Finance Act, 1977

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Charge to tax in respect of certain distributions deemed to be emoluments.

8.—The Finance Act, 1974 , is hereby amended by the substitution for section 54 of the following section—

“54.—(1) In this section—

‘associate’ has the same meaning as in section 103 (3) of the Corporation Tax Act, 1976 ;

‘company’ means any body corporate;

‘distribution’ has the same meaning as in Part IX of the Corporation Tax Act, 1976 ;

‘emoluments’ has the same meaning as in section 111 (4) of the Income Tax Act, 1967 ;

‘participator’ has the same meaning as in section 103 (1) of the Corporation Tax Act, 1976 ;

‘settlement’ and ‘settlor’ have the same meanings as in section 96 (3) (h) of the Income Tax Act, 1967 ;

‘tax-relieved company’ means a company which has claimed and is entitled to relief from tax under Part XXV of the Income Tax Act, 1967 , or Part IV or V of the Corporation Tax Act, 1976 .

(2) For the purposes of this section—

(a) any question whether a person is connected with another shall be determined in accordance with the provisions of section 16 of the Finance (Miscellaneous Provisions) Act, 1968 ;

(b) a person who is a participator in a company which is a participator in another company (the second company) shall be deemed to be a participator in the second company, and where the second company is a participator in a third company, the person shall be deemed to be a participator in the third company, and so on.

(3) (a) Where a person (hereinafter in this section referred to as ‘an employee’) receives no emoluments in respect of service or services rendered by him to or for the benefit of a tax-relieved company or to or for the benefit of any person connected with that company or receives emoluments in respect of such service or services which, in the opinion of the Revenue Commissioners, are not adequate as consideration for the service or services rendered and a distribution is made at any time by the tax-relieved company to—

(i) the employee, or

(ii) an associate of the employee, or

(iii) a company in which the employee or an associate of the employee is, or is deemed to be, a participator, or

(iv) a settlement in relation to which the employee or any person connected with him is a settlor or a beneficiary,

so much of the aggregate of that distribution (in this section referred to as ‘the relevant part of the distribution’) and the amount of the tax credit appropriate thereto as is, in the opinion of the Revenue Commissioners, in consideration of the service or services rendered—

(I) shall be deemed to be paid to the employee under a contract of employment and to be emoluments,

(II) shall be deemed not to be income of any person other than the employee,

(III) shall be deemed to have accrued due to the employee from day to day during the period throughout which the service or services were rendered, and

(IV) shall, notwithstanding any provision to the contrary, be deemed to be emoluments in respect of which a notice has been given under section 125 (b) of the Income Tax Act, 1967 , and shall be chargeable to tax under Schedule E.

(b) The relevant part of any distribution which is deemed to be emoluments by virtue of paragraph (a) shall not be treated as a distribution for the purposes of Schedule F.

(c) For the purposes of this subsection the amount of the tax credit appropriate to the relevant part of the distribution shall be the amount of the tax credit to which the person to whom the distribution was made would have been entitled under the provisions of sections 64 , 76 , 81 or 82 (2) of the Corporation Tax Act, 1976 , in respect of the relevant part of the distribution if that part were a separate distribution made to that person by the tax-relieved company.

(4) (a) Section 66 and subsections (6) and (7) of section 82 of the Corporation Tax Act, 1976 , shall not apply in relation to the relevant part of the distribution but there shall be allowed as a credit against the tax chargeable for any year of assessment or accounting period for which the relevant part of the distribution or any part thereof is chargeable to tax under subsection (3) an amount which bears to the tax credit, determined in accordance with paragraph (c) of the said subsection (3), the same proportion as the amount chargeable to tax by virtue of this section for the year of assessment or accounting period bears to the aggregate of the relevant part of the distribution and the tax credit appropriate thereto.

(b) Subject to the provisions of sections 211 (2) and 455 (3) of the Income Tax Act, 1967 , assessments under subsection (3) and any consequential adjustments of assessments under Schedule F may be made at any time.

(5) In considering for the purposes of this section whether emoluments paid to any person are or are not adequate as consideration for service or services rendered, the Revenue Commissioners shall have regard to—

(a) the nature of the service or services,

(b) the emoluments paid for similar service or services rendered at arm's length,

(c) the emoluments which it would be reasonable to expect to be paid for such service or services,

(d) any payment, other than emoluments or distributions, made to the person in respect of the service or services rendered, and

(e) any evidence tendered as to the adequacy of the emoluments or payment in question.

(6) In considering for the purposes of this section whether a distribution is wholly or partly in consideration of service or services rendered, the Revenue Commissioners shall have regard to—

(a) all the classes of shares issued by the company concerned,

(b) the class or classes of shares in the said company held by the person by whom the distribution is received, the number of shares so held, the nominal value of, and the amount subscribed by him in respect of, such shares,

(c) the rate of distribution in respect of the shares of each class,

(d) whether shares of the class held by that person are held by any other person, and if so, the number of shares so held, and

(e) any other matter which appears to them relevant for the purpose of forming an opinion under this subsection.

(7) An appeal shall lie to the Appeal Commissioners with respect to any opinion of the Revenue Commissioners under this section in like manner as an appeal would lie against an assessment to tax, and the provisions of the Income Tax Acts relating to appeals shall apply and have effect accordingly.”.