Finance Act, 1962

• Permanent Page URL

Payments by companies to associated companies in respect of losses.

13.—(1) In this section—

“accounting period” means, in relation to a company, a period for which the accounts of the company have been made up;

“auxiliary company” means a company incorporated not earlier than the 14th day of December, 1961, and not later than the 31st day of March, 1965, being a company—

(a) of whose ordinary share capital—

(i) a part is held beneficially by each of two or more companies, and

(ii) not less than ninety-five per cent. is held beneficially by companies, and

(b) which does not hold any stock, share or security issued by a company holding beneficially a part of such ordinary share capital;

“capital allowances” means allowances, other than allowances falling to be made in computing profits or gains, under Rule 6 of the Rules applicable to Cases I and II of Schedule D, section 5 or section 6 of the Finance Act, 1946 , Part V of the Finance Act, 1956 , Part IV of the Finance (Miscellaneous Provisions) Act, 1956 , Part V of the Finance Act, 1957 , or Part V or section 74 of the Finance Act, 1959 ;

“company” means a body corporate resident in the State and carrying on a trade;

“deficiency payment” means a payment made to an auxiliary company by one of its principal companies under an agreement providing for the principal company to bear, or share in, losses, or a particular loss, sustained by the auxiliary company in a trade carried on by it, not being a payment which, apart from this section, would fall to be taken into account in computing profits or gains or losses of either company or would fall to be treated as income of the auxiliary company;

“ordinary share capital” means, in relation to a company, all the issued capital (by whatever name called) of the company, other than capital the holders whereof have a right to a dividend at a fixed rate or a rate fluctuating in accordance with the rate of income tax, but have no other right to share in the profits of the company;

“principal company” means, in relation to an auxiliary company, a company which holds beneficially a part of the ordinary share capital of that company;

“trade” means a trade carried on wholly or partly in the State.

(2) Subject to the provisions of this section, where an auxiliary company—

(a) has a deficiency in a trade for an accounting period, and

(b) receives in relation to the trade a deficiency payment in respect of that period, being a deficiency payment in relation to which this subsection applies,

then, in computing for the purposes of income tax the profits or gains or losses of the company and of the principal company from which the payment was received, the payment shall be treated as a trading receipt of the auxiliary company, receivable by that company on the last day of the period, and shall be allowed as a deduction to the principal company as if it were a trading expense incurred on that day.

(3) A deficiency payment in respect of an accounting period shall be a deficiency payment in relation to which subsection (2) of this section applies if (but only if)—

(a) at all times during the period—

(i) the payee company was an auxiliary company, and

(ii) the paying company was, in relation to the payee company, a principal company, and

(b) the payment is made not later than three years after the end of the period.

(4) If an auxiliary company receives in respect of an accounting period a deficiency payment or deficiency payments from one or more principal companies and the payment or the aggregate of the payments exceeds the deficiency in its relevant trade for that period, the excess shall be disregarded for the purposes of this section; and, where payments by more than one principal company are in question, the payments shall be treated as abating in such manner as may be agreed between all the companies concerned or, in default of agreement, as may be determined by the Revenue Commissioners.

(5) Where a deficiency payment is made to an auxiliary company in respect of more than one accounting period of that company or is made by a principal company carrying on more than one trade, the apportioned part of the payment to be attributed for the purposes of this section to any period or trade shall be determined by the Revenue Commissioners.

(6) For the purposes of this section—

(a) a company has a deficiency in a trade for an accounting period if (but only if) the aggregate amount of—

(i) any loss sustained in the trade in the period (computed in like manner as profits or gains under the provisions, other than this section, applicable to Case I of Schedule D),

(ii) any amounts referable to the period of capital allowances falling to be made in charging the profits or gains of the trade for any year of assessment of which the whole or a part is within the period, and

(iii) any payments to which Rule 19 or Rule 21 of the General Rules applies (other than payments to which the said Rule 21 applies by virtue of section 50 of the Finance Act, 1959 ), being payments made wholly and exclusively for the purposes of the trade and not deductible in computing the profits or gains or losses of the trade,

exceeds the aggregate amount of—

(I) any profits or gains arising from the trade in the period (computed in accordance with the provisions, other than this section, applicable to Case I of Schedule D), and

(II) any amounts referable to the period of balancing charges under Part V of the Finance Act, 1959 , falling to be made in charging the profits or gains of the trade for any year of assessment of which the whole or a part is within the period, and

(b) if there is such an excess, the amount of the deficiency shall be taken as being equal to the amount of the excess.

For the purposes of this subsection the amount of an allowance or charge referable to a period shall be taken to be the amount thereof to be taken into account in computing for the purposes of corporation profits tax the profits of the company for that period.

(7) Where under the foregoing provisions of this section a deficiency payment, or part of a deficiency payment, made by a principal company falls to be treated as an expense of a trade incurred in an accounting period of which the whole or a part—

(a) falls within the company's basis periods for more than one year of assessment, or

(b) does not fall within the company's basis period for any year of assessment,

then, such adjustments, if any, shall be made—

(i) in a case within paragraph (a) of this subsection, of the assessment for any year mentioned in that paragraph other than the first, or

(ii) in a case within paragraph (b) of this subsection, of the assessment for the year next following the end of the said accounting period or, where the trade has been permanently discontinued before the beginning of that year, for the year in which the said accounting period ends,

as may be necessary to secure that, so far as may be, the aggregate of the amounts which, disregarding this section, would be the final assessments on the company is reduced by an amount neither more nor less than the amount of the deficiency payment.

For the purposes of this subsection a company's basis period for a year of assessment is the period on the profits or gains of which income tax for that year falls to be finally computed under Case I of Schedule D in respect of the trade in question.

(8) There shall be made such additional assessments, reductions of assessments or repayments of tax as may in any case be required in order to give effect to this section; and where a deficiency payment reduces or extinguishes a loss in respect of which a company has received repayment of tax under section 34 of the Income Tax Act, 1918, or section 4 of the Finance Act, 1960 , so much of the repayment as would not have been made if the deficiency payment had been taken into account shall, if not otherwise made good, be recovered from the company by assessment under Case VI of Schedule D; and for the purpose of such assessment the deficiency payment, or an appropriate part thereof, shall be deemed to be income chargeable under the said Case VI for the year of assessment for which the repayment was made.

(9) This section shall not have effect in relation to a loss sustained by an auxiliary company during an accounting period beginning more than five years after the date on which the company first commenced to trade; and where, after a trade has been set up or commenced by an auxiliary company, the trade, or a part of the trade, becomes carried on by any other company, the other company shall, for the purposes of this subsection, be deemed to have first commenced to trade on the same day as the first-mentioned company.

(10) Where under the provisions of this section an amount is treated as a trading receipt or as a trading expense of an accounting period for the purposes of income tax, it shall be similarly treated for the purposes of corporation profits tax.