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10 1987

FINANCE ACT, 1987

Chapter V

Corporation Tax

Relief in relation to income from qualifying shipping trade.

28. —(1) In this section—

qualifying ship” means a sea-going vessel which—

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

(b) is registered in the State under Part II of the Mercantile Marine Act, 1955 ,

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

(d) is self-propelled,

but notwithstanding anything in paragraphs (a), (b), (c) or (d) of this definition does not include—

(i) a fishing vessel,

(ii) a tug,

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

(iv) a vessel used 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, and

(v) any other vessel of a type which is 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 the said use of the qualifying ship,

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

(d) the letting on charter of a qualifying ship for use for the said purposes where the operation of the ship, and the crew of the ship, remain under the direction and control of the company;

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 (2), as a separate trade;

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,

and any such capital allowances shall be specified capital allowances notwithstanding that they are not treated as trading expenses of the qualifying shipping trade.

(2) Where, during the relevant period, a company carries on, as part of a trade, qualifying shipping activities, those activities shall be treated for all the purposes of the Tax Acts, other than any provisions 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:

Provided that this subsection shall not apply in relation to a claim by the company for the set off, under section 16 (1) of the Corporation Tax Act, 1976

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

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

(3) Section 39 of the Finance Act, 1980 , is hereby amended, as respects a company carrying on a qualifying shipping trade in any accounting period or part of an accounting period of that company falling within the relevant period, by the insertion after subsection (1CC) (inserted by the Finance Act, 1984 ) of the following subsection:

“(1CC1) (a) In this subsection ‘qualifying shipping activities’ and ‘qualifying shipping trade’ have, respectively, the same meanings as in section 28 of the Finance Act, 1987.

(b) The following provisions shall apply, for the purposes of relief under this Chapter, in relation to a company carrying on a qualifying shipping trade:

(i) qualifying shipping activities carried on in the course of the qualifying shipping trade shall be regarded as the manufacture within the State of goods,

(ii) any amount receivable from the carrying on of the said activities shall be regarded as an amount receivable from the sale of goods, and

(iii) subsection (1D) shall have effect as respects the company in relation to a claim by it for relief from tax by virtue of this subsection as it has effect as respects a company in relation to a claim by it for relief from tax by virtue of subsection (1B) or (1C).”.

(4) Notwithstanding any other provision of the Tax Acts, for the purposes of granting relief from tax (and in this subsection “tax” shall mean income tax or corporation tax, as the case may be) 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 16 (2) of the Corporation Tax Act, 1976 , 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 116 (1) of the Corporation Tax Act, 1976 , 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 at paragraph (a) (ii), in the course of a trade, shall be deemed, notwithstanding paragraph (b) of subsection (1) of section 40 of the Finance Act, 1984 , 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) A qualifying shipping trade shall not be regarded as a specified trade for the purposes of—

(a) section 40 of the Finance Act, 1984 (as amended by the Finance Act, 1986 ), or

(b) section 84A (inserted by the Finance Act, 1984 ) of the Corporation Tax Act, 1976 (as so amended).

Relief in relation to income of Special Trading Houses.

29. —As respects any relevant accounting period (within the meaning of section 38 of the Finance Act, 1980 ) or any part of such accounting period, commencing on or after the coming into force of this section, Chapter VI of Part I of the said Finance Act, 1980 , is hereby amended by the insertion in section 39 after subsection (1CC1) (inserted by this Act) of the following subsection—

“(1CC2) (a) In this subsection—

export goods’ means goods, which, in relation to the manufacturer of those goods, are goods for the purposes of this Chapter and which are exported by a Special Trading House, which is not the manufacturer of the goods, but which, in relation to the relevant accounting period, is the company claiming relief from tax by virtue of this subsection where the selling by the Special Trading House of the goods so exported is selling by wholesale;

selling by wholesale’ means selling goods of any class to a person who carries on a business of selling goods of that class or who uses goods of that class for the purposes of a trade or undertaking carried on by him;

Special Trading House’ means a company which exists solely for the purpose of carrying on a trade which consists solely of the selling of export goods.

(b) For the purposes of this subsection goods are exported when they are transported out of the State in the course of the selling by wholesale of those goods and the goods are not subsequently transported into the State in the course of the selling by wholesale of those goods.

(c) The following provisions shall apply for the purposes of relief under this Chapter in relation to a Special Trading House:

(i) export goods when exported in the course of its trade by a Special Trading House shall be deemed to have been manufactured by the Special Trading House, notwithstanding that the manufacturer has claimed, or is entitled to claim, relief under this Chapter in respect of the sale by it of those goods,

(ii) any amount receivable by the Special Trading House in payment for the sale of export goods shall be regarded as an amount receivable from the sale of goods, and

(iii) subsection (1D) shall have effect as respects the company in relation to a claim by it for relief from tax by virtue of this subsection as it has effect as respects a company in relation to a claim by it for relief from tax by virtue of subsection (1B) or (1C).

(d) This subsection shall not come into effect until such time as legislation governing the licensing of Special Trading Houses is enacted and shall come into effect subject to such legislation and on such date as the Minister for Finance shall by order appoint.”.

Relief in relation to income from certain trading operations carried on in Custom House Docks Area.

30. —As respects any relevant accounting period within the meaning of section 38 of that Act, Chapter VI of Part I of the Finance Act, 1980 , is hereby amended by the insertion after section 39A (inserted by the Finance Act, 1981 ) of the following section—

“39B.—(1) in this section—

the Area’ means the Custom House Docks Area as defined in section 41 of the Finance Act, 1986 ;

company’ means any company carrying on a trade;

the Minister’ means the Minister for Finance;

qualified company’ means a company to which the Minister has given a certificate under subsection (2);

relevant trading operations’ means trading operations specified in a certificate given by the Minister under subsection (2);

trading operation’ means any trading operation which, apart from this section, is not the manufacture of goods for the purposes of this Chapter.

(2) Subject to subsections (6) and (7), the Minister may give a certificate certifying that such trading operations of a company as are specified in the certificate are, with effect from a date to be specified in the certificate, relevant trading operations for the purposes of this section, and any certificate so given shall, unless it is revoked under subsection (4) or (5), remain in force until the 31st day of December, 2000.

(3) A certificate under subsection (2) may be given either without conditions or subject to such conditions as the Minister considers proper and specifies therein.

(4) Where, in the case of a company in relation to which a certificate under subsection (2) has been given—

(a) the trade of the company ceases or, except in the case of a company in relation to which the Minister has, in accordance with subsection (7), given a certificate under subsection (2) and that company has not yet commenced to carry on in the Area the trading operation or trading operations specified in the certificate, becomes carried on wholly outside the Area, or

(b) the Minister is satisfied that the company has failed to comply with any condition subject to which the certificate was given,

the Minister may, by notice in writing served by registered post on the company, revoke the certificate with effect from such date as may be specified in the notice.

(5) Where, in the case of a company in relation to which a certificate under subsection (2) has been given, the Minister is of the opinion that any activity of the company has had, or may have, an adverse effect on the use or development of the Area or is otherwise inimical to the development of the Area, then—

(a) the Minister may, by notice in writing served by registered post on the company, require the company todesist from such activity with effect from such date as may be specified in the notice, and

(b) if the Minister is not satisfied that the company has complied with the requirements of the said notice, he may, by a further notice in writing served by registered post on the company, revoke the certificate with effect from such date as may be specified in the said further notice.

(6) Subject to subsection (7), the Minister shall not certify, under subsection (2), that a trading operation is a relevant trading operation unless—

(a) it is carried on within the Area,

(b) the Minister is satisfied that it will contribute to the development of the Area as an International Financial Services Centre, and

(c) it falls within one or more of the following classes of trading operations—

(i) the provision for persons not ordinarily resident in the State of services, in relation to transactions in foreign currencies, which are of a type normally provided by a bank in the ordinary course of its trade,

(ii) the carrying on on behalf of persons not ordinarily resident in the State of international financial activities including, in particular,—

(I) global money-management,

(II) international dealings in foreign currencies and in futures, options and similar financial assets which are denominated in foreign currencies,

(III) dealings in bonds, equities and similar instruments which are denominated in foreign currencies, and

(IV) insurance and related activities,

(iii) the provision for persons not ordinarily resident in the State of services of, or facilities for, processing, control, accounting, communication, clearing, settlement or information storage in relation to financial activities,

(iv) the development or supply of computer software for use in the provision of services or facilities of a type referred to in subparagraph (iii) or for the reprocessing, analysing or similar treatment of information in relation to financial activities, or

(v) trading operations which are similar to, or ancillary to, any of those operations described in the foregoing provisions of this section in regard to which the Minister is of the opinion that they contribute to the use of the Area as an International Financial Services Centre:

Provided that the references in this subsection to any service or facility provided for, or any activity carried on on behalf of, a person not ordinarily resident in the State shall not include any such service or facility provided for, or any activity carried on on behalf of, the whole or any part of a trade carried on by that person in the State.

(7) Where the Minister would have certified a trading operation under subsection (2) but for the fact that the condition specified in paragraph (a) of subsection (6) was not satisfied as respects that trading operation, he may, notwithstanding that that condition is not satisfied, certify the said trading operation under subsection (2) if he is satisfied that—

(a) the trading operation is not carried on within the Area due to circumstances outside the control of the company carrying on the trading operation,

(b) the said company intends to carry on, and will commence to carry on, the trading operation within the Area within such period of time as the Minister may specify under subsection (3) as a condition subject to which he gives the certificate under subsection (2) in respect of the trading operation, and

(c) throughout the period, following the giving of the certificate, during which the trading operation will be carried on outside the Area, it will be carried on in premises which the company carrying on the trading operation is entitled to occupy under a lease or similar agreement, entered into on an arm's length basis with a person who would not be treated as connected with the company for the purposes of the Corporation Tax Acts, and the period of occupancy of the premises to which the company is entitled under the lease or similar agreement, or to which it would be entitled if it exercised any rights conferred by that lease or similar agreement, is not greater than the period which the Minister considers sufficient to permit the company to carry on the trading operation prior to it commencing to carry it on in the Area.

(8) In the case of a qualified company carrying on relevant trading operations, the following provisions shall apply for the purpose of relief under this Chapter—

(a) the relevant trading operations shall be regarded as the manufacture within the State of goods, and

(b) any amount receivable in payment for anything sold, or any services rendered, in the course of the relevant trading operations shall be regarded as an amount receivable from the sale of goods.

(9) The inspector may by notice in writing require a company claiming relief from tax by virtue of this section to furnish him with such information or particulars as may be necessary for the purpose of giving effect to this section, and section 41 (2) shall have effect as if the matters of which proof is required thereby included the information or particulars specified in a notice under this section.”.

Amendment of Chapter VI (manufacturing companies) or Part I of Finance Act, 1980.

31. —As respects any relevant accounting period (within the meaning of section 38 of the Finance Act, 1980 ), or part of such accountingperiod, commencing on or after the passing of this Act, Chapter VI of Part I of the said Finance Act, 1980 , is hereby amended by the insertion in section 39 after subsection (1CC2) (inserted by this Act) of the following subsection:

“(1CC3) The definition of ‘goods’ contained in subsection (1) shall include plants cultivated in the State, by the process of plant biotechnology known as ‘micro-propagation’ or ‘plant cloning’, in the course of a trade by the company which, in relation to the relevant accounting period, is the company claiming relief under this Chapter in relation to the trade and references in this Chapter to ‘manufactured’ shall be construed, in relation to such plants, as including references to cultivated and words in this Chapter cognate to ‘manufactured’ shall be construed accordingly.”.

Companies: credit for farm tax.

32. —For the purposes of giving credit for farm tax paid by a company and determining the amount of corporation tax payable by a company, section 16 of the Finance Act, 1986 , and section 3 shall apply with any necessary modifications and as if—

(a) references in those sections to the year 1986-87 were references to any accounting period ending in that year,

(b) references to an individual being liable for the payment of farm tax on a date within a year of assessment were references to a company being liable for the payment of farm tax on any date on or before the 30th day of June, 1987,

(c) references in those sections to—

(i) “income tax” were references to “corporation tax”,

(ii) “individual”, “an individual” and “the individual” were, respectively, references to “company”, “a company” and “the company”,

(iii) “he” or “him” and “his” were, respectively, references to “it” and “its”, and

(iv) “year of assessment” were references to “accounting period”,

(d) references to the amount of farm tax paid or borne by a person in a year of assessment or to the amount of farm tax payable by an individual for a calendar year were references to the amount of farm tax paid or borne by a person on or before the 30th day of June, 1987, and

(e) for the Third Schedule to that Act there were substituted the following Schedule—

“THIRD SCHEDULE

Tax Appropriate to the Profits or Gains from Farming

Tax appropriate to the profits or gains from farming’, in relation to a company which is chargeable to corporation tax for an accounting period in respect of profits which include or consist of income from farming (within the meaning of Chapter II of Part I of the Finance Act, 1974), means the amount determined by the formula—

F

___

P

× T

where—

F is the amount of the income from farming included in the profits of the company brought into charge to corporation tax for that accounting period, after any deduction from or addition to that income under section 14 of the Corporation Tax Act, 1976 , and after deducting from that income any loss treated as reducing that income,

P is the amount of the profits of the company brought into charge to corporation tax for that accounting period before any deduction therefrom for charges on income, expenses of management or other amounts which can be deducted from or set against or treated as reducing profits of more than one description, and

T is the amount of corporation tax payable by the company for the accounting period, before any relief in respect of farm tax or advance corporation tax paid or foreign tax and after deducting any corporation tax payable by virtue of section 101 or 162 of the Corporation Tax Act, 1976 .”.

Application of section 79 (reduced rate of corporation tax for certain income) of Corporation Tax Act, 1976, to certain interest.

33. —As respects any interest to which section 28 of the Finance Act, 1976 , applies on any housing loan (within the meaning of that section) granted on or after the 22nd day of May, 1987, section 79 of the Corporation Tax Act, 1976 , shall apply as if the reference in subsection (1) of the said section 79 to “35 per cent.” were a reference to “45 per cent.”.

Exemption from corporation tax of profits arising from the National Lottery.

34. —Notwithstanding any provision of the Corporation Tax Acts, profits arising in any accounting period ending after the 31st day of December, 1986, to a company authorised by virtue of a licence granted by the Minister for Finance under the National Lottery Act, 1986 , to hold the National Lottery, shall be exempt from corporation tax.

Relief for investment in films.

35. —(1) In this section—

allowable investor company” means, in relation to a qualifying company, a company which is not connected with the qualifying company;

film” means a film which is produced—

(a) on a commercial basis with a view to the realisation of profit, and

(b) wholly or principally for exhibition to the public in cinemas or by way of television broadcasting,

but does not include a film made for exhibition as an advertising programme or as a commercial;

qualifying company” means a company which—

(a) is incorporated in the State, and

(b) is resident in the State and is not resident elsewhere, and

(c) exists solely for the purposes of the production and distribution of a qualifying film or qualifying films;

qualifying film” means a film in respect of which not less than 75 per cent. of the work on the production of the film is carried out in the State and not more than 60 per cent. of the cost of the production of the film is met by relevant investments;

qualifying period” means the period commencing on the date of the passing of this Act and ending on the third anniversary of that date;

relevant investment” means a sum of money which is—

(a) paid in a qualifying period to a qualifying company, whether in respect of shares in that qualifying company or otherwise, by an allowable investor company on its own behalf, and

(b) paid by such allowable investor company for the purpose of enabling the qualifying company to produce a qualifying film, and

(c) used by the qualifying company, within two years of the receipt of that sum, for that purpose,

but does not include a sum of money paid to the qualifying company on terms that it will be repaid, and a reference to the making of a relevant investment shall be construed as a reference to the payment of such a sum to a qualifying company.

(2) Subject to the provisions of this section, where, in an accounting period, an allowable investor company makes a relevant investment, it shall, on due claim and on proof of the facts, be given a deduction of the amount of that investment from its total profits for the accounting period:

Provided that, where the amount of the deduction to which the allowable investor company is entitled under this section in an accounting period exceeds its profits for that accounting period, the excess shall be carried forward to the succeeding accounting period and the amount so carried forward shall be treated for the purposes of this section, other than subsection (3), as if it were a relevant investment made in that succeeding accounting period.

(3) Where, in any period of twelve months ending on an anniversary of the passing of this Act, the amount, or the aggregate amount of the relevant investments made by an allowable investor company, or by such company and all companies which, at any time in that period, would be regarded as connected with such company, exceeds £100,000, no relief shall be given under this section for the excess and, where there is more than one such relevant investment, the inspector, or, on appeal, the Appeal Commissioners, shall make such apportionment of the relief available as shall be just and reasonable to allocate to each relevant investment a due proportion of the relief available and, where necessary, to grant to each allowable investor company concerned an amount of relief proportionate to the amount of the relevant investment or the aggregate amount of the relevant investments made by it in the period.

(4) A claim to relief under this section may be allowed at any time after the payment of a sum to a qualifying company, which, if it is used, within two years of its being paid, by the qualifying companyfor the production of a qualifying film, will be a relevant investment, if the inspector is satisfied that all the conditions for relief are, or will be, satisfied, but the relief shall be withdrawn if, by reason of the happening of any subsequent event or the failure of an event to happen which at the time the relief was given was expected to happen, it appears that the company making the claim was not entitled to the relief allowed.

(5) An allowable investor company shall not be entitled to relief in respect of a relevant investment unless it is established to the satisfaction of the inspector, or, on appeal, of the Appeal Commissioners, that the relevant investment—

(a) has been made for bona fide commercial purposes and not as part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax,

(b) that the relevant investment has been, or will be, used in the production of a qualifying film, and

(c) the relevant investment is made at the risk of the company and neither the company nor any person who would be regarded as connected with the company, is entitled to receive, directly or indirectly, any payment from the qualifying company other than a payment made on an arm's length basis for goods or services supplied or a payment out of the proceeds of exploiting the film to which the company is entitled under the terms subject to which the relevant investment is made.

(6) Where any relief has been given under this section which is subsequently found not to have been due, it shall be withdrawn by making an assessment to corporation tax under Case IV of Schedule D for the accounting period or accounting periods in which the relief was given, and, notwithstanding anything in the Tax Acts, such an assessment may be made at any time.

(7) (a) Subject to paragraph (b), where an allowable investor company is entitled to relief under this section in respect of any sum, or any part of a sum, or would be so entitled on making due claim, as a deduction from its total profits for any accounting period, it shall not be entitled to any relief for that sum, or any part of a sum, in computing its income or profits, or as a deduction from its income or profits, for any accounting period under any other provision of the Corporation Tax Acts or the Capital Gains Tax Acts.

(b) Where an allowable investor company has made a relevant investment by way of a subscription for new ordinary shares of a qualifying company, and none of those shares are disposed of by the allowable investor company within three years of their acquisition by that company, then the sums allowable as deductions from the consideration in the computation for the purpose of capital gains tax of the gain or loss accruing to the company on the disposal of those shares shall be determined without regard to any relief under this section which the company has obtained, or would be entitled on due claim to obtain, except that where those sums exceed the consideration they shall be reduced by the amount equal to—

(i) the amount in respect of which the allowable investor, company has obtained relief under this section in respect of the subscription for those shares, of

(ii) the amount of the excess,

whichever is the less.

(c) For the purposes of this subsection “new ordinary shares” means new ordinary shares forming part of the ordinary share capital of a qualifying company which, throughout the period of three years commencing on the date such shares are issued, carry no present or future preferential right to dividends, or to a company's assets on its winding up, and no present or future preferential right to be redeemed.

(8) Section 157 of the Corporation Tax Act, 1976 , shall apply for the purposes of this section.