Finance Act, 1991

Chapter IV

Corporation Tax

Amendment of section 84A (limitation on meaning of “distribution”) of Corporation Tax Act, 1976.

28.—Section 84A (as amended by the Finance Act, 1990 ) of the Corporation Tax Act, 1976 , is hereby amended—

(a) by the insertion, after subsection (3A), of the following subsection:

“(3B) (a) Notwithstanding subsections (2), (3) and (3A), where at any time on or after the 31st day of December, 1991, the current amounts of relevant principal advanced by a company in respect of relevant securities held, directly or indirectly, by the company at that time is in excess of a limit, being a limit equal to 40 per cent of the total of the amounts of relevant principal advanced by the company in respect of relevant securities held, directly or indirectly, by the company on the 12th day of April, 1989, then any interest paid to the company in respect of relevant principal advanced by the company on or after the 31st day of December, 1991, which relevant principal is included in the current amounts of relevant principal, shall not be treated as a distribution for the purposes of this Act in the hands of the company:

Provided that—

(i) where the total of the amounts of relevant principal advanced by a company in respect of relevant securities held, directly or indirectly, by the company at any time on or after the 31st day of December, 1991, is less than the said limit, this paragraph shall have effect as if the said limit were the total of the amounts of relevant principal so advanced as at that time unless the company proves that it has, as far as possible, at all times on or after the 31st day of December, 1991, advanced to borrowers relevant principal in respect of the interest on which the provisions of paragraph (a) do not, or would not, apply by virtue of the provisions of paragraph (b), and

(ii) where at any time during the period commencing on the 18th day of April, 1991, and ending immediately before the 31st day of December, 1991, an amount of relevant principal which was advanced to a borrower, being a company which carries on one or more trading operations (within the meaning of subsection (1) of section 39A, as amended by the Finance Act, 1991, of the Finance Act, 1980 ) is repaid, this section shall have effect as if—

(I) references in paragraph (a) of this subsection, other than this paragraph of the proviso, to the 31st day of December, 1991, were references to the day on which the amount is repaid, and

(II) during that period—

(A) the reference in paragraph (i) of this proviso to relevant principal in respect of the interest on which the provisions of paragraph (a) do not, or would not, apply by virtue of the provisions of paragraph (b) were a reference to such principal in respect of the interest on which the provisions of paragraph (a) of subsection (3A) do not, or would not, apply by virtue of the provisions of paragraph (b) of that subsection, and

(B) the reference in paragraph (b) of subsection (3A) to paragraph (a) of that subsection were a reference to paragraph (a) of this subsection.

(b) Where, apart from this paragraph, any part of any interest paid to a company in respect of relevant principal advanced by the company on or after the 31st day of December, 1991, would not be treated as a distribution for the purposes of this Act in the hands of the company by virtue only of the provisions of paragraph (a), then the provisions of that paragraph shall not apply in relation to so much of that interest as is paid if—

(i) the specified trade is a trade which the borrower commenced to carry on after the 31st day of January, 1990, or is a specified trade of the borrower in respect of which he is committed, under a business plan approved by the Industrial Development Authority, the Shannon Free Airport Development Company Limited or Údarás na Gaeltachta, to the creation of additional employment,

(ii) the specified trade of the borrower is selected by the Industrial Development Authority for inclusion in a list, approved by the Minister for Industry and Commerce and the Minister for Finance, which list specifies a particular amount of relevant principal in respect of each trade which amount is considered to be essential for the success of that trade, and

(iii) the borrower, or a company connected (within the meaning of section 157 (5)) with the borrower, is not a company which commenced to carry on relevant trading operations (within the meaning of section 39B of the Finance Act, 1980 ) after the 20th day of April, 1990, or intends to commence to carry on such trading operations:

Provided that this paragraph shall not apply to any interest in respect of any relevant principal advanced after the time the total of the amounts of relevant principal to which this paragraph applies, advanced by all lenders who have made such advances, exceeds the aggregate of—

(a) £250,000,000, and

(b) the excess, if any, of the amount specified in the proviso to paragraph (b) of subsection (3A) over the total of the amounts of relevant principal to which that paragraph applies advanced by all lenders who have made such advances.”,

(b) by the insertion, after subsection (4), of the following subsection:

“(4A) (a) Interest paid to a company in respect of—

(i) relevant principal, denominated in a currency other than Irish currency, and

(ii) a relevant period which begins on or after the 30th day of January, 1991,

shall not be a distribution for the purposes of this Act in the hands of the company if at any time during the said period the rate on the basis of which that interest is computed exceeds 80 per cent, of the rate known as the three month Dublin Interbank Offered Rate on Irish pounds (hereafter in this subsection referred to as the ‘three month Dublin Interbank Offered Rate’) a record of which is maintained by the Central Bank of Ireland.

(b) Paragraph (a) shall not apply to any interest which is paid to a company in respect of relevant principal advanced by the company—

(i) before the 30th day of January, 1991, under an agreement entered into before that day if, on that day, the rate on the basis of which interest in respect of the relevant security falls to be computed exceeds 80 per cent of the three month Dublin Interbank Offered Rate,

(ii) on or after the 30th day of January, 1991, for the purposes of a specified trade—

(I) which is included in a list referred to in subparagraph (iv) of paragraph (b) of subsection (3A) or subparagraph (ii) of paragraph (b) of subsection (3B), and

(II) of a borrower who is certified by the Minister for Industry and Commerce as having received an undertaking that the said interest would be treated as a distribution,

(iii) on or after the 18th day of April, 1991, where the rate on the basis of which that interest is computed exceeds 80 per cent of the three month Dublin Interbank Offered Rate by reason only that the relevant principal advanced is denominated in sterling, or

(iv) to a borrower which is a company carrying on one or more trading operations (within the meaning of subsection (1) of section 39A, as amended by the Finance Act, 1991, of the Finance Act, 1980 ).

(c) In paragraph (a) ‘relevant period’ means a period which commences at a time at which, in accordance with the terms of the agreement under which the relevant principal secured by the said relevant security is advanced, an amount representing the interest for the use of the said relevant principal falls to be paid, and ending at a time immediately before the next time at which such an amount falls to be paid.”,

(c) in subsection (3A)—

(i) by the substitution, in paragraph (a), of “in this subsection and in subsection (3B)” for “in this subsection”,

(ii) by the substitution, in paragraph (c), of “this subsection and subsection (3B)” for “this subsection” and of “a day” for “the 31st day of January, 1990,”, and

(iii) by the substitution, in paragraph (d), of “this subsection and subsection (3B)” for “this subsection”,

(d) in subsection (5), by the substitution of “In subsections (2), (3), (3A), (3B), (4) and (4A)” for “In subsections (2), (3), (3A), and (4)”, and

(e) in subsection (6), by the substitution of “in subsections (2), (3A), (3B), (4) and (4A)” for “in subsections (2) and (3A)”.