826;

‘relevant territory’ means—

(i) a Member State of the European Communities other than the State, or

(ii) not being such a Member State, a territory with the government of which arrangements have been made;

‘qualified company’ and ‘relevant trading operations’ have the same meanings as they have for the purposes of sections 445 and 446, but trading operations shall not be treated as relevant trading operations (within the meaning of section 445) if they are not trading operations which could be certified by the Minister for Finance as relevant trading operations for the purposes of section 446 if they were carried on in the area (within the meaning of section 446) rather than the airport (within the meaning of section 445);

‘tax’, in relation to a relevant territory, means any tax imposed in that territory which corresponds to corporation tax in the State.

(b) For the purposes of this section, a company shall be regarded as being a resident of a relevant territory if—

(i) in a case where the relevant territory is a territory with the government of which arrangements have been made, the company is regarded as being a resident of that territory under those arrangements, and

(ii) in any other case, the company is by virtue of the law of the relevant territory resident for the purposes of tax in that territory.

(2) (a) This paragraph shall apply to so much of any interest as—

(i) is a distribution by virtue only of section 130(2)(d)(iv),

(ii) is payable by a company in the ordinary course of a trade carried on by that company and would, but for section 130(2)(d)(iv), be deductible as a trading expense in computing the amount of the company's income from the trade, and

(iii) is interest payable to a company which is a resident of a relevant territory.

(b) Where a company proves that paragraph (a) applies to any interest payable by it for an accounting period and elects to have that interest treated as not being a distribution for the purposes of section 130(2)(d)(iv), then, section 130(2)(d)(iv) shall not apply to that interest.

(3) (a) This paragraph shall apply to so much of any interest as—

(i) is a distribution by virtue only of section 130(2)(d)(iv),

(ii) is payable by a qualified company in the course of carrying on relevant trading operations and would but for section 130 (2)(d)(iv) be deductible as a trading expense in computing the amount of the company's income from the relevant trading operations, and

(iii) represents no more than a reasonable commercial return for the use of the principal in respect of which the interest is paid by the qualified company.

(b) Where a qualified company proves that paragraph (a) applies to any interest payable by it for an accounting period and elects to have that interest treated as not being a distribution for the purposes of section 130(2)(d)(iv), then, section 130(2)(d)(iv) shall not apply to that interest.

(4) An election under subsection (2)(b) or (3)(b) in relation to interest payable by a company for an accounting period shall be made in writing to the inspector and furnished together with the company's return of its profits for the period.”.

Amendment of Part 36 of Principal Act.

88. —Part 36 of the Principal Act is amended by the insertion after section 845 of the following:

“Non-application of section 130 in the case of certain interest paid by banks.

845A.—(1) In this section, ‘bank’ means—

(a) a person who is a holder of a licence granted under section 9 of the Central Bank Act, 1971 , or

(b) a person who holds a licence or other similar authorisation under the law of any other Member State of the European Communities which corresponds to a licence granted under the said section 9.

(2) This subsection shall apply to so much of any interest as—

(a) is a distribution by virtue only of section 130(2)(d)(iv),

(b) is payable by a bank carrying on a bona fide banking business in the State and would but for section 130(2)(d)(iv) be deductible as a trading expense in computing the amount of the bank's income from its banking business, and

(c) represents no more than a reasonable commercial return for the use of the principal in respect of which the interest is paid by the bank.

(3) Where a bank proves that subsection (2) applies to any interest payable by it for an accounting period and elects to have that interest treated as not being a distribution for the purposes of section 130(2)(d)(iv), then, section 130(2)(d)(iv) shall not apply to that interest.

(4) An election under subsection (3) in relation to interest payable by a bank for an accounting period shall be made in writing to the inspector together with the bank's return of its profits for the period.”.

Amendment of section 847 (tax relief for certain branch profits) of Principal Act.

89. —Section 847 of the Principal Act is amended in subsection (1) in the definition of “qualified company” by the substitution of “has before 15 February 2001 given a certificate” for “has given a certificate”.

Restriction of certain losses and charges.

90. —(1) The Principal Act is amended—

(a) in Part 8 by the insertion after section 243 of the following:

“Restriction of relevant charges on income.

243A.—(1) In this section—

‘relevant trading charges on income’, in relation to an accounting period of a company, means the charges on income paid by the company in the accounting period wholly and exclusively for the purposes of a trade carried on by the company, other than so much of those charges as are charges on income paid for the purposes of an excepted trade within the meaning of section 21A;

‘relevant trading income’, in relation to an accounting period of a company, means the trading income of the company for the accounting period (not being income chargeable to tax under Case III of Schedule D) other than so much of that income as is income of an excepted trade within the meaning of section 21A.

(2) Notwithstanding section 243, relevant trading charges on income paid by a company in an accounting period shall not be allowed as deductions against the total profits of the company for the accounting period.

(3) Subject to section 454, where a company pays relevant trading charges on income in an accounting period and, apart from subsection (2), those charges would be allowed as deductions against the total profits of the company for the accounting period, those charges shall be allowed as deductions against—

(a) income specified in section 21A(4)(b), and

(b) relevant trading income,

of the company for the accounting period as reduced by any amount set off against that income under section 396A.”,

(b) in Part 12—

(i) by the insertion after section 396 of the following section:

“Relief for relevant trading losses.

396A.—(1) In this section—

‘relevant trading income’ has the same meaning as in section 243A;

‘relevant trading loss’, in relation to an accounting period of a company, means a loss incurred in the accounting period in a trade carried on by the company, other than so much of the loss as is a loss incurred in an excepted trade within the meaning of section 21A.

(2) Notwithstanding subsection (2) of section 396, for the purposes of that subsection the amount of a loss in a trade incurred by a company in an accounting period shall be deemed to be reduced by the amount of a relevant trading loss incurred by the company in the accounting period.

(3) Subject to section 455, where in an accounting period a company carrying on a trade incurs a relevant trading loss, the company may make a claim requiring that the loss be set off for the purposes of corporation tax against income of the company, being—

(a) income specified in section 21A(4)(b), and

(b) relevant trading income,

of that accounting period and, if the company was then carrying on the trade and if the claim so requires, of preceding accounting periods ending within the time specified in subsection (4), and subject to that subsection and any relief for an earlier relevant trading loss, to the extent that the income of any of those accounting periods consists of or includes income specified in section 21A(4)(b) or relevant trading income, that income shall then be reduced by the amount of the relevant trading loss or by so much of that amount as cannot be relieved against income of a later accounting period.

(4) For the purposes of subsection (3), the time referred to in paragraph (b) of that subsection shall be the time immediately preceding the accounting period first mentioned in subsection (3) equal in length to that accounting period; but the amount of the reduction which may be made under subsection (3) in the relevant trading income of an accounting period falling partly before that time shall not exceed such part of that relevant trading income as bears to the whole of the relevant trading income the same proportion as the part of the accounting period falling within that time bears to the whole of that accounting period.”,

and

(ii) by the insertion after section 420 of the following:

“Group relief: relevant losses and charges

420A.—(1) In this section—

‘relevant trading charges on income’ and ‘relevant trading income’ have the same meanings, respectively, as in section 243A;

‘relevant trading loss’ has the same meaning as in section 396A.

(2) Notwithstanding subsections (1) and (6) of section 420 and section 421, where in any accounting period the surrendering company incurs a relevant trading loss or an excess of relevant trading charges on income, that loss or excess may not be set off for the purposes of corporation tax against the total profits of the claimant company for its corresponding accounting period.

(3) (a) Subject to section 456, where in any accounting period the surrendering company incurs a relevant trading loss, computed as for the purposes of section 396(2), or an excess of relevant trading charges on income in carrying on a trade in respect of which the company is within the charge to corporation tax, that loss or excess may be set off for the purposes of corporation tax against—

(i) income specified in section 21A(4)(b), and

(ii) relevant trading income,

of the claimant company for its corresponding accounting period as reduced by any amounts allowed as deductions against that income under section 243A or set off against that income under section 396A.

(b) Paragraph (a) shall not apply—

(i) to so much of a loss as is excluded from section 396(2) by section 396(4) or 663, or

(ii) so as to reduce the profits of a claimant company which carries on life business (within the meaning of section 706) by an amount greater than the amount of such profits (before a set off under this subsection) computed in accordance with Case 1 of Schedule D and section 710(1).

(4) Group relief allowed under subsection (3) shall reduce the income from a trade of the claimant company for an accounting period—

(a) before relief granted under section 397 in respect of a loss incurred in a succeeding accounting period or periods, and

(b) after the relief granted under section 396 in respect of a loss incurred in a preceding accounting period or periods.

(5) For the purposes of this section in the case of a claim made by a company as a member of a consortium, only a fraction of a relevant trading loss or an excess of relevant trading charges on income may be set off, and that fraction shall be equal to that member's share in the consortium, subject to any further reduction under section 422(2).”,

and

(i) in section 448—

(I) by the substitution of the following for subsections (3) and (4):

“(3) For the purposes of subsection (2), the ‘income from the sale of those goods’ shall be the amount determined by—

(a) firstly, calculating such sum (in this subsection referred to as the ‘relevant sum’) as bears to the amount of the company's income for the relevant accounting period from the sale in the course of the trade mentioned in that subsection of goods and merchandise the same proportion as the amount receivable by the company in the relevant accounting period from the sale in the course of the trade of goods bears to the total amount receivable by the company in the relevant accounting period from the sale in the course of the trade of goods and merchandise, and

(b) then, deducting from the relevant sum—

(i) the amount of any relief for charges allowed under section 454,

(ii) the amount of any relief for a loss in a trade allowed under section 455, and

(iii) the amount of any group relief allowed under section 456,

against income of the trade in the relevant accounting period.

(4) For the purposes of subsection (3), the ‘company's income for the relevant accounting period from the sale in the course of the trade mentioned in that subsection of goods and merchandise’ shall be determined as an amount equal to—

(a) in any case where the income from the trade is derived solely from sales of goods and merchandise, the amount of the company's income from the trade, and

(b) in any other case, such amount of the income from the trade as appears to the inspector or on appeal to the Appeal Commissioners to be just and reasonable,

but shall be so determined as if—

(i) no relief for charges had been claimed under section 243A or 454,

(ii) no relief for a loss in a trade had been claimed under section 396A or 455, and

(iii) no group relief had been allowed under section 420A or 456,

for the relevant accounting period.”,

and

(II) by the substitution of the following for subparagraph (i) of subsection (5A)(b):

“(i) by any amounts allowed under sections 243A, 396A, 420A, 454, 455 and 456, and”,

(ii) by the substitution in section 454 for subsections (2) and (3) of the following:

“(2) Notwithstanding sections 243 and 243A, charges on income paid for the purposes of the sale of goods by a company in a relevant accounting period in the course of a trade or trades, as the case may be, shall not be allowed as deductions against the total profits, or against the relevant trading income, of the company for the relevant accounting period.

(3) Charges on income paid for the purposes of the sale of goods by a company in a relevant accounting period which charges on income would, apart from subsection (2) and section 243A(2), be allowed as deductions against the total profits of the company for the accounting period, shall be allowed as deductions against the company's income from the sale of goods, as reduced by any amount set off under section 455, for the accounting period.”,

(iii) in section 455—

(I) in subsection (2) by the substitution of “Notwithstanding sections 396(2) and 396A(2) but subject to subsections (6) and (7), for the purposes of those sections” for “Notwithstanding section 396(2) but subject to subsections (6) and (7), for the purposes of that section”, and

(II) by the deletion of subsection (5),

(iv) in section 456—

(I) by the substitution for subsections (2) and (3) of the following:

“(2) Notwithstanding subsections (1) and (6) of section 420 and sections 420A(3) and 421, where in any relevant accounting period the surrendering company incurs a loss from the sale of goods or an excess of charges on income paid for the sale of goods, that loss or excess may not be set off for the purposes of corporation tax against the total profits, or against the relevant trading income, of the claimant company for its corresponding accounting period.

(2A) (a) Where in any relevant accounting period the surrendering company incurs a loss from the sale of goods or an excess of charges on income paid for the sale of goods, that loss or excess may be set off for the purposes of corporation tax against the income from the sale of goods of the claimant company for its corresponding accounting period, as reduced by any amounts—

(i) allowed as deductions against that income under section 454, or

(ii) set off against that income under section 455.

(b) Group relief allowed under paragraph (a) shall reduce the income from a trade of the claimant company for an accounting period—

(i) before relief granted under section 397 in respect of a loss incurred in a succeeding accounting period or periods, and

(ii) after the relief granted under section 396 in respect of a loss incurred in a preceding accounting period or periods.”,

and

(II) in subsection (5) by the deletion of paragraph (b),

and

(v) by the deletion of section 457.

(2) Subsection (1) applies as respects an accounting period ending on or after 6 March 2001.

(3) Sections 454, 455 and 456 shall cease to have effect as on and from 1 January 2003.

(4) For the purposes of this section—

(a) where an accounting period of a company begins before 6 March 2001 and ends on or after that date, it shall be divided into 2 parts, one beginning on the date on which the accounting period begins and ending on 5 March 2001 and the other beginning on 6 March 2001 and ending on the date on which the accounting period ends, and both parts shall be treated as if they were separate accounting periods of the company, and

(b) where an accounting period of a company begins before 1 January 2003 and ends on or after that date, it shall be divided into 2 parts, one beginning on the date on which the accounting period begins and ending on 31 December 2002 and the other beginning on 1 January 2003 and ending on the date on which the accounting period ends, and both parts shall be treated as if they were separate accounting periods of the company.

Close company surcharges.

91. —(1) Section 434 of the Principal Act is amended—

(a) in subsection (1)—

(i) by the substitution of the following for the definition of “distributable income”:

“‘distributable income’ means the aggregate of the amounts of the distributable trading income and distributable estate and investment income;”,

(ii) by the insertion after the definition of “estate income” of the following:

“‘franked investment income’ excludes—

(a) a distribution made out of exempt profits within the meaning of section 140,

(b) a distribution made out of disregarded income within the meaning of section 141 and to which subsection (3)(a) of that section applies, and

‘income’ of a company for an accounting period means the income as computed in accordance with subsection (4);”,

and

(iii) by the insertion of the following after the definition of “investment income”:

“‘relevant charges’, in relation to an accounting period of a company, means charges on income paid in the accounting period by the company and which are allowed as deductions under section 243, other than so much of those charges as is paid for the purposes of an excepted trade within the meaning of section 21A;”,

(b) in subsection (4)—

(i) by the substitution of “The income” for “For the purposes of subsection (1), the income”, and

(ii) by the substitution of the following for paragraphs (g) and (h):

“(g) any amount which is an allowable deduction against relevant trading income by virtue of section 243A.”,

and

“(5) (a) The estate and investment income of a company for an accounting period shall be the amount by which the sum of—

(i) the amount of franked investment income for the accounting period, and

(ii) an amount determined by applying to the amount of the income of the company for

the accounting period the fraction	A
where—	B

A is the aggregate of the amounts of estate income and investment income taken into account in computing the income of the company for the accounting period, and

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

exceeds the aggregate of—

(I) the amount of relevant charges, and

(II) the amount which is an allowable deduction in computing the total profits for the accounting period in respect of expenses of management by virtue of section 83(2).

(b) The trading income of a company for an accounting period shall be the income of the company for the accounting period after deducting—

(i) the estate and investment income of the company for the accounting period as computed in accordance with paragraph (a),

(ii) where the aggregate of the amounts specified in clauses (I) and (II) of paragraph (a) exceeds the sum of the amounts specified in subparagraphs (i) and (ii) of that paragraph, the amount of the excess, and

(iii) charges on income paid for the purposes of an excepted trade within the meaning of section 21A.

(5A) (a) For the purposes of sections 440 and 441, but subject to paragraph (b)—

‘distributable estate and investment income’ of a company for an accounting period means the estate and investment income of the company for the accounting period after deducting the amount of corporation tax which would be payable by the company for the accounting period if the tax were computed on the basis of that income;

‘distributable trading income’ of a company for an accounting period means the trading income of the company for the accounting period after deducting the amount of corporation tax which, apart from sections 22A(2) and 448(2), would be payable by the company for the accounting period if the tax were computed on the basis of that income.

(b) In the case of a trading company, the distributable estate and investment income for an accounting period shall be the amount determined in accordance with paragraph (a) reduced by 7.5 per cent.”.

(2) Section 440 of the Principal Act is amended—

(a) in subsection (1)(a) by the substitution of “distributable estate and investment income” for “aggregate of the distributable investment income and distributable estate income”,

(b) by the insertion after subsection (2) of the following:

“(2A) For the purposes of subsection (2)(a), the accumulated undistributed income of a company at the end of an accounting period shall be the aggregate of the undistributed income of the company for accounting periods ending on or before the end of that period computed—

(a) in the case of any such accounting period which ended before 14 March 2001, in accordance with section 434 before amendment by the Finance Act, 2001, and

(b) in the case of any such accounting periods ending on or after 14 March 2001, in accordance with section 434 as amended by the Finance Act, 2001.”.

(3) Section 441 of the Principal Act is amended—

(a) in subsection (4)—

(i) in paragraph (a) by the substitution of the following for subparagraphs (i) and (ii)—

“(i) the distributable estate and investment income, and

(ii) 50 per cent of the distributable trading income,”,

and

(ii) in paragraph (b)(iii) by the substitution of “distributable estate and investment income” for “aggregate of distributable investment income and the distributable estate income”,

and

(b) in subsection (6)(b)(ii) by the substitution of “‘distributable estate and investment income’ and ‘distributable trading income’” for “‘distributable income’, ‘distributable investment income’ and ‘distributable estate income’”.

(4) This section applies as respects an accounting period ending on or after 14 March 2001.