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Chapter 4
Corporation Tax
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Tax treatment of certain dividends, etc.
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43.— (1) The Principal Act is amended—
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(a) in section 21A(3) by substituting “but subject to subsection (4) and section 21B” for “but subject to subsection (4)”, and
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(b) by inserting the following section after section 21A:
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“Tax treatment of certain dividends.
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21B.— (1) (a) In this section—
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‘ profits ’, in relation to a company for a period, means—
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(i) where the profit and loss account, or income statement, of the company for that period is required to be laid before the annual general meeting of the company, the amount of profits, after taxation, as shown in that profit and loss account, or that income statement, and
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(ii) in any other case, the amount of profits, after taxation, as shown in the profit and loss account, or income statement, of the company which is prepared in accordance with an accounting framework that, in the territory in which the company is incorporated, is generally accepted as presenting a fair view of the profit for that period;
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‘ relevant territory ’ means—
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(i) a Member State of the European Communities, or
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(ii) not being such a Member State, a territory with the government of which arrangements having the force of law by virtue of section 826(1) have been made;
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‘ trading profits ’, in relation to a company for a period, means the aggregate of so much of the profits of the company for that period as are, on a just and reasonable basis, attributable to—
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(i) the carrying on by the company of a trade, and
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(ii) the amount of dividends received by the company which are treated as trading profits by virtue of this section,
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but does not include amounts attributable to profits, or to dividends received by a company which are paid out of profits, of an excepted trade (within the meaning of section 21A).
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(b) For the purposes of this section—
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(i) references to a company by which a dividend is paid apply only to a company that throughout the period out of the profits of which the dividend was paid was, by virtue of the law of a relevant territory, resident for the purposes of tax in such a relevant territory, and for this purpose ‘ tax ’, in relation to a relevant territory, means any tax imposed in the relevant territory which corresponds to corporation tax in the State,
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(ii) so much of a dividend received by a company (in this subparagraph referred to as the ‘first-mentioned company’) which is paid by another company out of trading profits, or an amount treated by this section as trading profits, of the other company shall be treated as trading profits of the first-mentioned company,
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(iii) subject to subparagraph (iv), the period out of the profits of which a dividend is paid by a company shall be—
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(I) if the dividend is paid by the company for a specified period, that period,
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(II) if the dividend is not paid for a specified period but is paid out of specified profits, the period in which those profits arise, or
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(III) if the dividend is not paid by the company for a specified period nor out of specified profits, the last period for which accounts of the company were made up and which ended before the dividend became payable,
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and
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(iv) where, as respects a period identified in accordance with subparagraph (iii) or this subparagraph, the total dividend exceeds the profits available for distribution for that period, then so much of the dividend as is equal to the excess shall be treated as paid out of profits of the preceding period (other than profits of that period which were, or were treated for the purposes of this subparagraph as, previously distributed), and such period shall be treated as a period identified by subparagraph (iii) for the purposes of the further application of this subparagraph where required.
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(2) For the purposes of this section—
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(a) subject to paragraph (b), so much of a dividend paid by a company for a period, as bears to the amount of that dividend the same proportion as the amount of trading profits of the company for that period bears to the total profits of the company for that period, shall be treated as paid out of trading profits of the company, and
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(b) a dividend received by a company (in this paragraph referred to as the ‘receiving company’) within the charge to corporation tax in the State which is paid by a company (in this paragraph referred to as the ‘paying company’) out of the profits of a period shall be treated as paid out of trading profits of the paying company for that period if—
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(i) not less than 75 per cent of the total profits of the paying company for the period are trading profits, and
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(ii) the value at the end of the accounting period in which the dividend is received by the receiving company of assets (other than specified assets) used by the receiving company, and each company of which the receiving company is the parent company (within the meaning of section 626B), during that period for the purposes of the carrying on by those companies of a trade or trades is not less than 75 per cent of the value at the end of that period of the assets (other than specified assets) of those companies, and for this purpose an asset shall be treated as a specified asset if it consists of—
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(I) shares of one of those companies held by another of those companies, or
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(II) loans made by one of those companies to another of those companies.
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(3) Subject to subsection (4), this section applies as respects an accounting period of a company where the company receives a dividend chargeable under Case III of Schedule D from another company and the dividend is paid by the other company out of trading profits of the other company.
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(4) Where the income of a company (in this subsection referred to as the ‘first-mentioned company’) which is chargeable under Case III of Schedule D for an accounting period of the company includes a dividend paid to the company by another company and the first-mentioned company—
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(a) does not own, directly or indirectly, either alone or together with a person who is connected (within the meaning of section 10) with the first-mentioned company, more than 5 per cent of the share capital of the other company, and
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(b) does not hold more than 5 per cent of the voting rights in the other company,
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then the dividend shall be treated for the purposes of subsection (3) as a dividend received by the first-mentioned company which is paid by the other company out of trading profits of the other company.
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(5) Where a company proves that this section applies as respects an accounting period of the company and makes a claim in that behalf, then subsection (3) of section 21A shall not apply to so much of any income of the company chargeable under Case III of Schedule D as consists of a dividend received by the company from another company if the dividend is paid by the other company out of trading profits of the other company.
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(6) A claim by a company under this section as respects an accounting period of the company shall be included with the return under section 951 which falls to be made by the company for the accounting period.”,
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(c) in section 243A(3)—
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(i) in paragraph (a) by deleting “and” and in paragraph (b) by substituting “income, and” for “income,”, and
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(ii) by inserting the following after paragraph (b):
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“(c) income to which section 21A(3) does not apply by virtue of section 21B,”,
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(d) in section 396A(3)—
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(i) in paragraph (a) by deleting “and” and in paragraph (b) by substituting “income, and” for “income,”, and
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(ii) by inserting the following after paragraph (b):
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“(c) income to which section 21A(3) does not apply by virtue of section 21B,”,
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(e) in section 420A(3)(a)—
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(i) in subparagraph (i) by deleting “and” and in subparagraph (ii) by substituting “income, and” for “income,”, and
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(ii) by inserting the following after subparagraph (ii):
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“(iii) income to which section 21A(3) does not apply by virtue of section 21B,”,
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and
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(f) in Schedule 24, by substituting the following for paragraph 9E:
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“9E. (1) (a) In this paragraph—
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‘ foreign company ’ means a company resident outside the State;
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‘ unrelieved foreign tax ’ has the meaning assigned to it in subparagraph (2);
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‘ unrelieved foreign tax in respect of specified dividends ’ has the meaning assigned to it in subparagraph (3).
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(b) For the purposes of this paragraph—
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(i) a dividend is a relevant dividend if it is received by a company (in this clause referred to as the ‘receiving company’) from a company which is not resident in the State (in this clause referred to as the ‘paying company’) and the paying company is related to the receiving company (within the meaning of paragraph 9B(5)(b)), and
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(ii) the aggregate amount of corporation tax payable by a company for an accounting period in respect of any dividends received by the company in the accounting period from foreign companies means so much of the corporation tax that, apart from this paragraph, would be payable by the company for that accounting period as would not have been payable had those dividends not been received by the company.
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(2) (a) Where, as respects a relevant dividend received in an accounting period by a company and which is charged to corporation tax in accordance with section 21A, any part of the foreign tax cannot, apart from this paragraph, be allowed as a credit against any of the Irish taxes and, accordingly, the amount of income representing the dividend is treated under paragraph 7(3)(c) as reduced by that part of the foreign tax, then an amount determined by the formula—
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100 — R x D
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100
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where—
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R is the rate per cent specified in section 21A(3), and
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D is the amount of the part of the foreign tax by which the income is to be treated under paragraph 7(3)(c) as reduced,
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shall be treated for the purposes of clause (b) as unrelieved foreign tax of that accounting period.
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(b) The aggregate amount of corporation tax payable by a company for an accounting period in respect of relevant dividends received by the company in that accounting period from foreign companies shall be reduced by the unrelieved foreign tax of that accounting period.
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(c) Where the unrelieved foreign tax in relation to an accounting period of a company exceeds the aggregate amount of corporation tax payable by the company for the accounting period in respect of relevant dividends received by the company in that accounting period from foreign companies, the excess shall be carried forward and treated as unrelieved foreign tax of the next succeeding accounting period, and so on for succeeding accounting periods.
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(3) (a) In this subparagraph ‘ specified dividend ’ means a relevant dividend which is not charged to corporation tax in accordance with section 21A.
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(b) Where, as respects a specified dividend received in an accounting period by a company, any part of the foreign tax cannot, apart from this paragraph, be allowed as a credit against any of the Irish taxes and, accordingly, the amount of income representing the dividend is treated under paragraph 7(3)(c) as reduced by that part of the foreign tax, then an amount determined by the formula—
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100 — R x D
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100
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where—
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R is the rate per cent specified in section 21, and
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D is the amount of the part of the foreign tax by which the income is to be treated under paragraph 7(3)(c) as reduced,
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shall be treated for the purposes of clause (c) as unrelieved foreign tax in respect of specified dividends of that accounting period.
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(c) The aggregate amount of corporation tax payable by a company for an accounting period in respect of specified dividends received by the company in that accounting period from foreign companies shall be reduced by the unrelieved foreign tax in respect of specified dividends of that accounting period.
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(d) Where the unrelieved foreign tax in respect of specified dividends in relation to an accounting period of a company exceeds the aggregate amount of corporation tax payable by the company for the accounting period in respect of specified dividends received by the company in that accounting period from foreign companies, the excess shall be carried forward and treated as unrelieved foreign tax in respect of specified dividends of the next succeeding accounting period, and so on for succeeding accounting periods.”.
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(2) This section shall be deemed to have applied as respects a dividend received on or after 1 January 2007.
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