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Taxation of certain qualifying financing companies
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40. The Principal Act is amended—
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(a) by the insertion of the following section after section 76D:
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“Computation of profits and gains: deductions for interest paid by qualifying financing companies
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76E. (1) In this section—
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‘arrangements’, other than in paragraph (b)(ii) of the definition in this subsection of ‘qualifying subsidiary’, includes any agreement, understanding, scheme, transaction or series of transactions (whether enforceable or not);
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‘associated enterprise’, in respect of a company, means an enterprise that is an associated enterprise of that company for the purposes of Chapter 4 of Part 35C;
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‘control’ shall be construed in accordance with section 432;
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‘EEA state’ means a state, not being a Member State or the State, which is a contracting party to the Agreement on the European Economic Area signed at Oporto on 2 May 1992 as adjusted by the Protocol signed at Brussels on 17 March 1993;
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‘enterprise’ has the same meaning as in Part 35C;
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‘external interest’ means the amount of interest payable on an external loan;
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‘external loan’, subject to subsection (11), in respect of a company, means a loan from a person who—
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(a) does not have the beneficial ownership of, or the ability to control, directly or through the medium of a connected company or connected companies or by any other indirect means, more than 5 per cent of the ordinary share capital of the company, and
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(b) is not an associated enterprise of the company;
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‘indirect qualifying subsidiary’ means, in respect of a qualifying financing company, a company that would be a qualifying subsidiary but for the fact that 75 per cent or more of its ordinary share capital is held directly by an intermediate holding company;
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‘intermediate holding company’ means a company 75 per cent or more of the ordinary share capital of which is held directly by a qualifying financing company and whose business consists wholly of the holding of ordinary share capital in one or more than one indirect qualifying subsidiary of that qualifying financing company;
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‘qualifying financing company’ means a company that—
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(a) holds a direct ownership of 75 per cent or more of the ordinary share capital of one or more than one qualifying subsidiary, or intermediate holding company, as the case may be,
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(b) borrows money for the purpose of on-lending that money by way of the making of relevant loans to one or more than one qualifying subsidiary, or indirect qualifying subsidiary, as the case may be, and
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(c) apart from activities ancillary to those specified in subparagraphs (a) and (b), carries on no other activities;
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‘qualifying subsidiary’, in respect of a qualifying financing company, means a company—
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(a) that exists wholly or mainly for the purpose of carrying on any trade or trades,
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(b) that is—
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(i) tax resident in a Member State or an EEA State, or
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(ii) regarded as resident in a territory under arrangements having force of law by virtue of section 826(1) made with the government of that territory,
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and
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(c) in which a qualifying financing company holds a direct ownership of 75 per cent or more of the ordinary share capital of the company;
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‘relevant loan’ means a loan of money—
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(a) entered into by way of a bargain made at arm’s length,
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(b) advanced by a qualifying financing company to—
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(i) a qualifying subsidiary, or
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(ii) an indirect qualifying subsidiary,
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where the company referred to in subparagraph (i) or (ii) is a 75 per cent subsidiary of the qualifying financing company concerned, and
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(c) where the money so advanced has been used by the qualifying subsidiary or indirect qualifying subsidiary, as the case may be, referred to in paragraph (b) wholly and exclusively for the purpose of carrying on a trade or trades, and not for the redemption of or subscription for shares, or any other payments relating to shares or the capital structure of any company.
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(2) References in this section to a relevant loan being repaid, in whole or in part, shall include any of the following:
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(a) the repayment, in whole or in part, of the principal amount of money advanced under the relevant loan;
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(b) the disposal, in whole or in part, of, or the disposal of an interest in or over, the relevant loan, and references in subsection (5)(a) to the repayment of the principal amount of money advanced shall be to the higher of—
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(i) the outstanding principal so disposed of, and
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(ii) the market value of the loan so disposed of;
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(c) the write off or forgiveness of a relevant loan, in whole or in part, and references in subsection (5)(a) to the repayment of the principal amount advanced shall be construed as references to the amount so written off or forgiven;
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(d) the disposal of any shares in a company such that the disposal causes a company to which a relevant loan was made to no longer be a qualifying subsidiary or an indirect qualifying subsidiary, as the case may be, of the qualifying financing company that advanced the relevant loan and references in subsection (5)(a) to the repayment of the principal amount advanced shall be to the higher of—
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(i) the outstanding principal on the loan, and
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(ii) the market value of the shares so disposed of;
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(e) the repayment, redemption or purchase by—
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(i) a company to whom a relevant loan was made, or
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(ii) in a case where a relevant loan was made to an indirect qualifying subsidiary, the intermediate holding company that directly holds 75 per cent or more of the ordinary share capital of the indirect qualifying subsidiary,
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of any of its own share capital and references in subsection (5)(a) to the repayment of the principal amount advanced shall be construed as the amount paid for the repayment, redemption or purchase of the share capital of the company or the intermediate holding company, as the case may be.
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(3) For the purposes of subsection (6)(b), the reference to the money received by the qualifying financing company is, for each of the events referred to in paragraphs (a), (b) and (c) of subsection (2), the lower of the amount of money received by that qualifying financing company and the amount treated as the repayment of the principal amount advanced for the purposes of subsection (5)(a).
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(4) For each chargeable period, for the purposes of computing the profits of a qualifying financing company chargeable to tax under Case III or IV of Schedule D in respect of each relevant loan, notwithstanding sections 70(3) and 76(5)(b), the company shall be entitled to deduct the amount of external interest paid by that company in that chargeable period as has arisen in relation to such portion of the external loan that is, in accordance with subsection (6), matched with that relevant loan.
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(5) (a) Subject to paragraph (b), where the principal amount of a relevant loan is repaid, in whole or in part, then no deduction shall be available under subsection (4) in respect of any external interest arising after that repayment on the portion of the external loan that is, or was, matched to the relevant loan or that portion of that relevant loan, represented by the amount that was repaid.
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(b) Where a replacement loan is made, external interest arising after the making of the replacement loan on the portion of the external loan that is matched to that replacement loan may be deductible under subsection (4) against interest from that replacement loan.
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(6) (a) Subject to paragraphs (c) and (d), where the moneys advanced under an external loan, or a portion of those moneys, are, at or about the time of the borrowing of the moneys under the external loan, on-lent under a relevant loan, the relevant loan shall be matched to that external loan, or that portion of that external loan.
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(b) Subject to paragraph (c), where a repayment of the principal amount of a relevant loan (in this paragraph referred to as ‘the first-mentioned loan’) occurs, in whole or in part, in accordance with paragraph (a), (b) or (c) of subsection (2), and the money received by the qualifying financing company is used to make another relevant loan (in this section referred to as the ‘replacement loan’), then that replacement loan shall be matched to the lowest of the following:
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(i) the amount of the external loan against which the first-mentioned loan, or the part of the first-mentioned loan as appropriate, was matched;
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(ii) the portion of the external loan against which the first-mentioned loan, or the part of the first-mentioned loan as appropriate, was matched that is not matched against any other relevant loan at the time of the making of the replacement loan;
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(iii) the money actually received by the qualifying company in respect of the repayment.
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(c) The total amount of moneys advanced under a relevant loan that is matched with an external loan shall not exceed the total amount of moneys borrowed under the external loan.
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(d) For the purposes of paragraph (a), where an external loan was in place on 1 January 2024, any relevant loans also in place on that date shall be matched against the external loan as if, at or about the time the moneys were borrowed under that external loan, they were on-lent under those relevant loans.
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(7) Where a qualifying financing company refinances an external loan (referred to in this subsection as ‘the refinanced external loan’) in respect of which relevant loans were matched in accordance with subsection (6) with another external loan (referred to in this subsection as ‘the second external loan’), the relevant loans shall be matched to the second external loan as they were matched to the refinanced external loan.
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(8) No deduction shall be available under subsection (4) in respect of interest on any relevant loan unless, had the qualifying subsidiary or indirect qualifying subsidiary, as the case may be, borrowed the matched external loan, or portion thereof, as the case may be, directly, the qualifying subsidiary or indirect qualifying subsidiary, as the case may be, would be entitled to deduct interest on that loan under section 81, and where the qualifying subsidiary or indirect qualifying subsidiary, as the case may be, is not within the charge to tax in the State it would be, if it was so chargeable, entitled to such a deduction.
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(9) No deduction shall be available under subsection (4) in respect of interest that is deductible under any other provision of the Tax Acts.
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(10) This section shall not apply to the payment of interest by a qualifying financing company where it is reasonable to consider that any arrangement entered into in relation to the payment of that interest was not for bona fide commercial reasons and forms part of any arrangement or scheme of which the main purpose, or one of the main purposes, is the avoidance of tax.
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(11) A loan shall not be an external loan where any of the following arrangements are in place:
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(a) arrangements pursuant to which—
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(i) interest is payable by a qualifying financing company to another person such that this section does not apply by virtue only of the fact that the qualifying financing company and the person concerned are not associated, and
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(ii) interest is payable by some other enterprise not associated with the qualifying financing company to an enterprise associated with the qualifying financing company;
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(b) arrangements pursuant to which—
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(i) interest is payable by a qualifying financing company to another enterprise (in this paragraph referred to as ‘the first-mentioned enterprise’) where the qualifying financing company and the first-mentioned enterprise concerned are not associated, and
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(ii) the first-mentioned enterprise—
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(I) has been advanced an amount by another enterprise that is an associate of the qualifying financing company, or
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(II) has received a deposit from another enterprise that is an associate of the qualifying financing company,
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equal to some or all of the principal amount of the loan in respect of which the interest referred to in subparagraph (i) is payable;
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(c) arrangements entered into in relation to a qualifying financing company the effect of which is that any amount has been advanced, or funds have been made available, indirectly from an associate of a qualifying financing company to the qualifying financing company, or interest is payable by a qualifying financing company indirectly to an associate of that qualifying financing company, in circumstances other than those referred to in paragraph (a) or (b);
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(d) arrangements pursuant to which—
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(i) associates of a qualifying financing company (in this paragraph referred to as ‘the first-mentioned qualifying financing company’) advance amounts, or make funds available, directly or indirectly to a qualifying financing company with whom they are not associated (in this paragraph referred to as ‘the second- mentioned qualifying financing company’), and
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(ii) associates of the second-mentioned qualifying financing company advance amounts, or make funds available, directly or indirectly to the first-mentioned qualifying financing company,
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and those qualifying financing companies, or those associates, are acting in concert or under arrangements made by any enterprise.
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(12) Subsection (4) shall only apply to interest paid on an external loan (or a portion thereof) by a qualifying financing company where the company provides details of the relevant loan to which the external loan (or a portion thereof) is matched in the return required to be delivered under Part 41A.
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(13) (a) Where a relevant loan is deemed to be repaid, in whole or in part, under paragraph (b), then no deduction shall be available under subsection (4) in respect of any external interest arising after the deemed repayment on the portion of the external loan, represented by the amount that has been paid to the qualifying financing company, which is, or was, matched to the relevant loan.
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(b) For the purposes of paragraph (a), a relevant loan shall be deemed to be repaid, in whole or in part, where it is reasonable to consider that a payment has been made to the qualifying financing company by the indirect qualifying subsidiary, whether directly or indirectly, and the amount has not been applied by the qualifying financing company in repaying the external loan.
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and
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(b) in section 840A, by the substitution of the following subsection for subsection (7):
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“(7) This section shall not apply to interest payable to a company (in this subsection referred to as ‘the first-mentioned company’) by an investing company in either of the following circumstances:
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(a) where the sole business of the first-mentioned company is the on-lending to the investing company of moneys which the first-mentioned company has borrowed from persons who are not connected with either or both the first-mentioned company and the investing company;
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(b) where the first-mentioned company is a qualifying financing company within the meaning of section 76E.”.
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