Income Tax Act, 1967.

Treatment of deficiency payments as trading receipts and trading expenses.

324.—(1) Subject to the provisions of this Chapter, where an auxiliary company—

(a) has a deficiency in a trade for an accounting period, and

(b) receives in relation to the trade a deficiency payment in respect of that period, being a deficiency payment in relation to which this subsection applies,

then, in computing for the purposes of income tax the profits or gains or losses of the company and of the principal company from which the payment was received, the payment shall be treated as a trading receipt of the auxiliary company, receivable by that company on the last day of the period, and shall be allowed as a deduction to the principal company as if it were a trading expense incurred on that day.

(2) A deficiency payment in respect of an accounting period shall be a deficiency payment in relation to which subsection (1) applies if (but only if)—

(a) at all times during the period—

(i) the payee company was an auxiliary company, and

(ii) the paying company was, in relation to the payee company, a principal company, and

(b) the payment is made not later than three years after the end of the period.

(3) If an auxiliary company receives in respect of an accounting period a deficiency payment or deficiency payments from one or more principal companies and the payment or the aggregate of the payments exceeds the deficiency in its relevant trade for that period, the excess shall be disregarded for the purposes of this Chapter; and, where payments by more than one principal company are in question, the payments shall be treated as abating in such manner as may be agreed between all the companies concerned or, in default of agreement, as may be determined by the Revenue Commissioners.

(4) Where a deficiency payment is made to an auxiliary company in respect of more than one accounting period of that company or is made by a principal company carrying on more than one trade, the apportioned part of the payment to be attributed for the purposes of this Chapter to any period or trade shall be determined by the Revenue Commissioners.