Corporation Tax Act, 1976

Allowance of charges on income.

10.—(1) In computing the corporation tax chargeable for any accounting period of a company any charges on income paid by the company in the accounting period, but not before the 6th day of April, 1976, so far as paid out of the company's profits brought into charge to corporation tax, shall be allowed as deductions against the total profits for the period as reduced by any other relief from tax other than group relief.

(2) Subject to the following subsections and to any other express exceptions, “charges on income” means for the purposes of corporation tax payments of any description mentioned in subsection (3), not being dividends or other distributions of the company, but no payment which is deductible in computing profits or any description of profits for purposes of corporation tax shall be treated as a charge on income.

(3) Subject to subsections (4) to (7), the payments referred to in subsection (2) are—

(a) any yearly interest, annuity or other annual payment and any such other payments as are mentioned in section 93 (taxation of rents under long leases and certain other payments) or section 433 (2) (yearly interest, etc., payable wholly out of taxed profits) of the Income Tax Act, 1967 , and

(b) any other interest payable in the State on an advance from a bank carrying on a bona fide banking business in the State, or from a person who in the opinion of the Revenue Commissioners is bona fide carrying on business as a member of a stock exchange in the State or bona fide carrying on the business of a discount house in the State;

and for the purposes of this section any interest payable by a company as mentioned in paragraph (b) shall be treated as paid on its being debited to the company's account in the books of the person to whom it is payable.

(4) No such payment as is mentioned in subsection (3) (a) made by a company to a person not resident in the State shall be treated as a charge on income unless the company is resident in the State and either—

(a) the company deducts income tax from the payment in accordance with section 434 of the Income Tax Act, 1967 (interest, etc., not payable out of taxed profits), or the provisions of that section as applied by section 31 of the Finance Act, 1974 , and accounts under section 151 (income tax on payments) for the tax so deducted; or

(b) the payment is one payable out of income which is brought into charge to tax under Case III of Schedule D and which arises from securities and possessions outside the State.

(5) No such payment made by a company as is mentioned in subsection (3) shall be treated as a charge on income if—

(a) the payment is charged to capital, or the payment is not ultimately borne by the company; or

(b) the payment is not made under a liability incurred for a valuable and sufficient consideration and, in the case of a company not resident in the State, incurred wholly and exclusively for the purposes of a trade carried on by it in the State through a branch or agency:

Provided that for the purposes of paragraph (b) a payment falling within section 439 (1) (ii) or (iia) of the Income Tax Act, 1967 (dispositions for short periods), shall be treated as incurred for valuable and sufficient consideration.

(6) Subject to subsection (7), any yearly or other interest such as is mentioned in subsection (3) shall be treated for the purposes of this section as a charge on income paid in any accounting period only to the extent that it does not exceed the lesser of—

(a) an amount calculated at the rate of £2,000 per annum, and

(b) in relation to a company which is connected with an individual or another company within the meaning of section 157 (connected persons), an amount determined by the formula /images/en.act.1976.0007.sec10.1.jpg

where—

A is the total amount of interest payable by the company in respect of the accounting period,

B is the aggregate amount of the interest payable in respect of the accounting period by the company and all the persons with whom it is connected, and

C is the number of months or fractions of months comprised in the accounting period;

and for this purpose all such apportionments and aggregations as may be necessary shall be made:

Provided that for the purposes of paragraph (b) interest shall be deemed not to include any amount which the company or any person with whom it is connected is entitled to deduct in computing income of any description, or any amount to which the provisions of subsection (7) or of section 32 , 34 or 36 of the Finance Act, 1974 (borrowings related to acquisition of interest in other companies, or recovery of, or replacement of capital), apply.

(7) Subject to subsection (8), the provisions of subsection (6) shall not apply to any payment of interest on a loan to a company to defray money applied for a purpose mentioned in section 33 (2) of the Finance Act, 1974 , if the conditions specified in subsection (3) of that section and in section 35 (4) of that Act are fulfilled.

(8) The provisions of section 35 of the Finance Act, 1974 , excluding subsection (5) thereof, shall have effect for corporation tax as for income tax; and references to section 33 of the Finance Act, 1974 , to the investing company and to the borrower, to interest eligible for relief, and to affording relief for interest shall have effect accordingly as if they were or included references to subsection (7) of this section, to such a company as is mentioned in the said subsection (7), to interest to be treated as a charge on income, and to treating part only of a payment of interest as a charge on income.