Finance Act, 1994
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Amendment of Part II (Corporation Tax) of Corporation Tax Act, 1976. |
56.— Part II of the Corporation Tax Act, 1976 , is hereby amended as follows— | |
(a) as respects accounting periods beginning on or after the 1st day of January, 1995, by the insertion after section 12 of the following section: | ||
“Foreign currency: computation of income and chargeable gains. | ||
12A.—(1) (a) In this section— | ||
‘profit and loss account’ means— | ||
(i) in the case of a company (hereafter in this definition referred to as the ‘resident company’) resident in the State, the account of that company, and | ||
(ii) in the case of a company (hereafter in this definition referred to as the ‘non-resident company’) which is not resident in the State but which is carrying on a trade in the State through a branch or agency, the account of the business of the company carried on through or from such branch or agency, | ||
which in the opinion of the auditor appointed under section 160 of the Companies Act, 1963 , or under the law of the State in which the resident company or non-resident company, as the case may be, is incorporated and which corresponds to that section, presents a true and fair view of the profit or loss of the resident company or the said business of the non-resident company, as the case may be; | ||
‘rate of exchange’ means a rate at which two currencies might reasonably be expected to be exchanged for each other by persons dealing at arm's length or, where the context so requires, an average of such rates; | ||
‘relevant contract’, in relation to a company, means any contract entered into by the company for the purpose of eliminating or reducing the risk of loss being incurred by the company due to a change in the value of a relevant monetary item, being a change resulting directly from a change in a rate of exchange; | ||
‘relevant monetary item’, in relation to a company, means money held or payable by the company for the purposes of a trade carried on by it. | ||
(b) The treatment of a contract entered into by a company as a relevant contract for the purposes of this section shall be ignored for any other purposes of the Tax Acts. | ||
(2) Notwithstanding section 11, for the purposes of corporation tax the amount of any gain or loss, whether realised or unrealised, which— | ||
(a) is attributable to any relevant monetary item or relevant contract of a company, | ||
(b) results directly from a change in a rate of exchange, and | ||
(c) is properly credited or debited, as the case may be, to the profit and loss account of the company, | ||
shall be brought into account in computing the trading income of the company. | ||
(3) Notwithstanding section 13, for the purposes of corporation tax, where any gain or loss arises to a company in respect of— | ||
(a) a relevant contract of the company, or | ||
(b) money held by the company for the purposes of a trade carried on by it, | ||
so much of that gain or loss as results directly from a change in a rate of exchange shall not be a chargeable gain or an allowable loss, as the case may be, of the company: | ||
Provided that this subsection shall not have effect as respects any gain or loss arising to a company carrying on life business within the meaning of section 50 (2), being a company which is not charged to corporation tax in respect of that business under Case I of Schedule D.”, | ||
and | ||
(b) as respects accounting periods beginning on or after the 1st day of January, 1994, by the insertion after section 14 of the following section: | ||
“Foreign currency: capital allowances and trading losses. | ||
14A.— (1) (a) In this section— | ||
‘functional currency’ means— | ||
(i) in relation to a company which is resident in the State, the currency of the primary economic environment in which the company operates, and | ||
(ii) in relation to a company which is not resident in the State, the currency of the primary economic environment in which the company carries on trading activities in the State: | ||
Provided that where the profit and loss account of a company for any period of account has been prepared in terms of the currency of the State, that currency shall be the functional currency of the company for that period; | ||
‘profit and loss account’ and ‘rate of exchange’ have the meanings assigned to them, respectively, in section 12A; | ||
‘representative rate of exchange’ means a rate of exchange of a currency for another currency equal to the mid-market rate at close of business recorded by the Central Bank of Ireland, or by a similar institution of another State, for those two currencies. | ||
(b) For the purposes of this section the currency of the primary economic environment of a company shall be determined— | ||
(i) in the case of a company which is resident in the State, with reference to the currency in which— | ||
(I) revenues and expenses of the company are primarily generated, and | ||
(II) the company primarily borrows and lends, and | ||
(ii) in the case of a company which is not so resident and which carries on trading activities in the State, with reference to the currency in which— | ||
(I) revenues and expenses of those activities are primarily generated, and | ||
(II) the company primarily borrows and lends for the purposes of those activities. | ||
(c) For the purposes of this section the day on which any expenditure is incurred shall be taken to be the day on which the sum in question becomes payable. | ||
(2) The amount, which may be nil, of any allowance or charge which falls to be made for any accounting period— | ||
(a) in taxing a trade of a company, and | ||
(b) by reference to capital expenditure incurred by the company on or after the 1st day of January, 1994, | ||
shall be— | ||
(i) computed in terms of the functional currency of the company by reference to amounts expressed in that currency, and | ||
(ii) given effect, in accordance with section 14 (2) (a), by being treated as a trading expense or receipt, as the case may be, of the trade in computing the trading income or loss, expressed in that functional currency, of the trade for that accounting period: | ||
Provided that— | ||
(I) for the purposes of the computation of an allowance or charge which falls to be made for an accounting period (hereafter in this proviso referred to as the ‘first-mentioned period’) by reference to capital expenditure incurred by a company on or after the 1st day of January, 1994, and | ||
(II) without prejudice to any allowance made by reference to that expenditure for an accounting period earlier than the first-mentioned period, | ||
where the said expenditure was incurred, or an allowance referable to it was computed, in terms of a currency other than the functional currency of the company for the first-mentioned period, then that expenditure or allowance, as the case may be, shall be expressed in terms of that functional currency by reference to a representative rate of exchange of the said functional currency for the other currency for the day on which the said expenditure was incurred. | ||
(3) For the purposes of sections 16 and 18, the amount, which may be nil, of any set-off due to a company against income or profits of an accounting period in respect of a loss from a trade incurred by the company in an accounting period beginning on or after the 1st day of January, 1994, shall— | ||
(a) be computed in terms of the company's functional currency by reference to amounts expressed in that currency, and | ||
(b) then be expressed in terms of the currency of the State by reference to the rate of exchange which— | ||
(i) is used to express in terms of the currency of the State the amount of the income from the trade for the accounting period in which the loss is to be set off, or | ||
(ii) would be so used if there were such income: | ||
Provided that— | ||
(I) for the purposes of the computation of any set-off due to a company against income or profits of an accounting period (hereafter in this proviso referred to as the ‘first-mentioned period’) in respect of a loss from a trade incurred by the company in an accounting period beginning on or after the 1st day of January, 1994, and | ||
(II) without prejudice to any set-off made against the income or profits of an accounting period earlier than the first-mentioned period by reference to that loss, | ||
where that loss, or any set-off referable to that loss, was computed in terms of a currency other than the functional currency of the company for the first-mentioned period in this proviso, then that loss or set-off, as the case may be, shall be expressed in terms of that functional currency by reference to a rate of exchange of the said functional currency for the other currency, being an average of representative rates of exchange of that functional currency for the other currency during the accounting period in which the loss was incurred.”. |