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19 1973

FINANCE ACT, 1973

Chapter IV

Anti-avoidance and penalty provisions

Change in ownership of company: disallowance of trading losses and restriction of capital allowances.

39. —(1) Where a relevant change in the ownership of a company takes place—

(a) no relief shall be given under section 309 of the Income Tax Act, 1967 , in respect of a loss sustained in a trade carried on by the company in any year of assessment ending before the change in ownership, by deducting such loss from or setting it off against the amount of the profits or gains on which the company is assessed to income tax under Schedule D in respect of that trade for any year of assessment beginning after the said change in ownership;

(b) the amount of the capital allowances falling to be made in charging the profits or gains of a trade carried on by the company in any year of assessment ending before the change in ownership shall not, for the purposes of section 241 (3), 244 (7), 245 (6), 248 , 252 , 254 (5), 295 or 305 (1) of the Income Tax Act, 1967 , be added to, or deemed to be, or deemed to be part of, the amount of the capital allowances falling to be made in charging the profits or gains of that trade for any year of assessment beginning after the said change in ownership;

(c) no relief shall be given under section 25 of the Finance Act, 1964 , in respect of a loss sustained by the company in an accounting period beginning before the change in ownership by deducting such loss from or setting it off against profits arising to the company in an accounting period ending after the change in ownership.

(2) (a) This subsection applies to any company in the ownership of which a relevant change takes place, and which sustains a loss in the year of assessment in which the change in ownership takes place.

(b) In the case of a company to which this subsection applies—

(i) the amount of the loss sustained by the company in the year of assessment in which the change of ownership takes place shall be apportioned on the basis specified in section 107 of the Income Tax

Act, 1967, the amount apportioned to that part of the year of assessment falling before the change in ownership being referred to in this subsection as the pre-change loss and the amount apportioned to that part of the year of assessment falling after the change in ownership being referred to in this subsection as the post-change loss,

(ii) the amount of any income, from which income tax has been deducted, of the company for the said year of assessment shall be apportioned by reference to the date on which that income was received by the company, the amount received in that part of the said year falling before the change in ownership being referred to in this subsection as the pre-change taxed income, and the amount of the said income received in that part of the said year falling after the change in ownership being referred to in this subsection as the post-change taxed income,

(iii) the amount of any income for the said year, other than such income as is referred to in subparagraph (ii), shall be apportioned on the basis specified in section 107 of the Income Tax Act, 1967 , the amount apportioned to that part of the said year falling before the change in ownership being referred to in this subsection as the pre-change income and the amount apportioned to that part of the said year falling after the change in ownership being referred to in this subsection as the post-change income.

(c) Where relief under section 307 of the Income Tax Act, 1967 , is claimed by a company to which this subsection applies in respect of the year of assessment in which the change in ownership takes place, the amount of any relief to be given under the said section 307 for that year of assessment shall not exceed the sum of the following:

(i) the amount of the relief which would have been given for that year of assessment if the loss sustained by the company in that year of assessment had been only the amount of the pre-change loss and the income of the company for the said year of assessment had been only the amount of the pre-change taxed income together with the amount of the pre-change income;

and

(ii) the amount of the relief which would have been given if the loss sustained by the company in that year of assessment had been only the amount of the post-change loss and the income of the company for the said year of assessment had been only the amount of the post-change taxed income together with the amount of the post-change income.

(d) Any pre-change loss, for which relief is not given or is not given fully under any provision of the Income Tax Acts as modified by this subsection, shall not be taken into account for the purposes of section 309 of the Income Tax Act, 1967 .

(3) Where, in charging the profits or gains of a trade carried on by a company, in the ownership of which a relevant change takes place, for the year of assessment in which the change of ownership takes place, capital allowances fall to be made—

(a) so much of any deduction falling to be made under section 241 of the Income Tax Act, 1967 , as is attributable to that part of the year of assessment falling before the change in ownership, and

(b) so much of any capital allowances, falling to be made under any provision other than the said section 241, as are in respect of expenditure incurred before the change in ownership,

shall be deemed to be an amount of capital allowances falling to be made in respect of a year of assessment ending before the change in ownership.

(4) (a) Where relief in respect of a loss or an amount of capital allowances given or made to a company in the ownership of which a relevant change takes place has been restricted under this section, then, notwithstanding section 304 (6) of the Income Tax Act, 1967 , in applying the provisions of Part XVI of that Act in relation to balancing charges to the company by reference to any event after the change in ownership, any capital allowances falling to be made to the company for any year of assessment ending before the change in ownership shall be disregarded unless the profits or gains of that year of assessment or any subsequent year of assessment ending before the change in ownership were sufficient to give effect to the allowances.

(b) In the application of paragraph (a) it shall be assumed that any profits or gains are applied in giving effect to any such capital allowances in preference to being set off against any loss which is not attributable to such allowances.

(5) In applying subsection (1) (c) to the accounting period in which the relevant change in the ownership of a company takes place, the part ending with the change in ownership, and the part beginning thereafter, shall be treated as two separate accounting periods, and the profits or losses of the accounting period shall be apportioned to the two parts. The apportionment shall be on a time basis according to the respective lengths of those parts except that if it appears that that method would work unreasonably or unjustly such other method shall be used as appears just and reasonable.

(6) (a) For the purposes of this section a relevant change in the ownership of a company shall be regarded as having taken place if—

(i) within any period of three years there is both a change in the ownership of the company and a major change in the nature or conduct of a trade carried on by the company, whether such major change occurs before or after or at the same time as the change in ownership, or

(ii) at any time after the scale of the activities in a trade carried on by the company has become small or negligible, and before any considerable revival of the trade, there is a change in the ownership of the company.

(b) In paragraph (a) “major change in the nature or conduct of a trade” includes—

(i) a major change in the type of property dealt in, or services or facilities provided, in the trade, or

(ii) a major change in customers, outlets or markets of the trade,

and this section shall apply even if the change is the result of a gradual process which began outside the period of three years mentioned in paragraph (a) (i).

(c) The Fifth Schedule to this Act shall have effect for the purpose of supplementing this section.

(7) In this section and in the Fifth Schedule to this Act—

capital allowances” means allowances, other than allowances falling to be made in computing profits or gains, under section 241 of the Income Tax Act, 1967 , or under Part XIV, XV, XVI or XVII of that Act;

company” means any body corporate.

(8) This section shall not apply if the change of ownership took place before the 16th day of May, 1973, and subsection (6) (a) (i) shall not apply if the major change in the nature or conduct of the trade was completed before that date; but, in other respects, this section shall have effect by reference to circumstances and events before that date as well as by reference to later circumstances and events.

Restriction of balancing allowances on sale of industrial buildings and structures.

40. —(1) This section shall have effect where—

(a) the relevant interest in a building or structure is sold subject to an inferior interest; and

(b) by virtue of the sale a balancing allowance under section 265 of the Income Tax Act, 1967 , would, apart from this section, fall to be made to or for the benefit of the person (in this section referred to as the relevant person) who was entitled to the relevant interest immediately before the sale; and

(c) either—

(i) the relevant person, the person to whom the relevant interest is sold and the grantee of the inferior interest, or any two of them, are connected with each other within the meaning of subsection (6), or

(ii) it appears with respect to the sale or the grant of the inferior interest, or with respect to transactions including the sale or grant, that the sole or main benefit which, but for this section, might have been expected to accrue to the parties or any of them was the obtaining of an allowance or deduction under Chapter I of Part XVI of the Income Tax Act, 1967 .

(2) For the purposes of the said section 265 the net proceeds to the relevant person of the sale—

(a) shall be taken to be increased by an amount equal to any premium receivable by him for the grant of the inferior interest; and

(b) shall, where no rent, or no commercial rent, is payable in respect of the inferior interest, be taken to be the sum of—

(i) what those proceeds would have been if a commercial rent had been payable and the relevant interest had been sold in the open market, and

(ii) any amount to be added under paragraph (a);

but the net proceeds of the sale shall not, by virtue of this subsection, be taken to be greater than such amount as will secure that no balancing allowance falls to be made.

(3) Where subsection (2) operates, in relation to a sale, to deny or reduce a balancing allowance in respect of any expenditure, the residue of that expenditure immediately after the sale shall be calculated for the purposes of the said Chapter I as if that balancing allowance had been made or, as the case may be, had not been reduced.

(4) Where the terms on which an inferior interest is granted are varied before the sale of the relevant interest, any capital consideration for the variation shall be treated, for the purposes of this section, as a premium for the grant of the interest, and the question whether any and, if so, what rent is payable in respect of the interest shall be determined by reference to the terms as in force immediately before the sale.

(5) In this section—

inferior interest” means any interest in or right over the building or structure in question, whether granted by the relevant person or by someone else;

premium” includes any capital consideration except so much of any sum as corresponds to any amount of rent or profits falling to be computed by reference to that sum under section 83 of the Income Tax Act, 1967 ;

capital consideration” means consideration which consists of a capital sum or would be a capital sum if it had taken the form of a money payment;

rent” includes any consideration which is not capital consideration;

commercial rent” means such rent as might reasonably be expected to have been required in respect of the inferior interest in question, having regard to any premium payable for the grant of the interest, if the transaction had been at arm's length.

(6) For the purposes of this section, persons shall be regarded as connected with each other if they would be so regarded for the purposes of section 16 of the Finance (Miscellaneous Provisions) Act, 1968 .

(7) This section shall be construed as if it were contained in Chapter I of Part XVI of the Income Tax Act, 1967 , and shall apply in any case where the relevant interest is sold on or after the 3rd day of July, 1973.

Amendment of section 117 of Income Tax Act, 1967.

41. Section 117 of the Income Tax Act, 1967 , is hereby amended by the addition of the following subsections:

“(7) Where expense is incurred by a person connected with a body corporate, being expense which if incurred by the body corporate would be expense of the kind mentioned in paragraph (a) of subsection (1), the body corporate shall be deemed, for the purposes of this section, to have incurred the expense and the provisions of subsection (1) shall apply accordingly in relation to any person, being a director or employee of the body corporate, in respect of whom the expense was incurred.

(8) A person shall be regarded as connected with a body corporate for the purposes of subsection (7), if that person is—

(a) a trustee of a settlement, within the meaning of section 447, made by the body corporate, or

(b) a body corporate,

and that person would be regarded as connected with the body corporate for the purposes of section 16 of the Finance (Miscellaneous Provisions) Act, 1968 .”.

Cesser of section 121 of Income Tax Act, 1967.

42. Section 121 of the Income Tax Act, 1967 , shall not apply or have effect in relation to the year 1973-74 or any subsequent year of assessment.

Amendment of section 128 of Income Tax Act, 1967.

43. Section 128 of the Income Tax Act, 1967 , is hereby amended—

(a) by the insertion in subsection (1) after “documents” of “or to remit tax to the Collector”, and

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

“(1A) Where the person mentioned in subsection (1) is a body of persons, the secretary shall be liable to a separate penalty of £20.”.

Amendment of section 335 of Income Tax Act, 1967.

44. Section 335 of the Income Tax Act, 1967 , is hereby amended by the addition thereto of the following subsections:

“(2) A registered friendly society shall not be entitled to exemption from tax under this section in relation to any year of assessment, being the year 1973-74 or any subsequent year, if the Revenue Commissioners determine, for the purposes of entitlement to exemption for that year, that the society does not satisfy the following conditions:

(a) that it was established solely for any or all of the purposes set out in section 8 (1) of the Friendly Societies Act, 1896, and not for the purpose of securing a tax advantage; and

(b) that, since its establishment, it has engaged solely in activities directed to achieving the purposes for which it was so established and that it has not engaged in trading activities, other than by way of insurance in respect of members, with a view to the realisation of profits.

(3) In making a determination under this section in relation to a registered friendly society, the Revenue Commissioners shall consider any evidence in relation to the matter submitted to them by the society.

(4) In any case where a friendly society is aggrieved by a determination of the Revenue Commissioners under this section in relation to the society, the society shall be entitled to appeal to the Appeal Commissioners against the determination of the Revenue Commissioners and the Appeal Commissioners shall hear and determine the appeal as if it were an appeal against an assessment to income tax and the provisions of the Income Tax Act, 1967 , relating to the rehearing of an appeal and the statement of a case for the opinion of the High Court on a point of law shall apply accordingly with any necessary modifications.”.

Amendment of section 413 of Income Tax Act, 1967.

45. section 413 (2) of the Income Tax Act, 1967 , is hereby amended by the substitution of “£100” for “£50”.

Amendment of section 503 of Income Tax Act, 1967.

46. section 503 (2) of the Income Tax Act, 1967 , is hereby amended by the insertion in paragraph (a) (i) (I) after “£500,” of “or, in the case of fraud, £1,000,”.