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12 1988

FINANCE ACT, 1988

Chapter IV

Corporation Tax

Rates of corporation tax.

33. —(1) As respects any accounting period ending on or after the 1st day of April, 1988, section 1 of the Corporation Tax Act, 1976 , is hereby amended by the substitution of the following subsection for subsection (1):

“(1) For the financial year 1974 and each subsequent financial year there shall be charged on profits of companies a tax, to be called corporation tax, at the rate of—

(a) 50 per cent. for—

(i) each financial year until and including the year 1987, and

(ii) that part of the financial year 1988 beginning on the 1st day of January, 1988, and ending on the 31st day of March, 1988;

(b) 47 per cent. for—

(i) that part of the financial year 1988 beginning on the 1st day of April, 1988, and ending on the 31st day of December, 1988, and

(ii) that part of the financial year 1989 beginning on the 1st day of January, 1989, and ending on the 31st day of March, 1989;

and

(c) 43 per cent. for—

(i) that part of the financial year 1989 beginning on the 1st day of April, 1989, and ending on the 31st day of December, 1989, and

(ii) each subsequent financial year.”.

(2) Sections 28 and 79 of the Corporation Tax Act, 1976 , shall not have effect for any accounting period ending on or after the 1st day of April, 1989.

(3) The Third Schedule shall have effect for the purpose of supplementing this section.

Amendment of Part XI (group relief) of Corporation Tax Act, 1976.

34. —Part XI of the Corporation Tax Act, 1976 , is hereby amended by the insertion after section 116 of the following section:

“116A—(1) (a) In this section—

trade’ means a trade carried on by a company which consists of or includes the manufacture of goods (including activities carried on in an accounting period which would, if the company had sufficient profits in that period and made a claim for relief in respect of the trade under Chapter VI of Part I of the Finance Act, 1980 , for that period, fall to be regarded for the purposes of that Chapter as the manufacture of goods);

‘income from the sale of goods’ in an accounting period in the course of a trade carried on by a company shall, subject to section 118 as applied for the purposes of relief under this section, be such income as would be ‘the income from the sale of those goods’ in that period in the course of the trade for the purposes of a claim under section 41 (2) of the Finance Act, 1980 , if—

(i) no group relief under this section were allowed against income from the trade in that period,

(ii) the company had sufficient profits, and

(iii) the company made a claim for relief under Chapter VI of Part I of the Finance Act, 1980 ;

‘a loss from the sale of goods’ in the course of a trade in an accounting period shall be such amount as would be the amount of the income from the sale of goods in that period if, notwithstanding section 41 (4) of the Finance Act, 1980 , ‘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’ for the purposes of subsection (3) of the said section were the amount of so much of the loss, computed as for the purposes of section 16 (2), from the trade in the period as appears to the inspector, or on appeal, to the Appeal Commissioners to be referable to a loss incurred in the sale of goods and merchandise:

Provided that a loss such as is mentioned in section 28 (4) (b) of the Finance Act, 1987 , shall not be a loss from the sale of goods;

‘charges on income paid for the purpose of the sale of goods’ in the course of a trade in an accounting period shall be such amount as would be the amount of the income from the sale of goods in that period if, notwithstanding section 41 (4) of the Finance Act, 1980 , ‘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’ for the purposes of subsection (3) of the said section were the amount of so much of the charges on income paid wholly and exclusively for the purposes of the trade in that period as appears to the inspector, or on appeal, to the Appeal Commissioners to be referable to charges on income paid for the purpose of the sale of goods and merchandise;

‘an excess of charges on income paid for the purpose of the sale of goods’ in the course of the trade in an accounting period shall be so much of an amount, being the amount by which the charges on income paid by a company for the purpose of the sale of goods in the course of the trade in that period exceed the income from the sale of goods in the course of the trade in that period, as does not exceed the excess referred to in section 116 (6) as computed for the company for that period;

‘the sale of goods and merchandise’ in the course of a trade carried on by a company shall mean the sale of such goods and merchandise as would respectively be treated as goods and merchandise for the purposes of a claim under Chapter VI of the Finance Act, 1980 , if the company had a sufficiency of profits and had made such a claim.

(b) For the purposes of this section—

(i) where an accounting period begins before the 1st day of January, 1989, and ends on or after that date it shall be divided into one part, beginning on the date on which the accounting period begins and ending on the 31st day of December, 1988, and another part, beginning on the 1st day of January, 1989, and ending on the day on which the accounting period ends, and both parts of the accounting period shall be treated as if they were separate accounting periods, and

(ii) where an accounting period begins before the 1st day of January, 2001, and ends on or after that date it shall be divided into one part beginning on the day on which the accounting period begins and ending on the 31st day of December, 2000, and another part, beginning on the 1st day of January, 2001, and ending on the day the accounting period ends, and both parts shall be treated as if they were separate accounting periods.

(2) (a) Notwithstanding subsections (1) and (6) of section 116 and section 117, if, in any accounting period falling within the period from the 1st day of January, 1989, to the 31st day of December, 2000, the surrendering company incurs a loss from the sale of goods or an excess of charges on income paid for the purpose of the sale of goods, that loss or excess may be set off for the purposes of corporation tax against income from a trade of the claimant company for its corresponding accounting period to the extent of that income or, if it is less, to the extent of the income from the sale of goods in the course of the trade, but no other relief shall be given in respect of that loss or excess to a company other than the surrendering company.

(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 18 (terminal loss in trade) in respect of a loss incurred in a succeeding accounting period or periods, and

(ii) after relief granted under section 16 (relief for trading losses other than terminal loss) in respect of a loss incurred in a preceding accounting period or periods.

(3) (a) For the purposes of subsection (3) of section 41 of the Finance Act, 1980 , ‘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’ shall be determined in accordance with subsection (4) of the said section 41 as if no group relief had been allowed under this section.

(b) Notwithstanding the provisions of subsection (3) of the said section 41, ‘the income from the sale of those goods’ in an accounting period for the purposes of subsection (2) of the said section 41 shall be the sum determined by subsection (3) of the said section 41 for that period reduced by any group relief allowed under this section against income of the trade mentioned in subsection (2) of the said section 41 in that period.

(4) This section shall not apply to—

(a) (i) a loss from the sale of goods in the course of a trade, or

(ii) an excess of charges on income paid for the purpose of the sale of goods in the course of a trade, in an accounting period or part of an accounting period falling before the 6th day of April, 1990, if, in the latest preceding accounting period in which there was income from the trade in respect of which corporation tax was payable, the amount thereof was reduced under Part IV, or

(b) so much of a loss from the sale of goods in the course of a trade in an accounting period as does not exceed the amount of the capital allowances under section 42 (2) of the Finance Act, 1986 , deducted by the surrendering company in computing the loss which it has incurred in that period in carrying on trading operations specified in a certificate given to it and not revoked by the Minister for Finance under section 39B (2) of the Finance Act, 1980 .

(5) For the purposes of this section—

(a) in the case of a claim made by a company as a member of a consortium, only a fraction of a loss from the sale of goods or an excess of charges on income paid for the purpose of the sale of goods 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 118 (2), and

(b) section 118 shall have effect as if—

(i) for ‘total profits’ in paragraph (a) of subsection (2) there were substituted ‘income from a trade’, and

(ii) for ‘the said profits’ in paragraph (b) there were substituted ‘the income from the sale of goods in the course of a trade of the claimant company’.”.

Amendment of section 39A (relief in relation to income from certain trading operations carried on in Shannon Airport) of Finance Act, 1980.

35. Section 39A of the Finance Act, 1980 , is hereby amended by the deletion of the proviso to subsection (2).

Amendment of section 39B (relief in relation to income from certain trading operations carried on in Custom House Docks Area) of Finance Act, 1980.

36. —(1) Subsection (7) (c) of section 39B (inserted by the Finance Act, 1987 ) of the Finance Act, 1980 , is hereby repealed and shall be deemed never to have been enacted.

(2) Subject to the provisions of subsections (6) and (7) of the said section 39B, the Minister for Finance may give to a company a certificate, within the meaning of subsection (2) of that section, having effect from the date on which it would have had effect but for the said subsection (7) (c).

(3) Subsection (6) of the said section 39B is hereby amended by the insertion after paragraph (iii) of the following paragraph—

“(iiia) dealing in commodity futures or commodity options on behalf of persons not ordinarily resident in the State, other than on behalf of persons who—

(I) carry on a trade in which commodities of a type which are the subject of the futures or options, as the case may be, are used in the course of the carrying on of the trade, or

(II) would be regarded for the purposes of the Corporation Tax Acts as connected with a person who carries on such a trade,”.

(4) (a) In this subsection—

the Area” has the same meaning as it has for the purposes of the said section 39B;

foreign life assurance business” means relevant trading operations within the meaning of the said section 39B consisting of life assurance business with policy holders and annuitants who reside outside the State;

foreign unit trust business” means relevant trading operations within the meaning of the said section 39B consisting of the management of the investments of one or more qualifying unit trusts;

qualifying unit trust” means a unit trust scheme—

(a) that is a registered unit trust scheme within the meaning of the Unit Trusts Act, 1972 ,

(b) the business of which—

(i) is carried on in the Area, or

(ii) is not so carried on but is carried on in the State and would be carried on in the Area but for circumstances outside the control of the person or persons carrying on the business,

and

(c) as respects which all holders of units in the scheme are persons resident outside the State;

tax” means income tax, corporation tax or capital gains tax, as may be appropriate.

(b) Notwithstanding any other provision of the Tax Acts, the rate at which any tax is chargeable (before any credit is allowed for foreign tax) in respect of income arising or chargeable gains accruing from securities or possessions in any place outside the State that are investments of a foreign life assurance business or investments managed by a foreign unit trust business shall not exceed 10 per cent.

Application of section 84 (matters to be treated as distributions) of Corporation Tax Act, 1976, to certain interest.

37. —(1) (a) This section applies to so much of any interest as—

(i) is a distribution by virtue only of section 84 (2) (d) (iv) of the Corporation Tax Act, 1976 ,

(ii) is payable by a qualified company in the course of carrying on relevant trading operations and would, but for the said section 84 (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) is interest payable to a company which is a resident of the United States of America or of a territory with the government of which arrangements having the force of law by virtue of section 361 of the Income Tax Act, 1967 , have been made.

(b) In paragraph (a)

qualified company” and “relevant trading operations” have the same meaning as they have for the purposes of section 39B (inserted by the Finance Act, 1987 ) of the Finance Act, 1980 ;

resident of the United States of America” has the meaning assigned to it by the Convention set out in Schedule 8 to the Income Tax Act, 1967 .

(c) For the purposes of paragraph (a), a company shall be regarded as being a resident of a territory other than the United States of America if it is so regarded under arrangements made with the government of that territory and having the force of law by virtue of section 361 of the Income Tax Act, 1967 .

(2) Where a company proves that this section 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 84 (2) (d) (iv) of the Corporation Tax Act, 1976 , the said section 84 (2) (d) (iv) shall not apply to that interest.

(3) An election under this section in relation to interest payable by a company for an accounting period shall be made in writing to the inspector and submitted together with the company's return of its profits for the period.

Amendment of section 31 (interest payments by companies and to non-residents) of Finance Act, 1974.

38. Section 31 of the Finance Act, 1974 , is hereby amended by the insertion in subsection (3), after paragraph (c), of the following paragraph—

“(cc) interest paid to a person whose usual place of abode is outside the State by a company in the course of carrying on relevant trading operations within the meaning of section 39A (inserted by the Finance Act, 1981 ) or section 39B (inserted by the Finance Act, 1987 ) of the Finance Act, 1980 , or”.

Exemption of certain income of Nítrigin Éireann Teoranta.

39. —Notwithstanding any provision of the Corporation Tax Acts, income—

(a) arising to Nítrigin Éireann Teoranta in any accounting period ending in the period commencing on the 1st day of January, 1987, and ending on the 31st day of December, 1992, from the business of supplying gas, purchased from Bord Gáis Éireann, to Irish Fertilizer Industries Limited under a contract between Nítrigin Éireann Teoranta and Irish Fertilizer Industries Limited, and

(b) which, but for this section, would have been chargeable to corporation tax under Case I of Schedule D, shall be exempt from corporation tax.

Amendment of section 28 (relief in relation to income from qualifying shipping trade) of Finance Act, 1987.

40. —(1) Subsection (1) of section 28 of the Finance Act, 1987 , is hereby amended—

(a) by the insertion after “vessel” in paragraph (i) of the definition of “qualifying ship” of “other than a vessel normally used for the purposes of an activity mentioned in paragraph (d) of the definition of qualifying shipping activities in this subsection”, and

(b) in the definition of “qualifying shipping activities”—

(i) by the deletion of “and” in paragraph (c), and

(ii) by the substitution for paragraph (d) of the following paragraphs—

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

(e) 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;”,

and the said definitions as so amended are set out in the Table to this section.

(2) For the purposes of Chapter III (Income Tax: Relief for Investment in Corporate Trades) of the Finance Act, 1984 , any reference to section 28 (1) of the Finance Act, 1987 , shall be construed as if subsection (1) had not been enacted.

(3) Subsection (4) of the said section 28 is hereby amended by the substitution in paragraph (c) of “paragraph (c)” for “paragraph (b)” and the said paragraph, as so amended, is set out in the Table to this section.

TABLE

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 other than a vessel normally used for the purposes of an activity mentioned in paragraph (d) of the definition of qualifying shipping activities in this subsection,

(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,

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

(e) 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;

(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 (c) 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.

Relief from corporation tax in respect of certain dividends from a non-resident subsidiary.

41. —(1) (a) In this section—

approved investment plan” means an investment plan in respect of which the Minister has given a certificate in accordance with subsection (2) to the company concerned;

investment plan” means a plan of a company resident in the State which is directed towards the creation or maintenance of employment in the State in trading operations carried on, or to be carried on, in the State and which has, prior to its implementation, been submitted to the Minister by the company for the purpose of enabling it to claim relief under this section;

Minister” means the Minister for Finance;

relevant dividends” means dividends received on or after the 6th day of April, 1988, by a company resident in the State (being the company claiming the relief under this section) from a foreign subsidiary of the company and which are—

(i) applied, not earlier than the 6th day of April, 1988, and within a period which commences one year before the day on which the dividends are received in the State and ends two years after that day, for the purposes of an approved investment plan, and

(ii) specified in a certificate given by the Minister under subsection (2);

relief under this section” means, in relation to a company for an accounting period, the amount by which any corporation tax payable by the company is reduced by virtue of subsection (3).

(b) (i) The reference in paragraph (a) to “a foreign subsidiary” means a 51 per cent. subsidiary of a company where the company is resident in the State and the subsidiary is a resident of the United States of America or of a territory with the government of which arrangements having the force of law by virtue of section 361 of the Income Tax Act, 1967 , have been made.

(ii) For the purposes of subparagraph (i)

resident of the United States of America” has the meaning assigned to it by the Convention set out in Schedule 8 to the Income Tax Act, 1967 ;

a company shall be regarded as being a resident of a territory other than the United States of America if it is so regarded under the provisions of arrangements made with the government of that territory and having the force of law by virtue of section 361 of the said Act.

(2) Where an investment plan has been duly submitted by a company and the Minister—

(a) is satisfied that the plan is directed towards the creation or maintenance of employment in the State in trading operations carried on, or to be carried on, in the State, and

(b) has been informed in writing by the company of the amount of dividends concerned,

the Minister may give a certificate to the company certifying that an amount of dividends specified in the certificate shall be an amount of relevant dividends.

(3) Subject to subsection (4), where a company claims and proves that it has received in an accounting period any amount of relevant dividends, the amount of its income for the period represented by those dividends shall not be taken into account in computing the income of the company for that accounting period for the purposes of corporation tax.

(4) Where, in relation to a certificate given to a company under subsection (2), the Minister considers that, as regards the approved investment plan concerned, all or part of the relevant dividends have not been applied within the period provided for in the definition of “relevant dividends” in subsection (1) (a), he may, by notice in writing to the company, reduce the amount of the relevant dividends specified in the certificate by so much as has not been so applied and, accordingly, where the amount of the relevant dividends specified in a certificate is so reduced—

(a) in a case where relief under this section has been granted in respect of the amount of the relevant dividends specified in the certificate before such a reduction of that amount, the inspector shall make such assessments or additional assessments as are necessary to recover the relief given in respect of the amount of the reduction, and

(b) in a case where a claim for relief has not yet been made, relief shall not be due under this section in respect of the amount of the reduction.

(5) A claim for relief under this section shall be made in writing to the inspector and shall be submitted together with the company's return of profits for the period in which the relevant dividends are received in the State.

Exemption from corporation tax of profits of Custom House Docks Development Authority.

42. —Notwithstanding any provision of the Corporation Tax Acts, profits arising to the Custom House Docks Development Authority in any accounting period ending after the 17th day of November, 1986, shall be exempt from corporation tax.