Finance Act, 1975

THIRD SCHEDULE

Increase in Stock Values: Supplementary Provisions

section 31.

1. (1) In any case where a company's accounting period does not coincide with a period of account or with two or more consecutive periods of account, the company's increase in stock value in the accounting period shall be determined for the purposes of section 31 not in accordance with subsection (2) of that section but by reference to a period (in this Schedule referred to as the reference period) determined in accordance with this paragraph.

(2) In any case where the beginning of a company's accounting period does not coincide with the beginning of a period of account, the reference period shall begin at the beginning of the period of account which is current at the beginning of the company's accounting period.

(3) In any case where the end of a company's accounting period does not coincide with the end of a period of account, the reference period shall end at the end of the period of account which is current at the end of the company's accounting period.

(4) In any case where subparagraph (2) does not apply, the reference period shall begin at the beginning of the company's accounting period and, in any case where subparagraph (3) does not apply, the reference period shall end at the end of the company's accounting period.

2. (1) In any case where paragraph 1 (1) applies, a company's increase in stock value in the accounting period shall be determined for the purposes of section 31 by the formula

A(C−O)

_____

N

where—

“A” is the number of months in the company's accounting period or 12, whichever is the less;

“C” is the value of the company's trading stock at the end of the reference period;

“O” is the value of the company's trading stock at the beginning of the reference period; and

“N” is the number of months in the reference period.

(2) In any case where a company's increase in stock value in an accounting period falls to be determined in accordance with subparagraph (1), then, in section 31 (4) and in the following provisions of this Schedule—

(a) any reference to the company's closing stock value shall be construed as a reference to the value of the company's trading stock at the end of the reference period; and

(b) any reference to the company's trading profits for an accounting period shall be construed as a reference to that fraction of its trading profits for the reference period of which the numerator is A and the denominator is N as defined in subparagraph (1).

(3) For the purposes of subparagraph (2) (b), the company's trading profits for the reference period shall be the aggregate of its trading profits for each of the accounting periods comprised in the reference period.

3. (1) The provisions of this paragraph shall have effect for the purposes of section 31 and the preceding provisions of this Schedule in any case where—

(a) there are two companies one of which is engaged in a trade consisting wholly or mainly of the manufacture of goods (in this paragraph referred to as the transferor company) and the other of which (in this paragraph referred to as the transferee company) acquires those goods as trading stock; and

(b) the acquisition occurs during an accounting period of the transferee company or, if paragraph 1 (1) applies in relation to that company, during a reference period; and

(c) the acquisition referred to in paragraph (a) results in a reduction in the trading stock held by the transferor company and a corresponding increase in the trading stock held by the transferee company; and

(d) the business of the transferee company consists wholly or mainly of the sale of goods manufactured by the transferor company; and

(e) the transferee company is not entitled to a deduction under section 31 otherwise than by virtue of this paragraph.

(2) If a claim for relief under section 31 is made by the transferor company, then that company and the transferee company, if it has the same accounting period as the transferor company, shall be treated as one company for the purpose of determining the aggregate amount of the deductions to which they are entitled under section 31:

Provided that if paragraph 1 (1) applies in relation to the transferor company, the transferee company shall not be treated as falling within this subparagraph unless paragraph 1 (1) also applies in relation to the transferee company and both the transferee company and the transferor company have the same reference period.

(3) For the purpose specified in subparagraph (2), any reference in section 31 or in the preceding provisions of this Schedule to the value of a company's trading stock at any time or to its trading profits for any period shall be construed as a reference to the aggregate of the values of trading stocks at that time or, as the case may be, the aggregate of the trading profits for that period, of the companies which, for that purpose, are treated as one by virtue of that subparagraph.

(4) Where the aggregate amount of the deductions to which the transferor company and the transferee company are entitled under section 31 has been determined in accordance with subparagraphs (2) and (3), that amount shall be apportioned between them so that the deduction to which one of them is so entitled bears to the deduction to which the other is so entitled the same proportion as the closing stock value of that one of them bears to the closing stock value of the other.

(5) The provisions of this paragraph shall apply only where one of the two companies referred to in subparagraph (1) (a) holds throughout the relevant accounting period or reference period either in its own name or in that of a nominee all of the ordinary shares in the other company referred to in the said subparagraph or where some other company holds throughout the relevant accounting period or reference period either in its own name or in that of a nominee all of the ordinary shares in each of the two companies referred to in the said subparagraph.

(6) For the purposes of computing the aggregate amount of the deductions to which the transferor company and the transferee company treated as one by virtue of subparagraph (2) are entitled under section 31 pursuant to this paragraph and the apportionment of that amount between them, the transferee company shall be regarded as carrying on a trade.

4.(1) A company shall not be entitled to a deduction under section 31 for an accounting period if that accounting period ends by virtue of the company—

(a) ceasing to carry on a trade; or

(b) ceasing to be resident in the State; or

(c) ceasing to be within the charge to income tax under Case I of Schedule D.

(2) In any case where a company's increase in stock value in an accounting period falls to be determined in accordance with paragraph 2 (1), subparagraph (1) shall have effect as if the reference therein to the company's accounting period were a reference to any of the accounting periods comprised in the company's reference period.

5. (1) Subject to the following provisions of this paragraph, where a company claims a deduction under section 31 and, immediately before the beginning of an accounting period, the company was not carrying on the trade to which the claim relates, then, unless—

(a) the company acquired the initial trading stock of that trade on a sale or transfer from another person on that person's ceasing to carry on that trade, and

(b) the stock so acquired is, or is included in, the company's trading stock as valued at the beginning of the accounting period,

the company shall be treated for the purposes of section 31 and the preceding provisions of this Schedule as having at the beginning of the accounting period trading stock of such value as appears to the inspector to be reasonable and just.

(2) In determining, for the purposes specified in subparagraph (1), the value of trading stock to be attributed to a company at the beginning of the accounting period, the inspector shall have regard to all the relevant circumstances of the case and, in particular—

(a) to movements during the company's accounting period in the costs of items of a kind comprised in the company's trading stock during that period; and

(b) to changes during that period in the volume of the trade in question carried on by the company.

(3) The Appeal Commissioners dealing with an appeal from the decision of an inspector on a claim in a case where, in accordance with subparagraph (1), the inspector has attributed to a company at the beginning of an accounting period trading stock of a particular value shall, in hearing and determining the appeal, in so far as it relates to the value of the trading stock to be so attributed, determine such value as appears to them to be reasonable and just, having regard to those factors to which the inspector is required to have regard by virtue of subparagraph (2).

(4) In any case where paragraph 1 (1) applies to a company's accounting period, for any reference in subparagraphs (1) to (3) to that accounting period there shall be substituted a reference to the reference period.

6. (1) In this Schedule “period of account”, in relation to a company, means a period for which the accounts of the company have been made up, and “accounting period”, “company”, “trade”, “trading profits”, and “trading stock”, have the same meanings, respectively, as in section 31.

(2) In any case where a company's accounting period or reference period consists of a number of complete months and a fraction of a month, any reference in the preceding provisions of this Schedule to the number of months in the period shall be construed as including that fraction of a month (and in any case where any such period is less than one month any such reference shall be construed as a reference to that fraction of a month of which the period consists).