Finance Act 2003

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“Transactions between associated persons and between tonnage tax trade and other activities of same company.

697LA.—(1) In this section—

‘control’ shall be construed in accordance with section 11;

‘losses’ includes amounts in respect of which relief may be given in accordance with section 83(3) and Part 12;

‘transaction’ includes any agreement, arrangement or understanding of any kind (whether or not it is, or is intended to be, legally enforceable).

(2) Where—

(a)  provision is made or imposed as between a tonnage tax company and another company by means of a transaction,

(b)  the results of the transaction are taken into account in computing the tonnage tax company's relevant shipping income,

(c)  at the time of the transaction—

(i) one of the companies is directly or indirectly under the control of the other, or

(ii) both of the companies are, directly or indirectly, under the control of the same person or persons,

and

(d)  the relevant shipping income of the tonnage tax company is greater than it would be if the parties to the transaction had been independent parties dealing at arm's length,

then, the income or losses of both companies shall be computed for any purpose of the Tax Acts as if the consideration in the transaction had been that which would have obtained if the transaction had been a transaction between independent persons dealing at arm's length.

(3) Subsection (2) shall apply in relation to a tonnage tax company where provision is made or imposed as between the company's tonnage tax trade and other activities carried on by the company as if—

(a)  that trade and those other activities were carried on by two different persons,

(b)  those persons had entered into a transaction, and

(c)  the two persons were both controlled by the same person at the time of the making or imposition of the provision.

(4) A company to which subsection (2) or (3) applies shall keep for a period not less than 6 years sufficient documentation to prove how prices and terms have been determined in a transaction to which that subsection applies, including a written and detailed explanation of the pricing principles it has applied in relation to any such business transaction.

(5) An officer of the Revenue Commissioners may by notice in writing require a company to which subsection (2) or (3) applies to furnish him or her with such information, particulars or documentation as may be necessary for that officer to establish whether or not the company has complied with this section.

(6) Section 1052 shall apply to a failure to comply with subsection (5) as it applies to a failure to deliver a return referred to in that section.

(7) Sections 900 and 901 shall apply to records under this section as if they were books, records or documents within the meaning of section 900.

(8) Nothing in this section is to be construed as affecting the computation of a company's tonnage tax profits.

Treatment of finance costs.

697LB.—(1) (a) In this section—

‘deductible finance costs outside the tonnage tax trade’ means—

(i) in relation to a tonnage tax company, the total of the amounts that may be taken into account in respect of finance costs in calculating for the purpose of corporation tax the company's profits other than relevant shipping profits, and

(ii) in relation to a group of companies, so much of the group's finance costs as may be taken into account in calculating for the purposes of corporation tax—

(I) in the case of a group member which is a tonnage tax company, the company's profits other than relevant shipping profits, and

(II) in the case of a group member which is not a tonnage tax company, the company's profits;

‘finance costs’, in relation to a company, means the cost of debt finance for that company, including—

(i) any interest expense which gives rise to a deduction under section 81 or relief under Part 8,

(ii) any gain or loss referred to in section 79 in relation to debt finance,

(iii) the finance cost implicit in a payment under a finance lease,

(iv) the finance cost payable on debt factoring or on any similar transaction, and

(v) any other costs arising from what would be considered on generally accepted accounting practice to be a financing transaction;

‘finance lease’, in relation to finance costs, means any arrangements that provide for machinery or plant to be leased or otherwise made available by a person (in this definition referred to as the ‘lessor’) to another person such that, in cases where the lessor and persons connected with the lessor are all companies resident in the State—

(i) the arrangements, or

(ii) the arrangements in which they are comprised,

fall, in accordance with generally accepted accounting practice, to be treated in the accounts, including any consolidated group accounts relating to two or more companies of which that company is one, of one or more of those companies as a finance lease or as a loan;

‘total finance costs’ means—

(i) in relation to a tonnage tax company, so much of the company's finance costs as could, if there were no tonnage tax election, be taken into account in calculating the company's profits for the purposes of corporation tax, and

(ii) in relation to a group of companies, so much of the group's finance costs as could, if there were no tonnage tax election, be taken into account in calculating for the purposes of corporation tax the profits of any group member.

(b) For the purposes of this section, where, in the case of a group of companies, an accounting period of a company does not coincide with the corresponding accounting period of another group company or companies, then the periods shall be matched on whatever basis appears to be just and reasonable.

(2) Where it appears, in relation to an accounting period of a tonnage tax company (not being a member of a group of companies) which carries on tonnage tax activities and which also carries on other activities, that the company's deductible finance costs outside the tonnage tax trade exceed a fair proportion of the company's total finance costs, then an adjustment as determined in accordance with subsection (3) shall be made in computing the company's profits for corporation tax purposes for that accounting period.

(3)  (a) The proportion of the company's deductible finance costs outside the tonnage tax trade which are to be treated as exceeding a fair proportion of the company's total finance costs shall be determined on a just and reasonable basis.

 (b) The just and reasonable determination referred to in paragraph (a) shall be made by reference to the extent to which the debt finance of the company, in respect of which the company's total finance costs are incurred, is applied in such a way that any profits arising, directly or indirectly, would be relevant shipping profits.

(4) Where an adjustment is to be made under subsection (2), an amount equal to the excess determined in accordance with subsection (3) shall be taken into account in computing the trading income of the company's non-tonnage tax activities for the accounting period in respect of which the adjustment arises.

(5) Where it appears, in relation to an accounting period of a tonnage tax company (being a member of a tonnage tax group) where the activities carried on by the members of the group include activities other than the carrying on of a tonnage tax trade or tonnage tax trades, that the group's deductible finance costs outside the tonnage tax trade exceed a fair proportion of the group's total finance costs, then an adjustment as determined in accordance with subsection (6) shall be made in computing the company's profits for corporation tax purposes for that accounting period.

(6)  (a) The proportion of the group's deductible finance costs outside the tonnage tax trade which are to be treated as exceeding a fair proportion of the company's total finance costs shall be determined on a just and reasonable basis.

 (b) The just and reasonable determination referred to in paragraph (a) shall be made by reference to the extent to which the debt finance of the group, in respect of which the group's total finance costs are incurred, is applied in such a way that any profits arising, directly or indirectly, would be relevant shipping profits.

(7) Where an adjustment is to be made under subsection (5), an amount equal to the proportion of the excess determined in accordance with subsection (6) which the company's tonnage tax profits bears to the tonnage tax profits of all the members of the group shall be taken into account in computing the trading income of the company's non-tonnage tax activities for the accounting period in respect of which the adjustment arises.

(8) No adjustment shall be made under this section if—

(a)  in calculating for a period a company's deductible finance costs outside the tonnage tax trade of the company, or

(b)  in calculating for a period a group's deductible finance costs outside the tonnage tax trades of the group,

the amount taken into account in respect of costs and losses is exceeded by the amount taken into account in respect of profits and gains.”.