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Amendment of Chapter 4 (income tax and corporation tax: treatment of certain losses and certain capital allowances) of Part 12 of Principal Act.
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68.— (1) Chapter 4 of Part 12 of the Principal Act is amended—
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(a) in section 403—
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(i) in subsection (1) by inserting the following after paragraph (c):
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“(d) For the purposes of this section, where, in relation to a company which carries on a business—
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(i) the activities—
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(I) of the company,
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(II) of the company and all companies of which it is a 75 per cent subsidiary (within the meaning of section 9) and all companies which are its 75 per cent subsidiaries (within the same meaning), or
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(III) of the company and all companies (being companies which, by virtue of the law of the territory in which the company is resident for the purposes of tax, are so resident in that territory; and for this purpose, ‘tax’, in relation to such a territory, means any tax imposed in the territory which corresponds to corporation tax in the State) of which it is a 75 per cent subsidiary (within the meaning of section 9) or which are its 75 per cent subsidiaries (within the same meaning),
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consist wholly or mainly of the leasing of machinery or plant, and
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(ii) not less than 90 per cent of the activities of the company consist of one or more of the following:
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(I) the leasing of machinery or plant;
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(II) the provision of finance and guarantees to fund the purchase of machinery or plant of a type which is similar to the type of machinery or plant leased by the companies referred to in subparagraph (i);
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(III) the provision of leasing expertise in connection with machinery or plant of a type which is similar to the type of machinery or plant leased by the companies referred to in subparagraph (i);
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(IV) the disposal of machinery or plant acquired by the company in the course of its leasing trade;
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(V) activities which are ancillary to the activities referred to in clauses (I) to (IV):
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then, subject to section 80A(2)(c), income from the company’s trade of leasing shall be treated as including—
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(A) income from the activities referred to in subparagraph (ii), and
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(B) chargeable gains on the disposal of machinery or plant acquired by the company in the course of its leasing trade; and for this purpose the amount of such a gain shall be computed without regard to any adjustment made under section 556(2).”,
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and
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(ii) in subsection (7) by inserting “(not being either or both a film negative and its associated soundtrack, or a film tape or a film disc)” after “are references to machinery or plant”,
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(b) in section 404—
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(i) in subsection (1)(b)—
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(I) by deleting “and” at the end of subparagraph (iii),
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(II) in subparagraph (iv) by substituting “shall be treated as if they were separate accounting periods,” for “shall be treated as if they were separate accounting periods, and”, and
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(III) by inserting the following after subparagraph (iv):
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“(v) where a lease the relevant lease payments in relation to which are denominated in a currency (in this subparagraph referred to as the ‘relevant currency’) other than the currency of the State—
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(I) is a relevant lease, and
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(II) would not be a relevant lease if subparagraphs (i) to (iv) were applied by reference to the value of those relevant lease payments in the relevant currency,
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the lease shall not be treated as a relevant lease.”,
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(ii) in subsection (2) by substituting “Subject to subsection (2A), where” for “Where”, and
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(iii) by inserting the following after subsection (2):
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“(2A) (a) In this subsection—
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‘relevant long-term lease’ means a lease of an asset the predictable useful life of which exceeds 8 years;
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‘predictable useful life’ and ‘relevant period’ have, respectively, the same meanings as they have in section 80A.
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(b) Where—
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(i) in the course of a trade an asset is provided by a person for leasing under a relevant lease, and
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(ii) the lease is a relevant long-term lease,
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then this section shall apply as if—
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(I) in subsection (2)(a) “and the letting of any other asset under a relevant long-term lease” were inserted after “under that relevant lease”, and
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(II) the following were substituted for subparagraphs (i) and (ii) of section 403(4)(a):
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‘(i) for relief under section 396(2), except to the extent that it can be set off under that section against—
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(I) the company’s income from the trade of leasing,
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(II) in the case of a company referred to in paragraph (d) of section 403(1), income specified in subparagraph (A) and (B) of that paragraph, or
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(III) income from the leasing by the company of any other asset under a relevant long-term lease,
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or
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(ii) to be surrendered by means of group relief except to the extent that it—
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(I) could be set off under section 420A against income of a trade of leasing carried on by the claimant company if paragraph (b) of the definition of relevant trading loss in section 420A were deleted, or
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(II) where the surrendering company and the claimant company are companies referred to in paragraph (d) of section 403(1), can be set off—
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(A) under section 420A against income specified in subparagraphs (A) and (B) of that paragraph, or
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(B) under section 420A against income from the leasing by the company of any other asset under a relevant long-term lease.’,”,
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(iv) in subsection (4)(a) by substituting “Subject to subsection (4A), where at any time” for “Where at any time”, and
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(v) by inserting the following after subsection (4):
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“(4A) (a) Where the terms of a lease entered into before 2 February 2006, being a lease which would, apart from subsection (1)(b)(ii) or subsection (6)(a), have been a relevant lease, are altered after that day, then—
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(i) such a lease shall not be treated as a relevant lease by virtue of that alteration, and
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(ii) unless the alteration involves a reduction in the value of any payment (or a part of a payment) under the lease, not being a payment (or a part of a payment) the amount of which is computed under the lease by reference to any rate of interest, the alteration shall be disregarded as respects the treatment for tax purposes of any defeasance payment made in connection with the lease.
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(b) Paragraph (a) shall not apply as respects a lease if any amount payable under the lease is, by virtue of the alteration of the terms of the lease, to be paid under the lease more than 20 years after the time at which it would otherwise have been payable.”,
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(vi) by substituting the following for subsection (6):
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“(6) (a) This section shall apply as on and from 23 December 1993; but a lease of an asset shall not be a relevant lease if—
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(i) a binding contract in writing for the letting of the asset was concluded before that day, or
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(ii) (I) the relevant period does not exceed 5 years,
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(II) the predictable useful life of the asset does not exceed 8 years,
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(III) the lease provides for lease payments to be made at annual or more frequent regular intervals throughout the relevant period such that, in relation to any chargeable period (in this subsection referred to as the ‘current chargeable period’) falling wholly or partly into the relevant period (other than the earliest such chargeable period), the aggregate of the amounts of lease payments payable under the lease before the end of the current chargeable period is not less than an amount determined by the formula—
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V x T
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2920
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where—
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V is an amount equal to the fair value of the asset at the inception of the lease, and
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T is the number of days in the period commencing at the inception of the lease and ending at the end of the current chargeable period,
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and
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(IV) the lessor has made an election in relation to the lease for the treatment referred to in paragraph (b).
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(b) Where a lessor has made an election under paragraph (a)(ii)(IV) in relation to a lease, the Tax Acts shall apply as respects assets leased under that lease as they would if the following were inserted in section 284(2):
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‘(c) Where machinery or plant which is used in a chargeable period or its basis period is not used throughout that period, the amount of the wear and tear allowance for the chargeable period in respect of the machinery or plant, computed by reference to paragraph (b), shall be reduced to so much as bears to that amount the same proportion as the part of the chargeable period or its basis period throughout which the machinery or plant is used bears to the length of the chargeable period or its basis period.’.”.
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(2) (a) Subject to paragraph (b) this section applies to accounting periods ending on or after 1 January 2006.
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(b) Subsection (1)(a)(ii) applies from 2 February 2006.
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