Finance Act, 1976

Amendment of section 31 (relief for companies in respect of increase in stock values) of Finance Act, 1975.

26.—(1) The Finance Act, 1975 , is hereby amended—

(a) in section 31—

(i) by the substitution in subsection (1) in the definition of “accounting period” of “1976” for “1975”,

(ii) by the insertion in subsection (1) after the definition of “company” of:

“‘period of account’ has the meaning assigned to it by paragraph 6 (1) of the Third Schedule;” and

(iii) by the addition thereto of the following subsections:

“(7) (a) Where a company has acquired or disposed of trading stock otherwise than in the normal conduct of the trade in question, the company shall be treated, for the purposes of this section and the Third Schedule, as having, at the beginning or end of the relevant period of account, trading stock of such value as appears to the inspector (or, on appeal, to the Appeal Commissioners) to be reasonable and just having regard to all the circumstances of the case.

(b) Where the value of a company's trading stock at the beginning of a period of account is not calculated on the basis used for the calculation of the value of the trading stock at the end of that period, the value of the trading stock at the beginning of that period shall, for the purposes of this section and the Third Schedule, be treated as being what it would have been if it had been calculated on that basis.

(8) In any case where a company is entitled by virtue of this section to a deduction which has effect for an accounting period which ends on a date in the period from the 6th day of April, 1975, to the 5th day of April, 1976, the value of its trading stock at the beginning of the period of account immediately following the period of account the end of which coincides with the end of that accounting period or which is current at the end of that accounting period shall, for all the purposes of the Income Tax Acts and of the enactments relating to corporation profits tax, other than this section, be treated as reduced by the amount of the said deduction.”;

(b) by the insertion after the said section 31 of the following section:

“31A—(1) In this section—

‘accounting period’, in relation to a company, means an accounting period determined in accordance with the provisions of section 9 of the Corporation Tax Act, 1976 , which ends on a date in the period from the 6th day of April, 1975, to the 5th day of April, 1976;

‘trade’ means a trade which is carried on in the State and which during an accounting period consists wholly or mainly of any of the following classes of trading operations—

(a) the manufacture of goods,

(b) the carrying out of construction operations within the meaning of section 17 of the Finance Act, 1970 ,

(c) farming, or

(d) the sale of machinery or plant (excluding vehicles suitable for the conveyance by road of persons) or goods to a person engaged in a trade consisting wholly or mainly of trading operations of a class specified in paragraph (a), (b) or (c) for use for the purposes of that trade;

‘trading income’, in relation to any trade, means the income from the trade computed in accordance with the rules applicable to Case I of Schedule D before any set-off or reduction of income by virtue of section 16 or 18 of the Corporation Tax Act, 1976 , and before any deduction or addition by virtue of section 14 of that Act;

‘trading stock’, in relation to any trade, has the same meaning as in section 62 of the Income Tax Act, 1967 , and in determining the value of a company's trading stock at any time for the purposes of a deduction under this section, to the extent that, at or before that time, any payments on account have been received by the company in respect of any trading stock, the value of that stock shall be reduced accordingly.

(2) Subject to the following provisions of this section, if—

(a) a company which is resident in the State carries on in an accounting period a trade in respect of which it is within the charge to corporation tax under Case I of Schedule D, and

(b) the value of the company's trading stock at the end of the accounting period (in this section referred to as its ‘closing stock value’) exceeds the value of its trading stock at the beginning of the accounting period (in this section referred to as its ‘opening stock value’),

the company shall, in the computation for the purposes of corporation tax of its trading income, be entitled to a deduction under this section by reference to the amount of that excess as if the deduction were a trading expense incurred in the accounting period; and in the following provisions of this section the amount of that excess is referred to as the company's ‘increase in stock value’.

(3) The Fifth Schedule shall have effect for the purpose of supplementing this section.

(4) (a) In any case where a company is entitled to a deduction under this section, that deduction shall be an amount equal to its increase in stock value in an accounting period less 20 per cent. of its trading income for that period:

Provided that—

(i) in no case shall the amount of the deduction as so computed exceed the amount of the company's trading income for that period, and

(ii) the company's trading income to be taken into account in computing a deduction shall be that income before any deduction is made under this section or the Fifth Schedule.

(b) There shall be made such reductions of assessments or repayments of tax as may in any case be required in order to give effect to this section.

(5) A company shall not be entitled to a deduction by virtue of this section in computing its trading income for an accounting period unless it makes a claim for the deduction before—

(a) the date on which the assessment for the accounting period becomes final and conclusive, or

(b) the expiry of the period of six months beginning with the date of the passing of the Finance Act, 1976,

whichever is the later.

(6) (a) Where a company has acquired or disposed of trading stock otherwise than in the normal conduct of the trade in question, the company shall be treated, for the purposes of this section and the Fifth Schedule, as having, at the beginning or end of the relevant period of account, trading stock of such value as appears to the inspector (or, on appeal, to the Appeal Commissioners) to be reasonable and just having regard to all the circumstances of the case.

(b) Where the value of a company's trading stock at the beginning of a period of account is not calculated on the basis used for the calculation of the value of the trading stock at the end of that period, the value of the trading stock at the beginning of that period shall, for the purposes of this section and the Fifth Schedule, be treated as what it would have been if it had been calculated on that basis.

(7) Where a company is entitled by virtue of this section to a deduction for any accounting period the value of its trading stock at the beginning of the period of account immediately following the period of account the end of which coincides with the end of that accounting period or which is current at the end of that accounting period shall for all the purposes of the Tax Acts, other than this section, be treated as reduced by the amount of the said deduction.” and

(c) by the insertion of the following Schedule:

“FIFTH SCHEDULE

INCREASE IN STOCK VALUES: SUPPLEMENTARY PROVISIONS

1. (1) In any case where a company's accounting period does not coincide with a period of account or with two or more consecutive periods of account the company's increase in stock value in the accounting period shall be determined for the purposes of section 31A not in accordance with subsection (2) of that section but by reference to a period (in this Schedule referred to as the reference period) determined in accordance with this paragraph.

(2) In any case where the beginning of a company's accounting period does not coincide with the beginning of a period of account, the reference period shall begin at the beginning of the period of account which is current at the beginning of the company's accounting period.

(3) In any case where the end of a company's accounting period does not coincide with the end of a period of account, the reference period shall end at the end of the period of account which is current at the end of the company's accounting period.

(4) In any case where subparagraph (2) does not apply, the reference period shall begin at the beginning of the company's accounting period and, in any case where subparagraph (3) does not apply, the reference period shall end at the end of the company's accounting period.

2. (1) In any case where paragraph 1 (1) applies, a company's increase in stock value in the accounting period shall be determined for the purposes of section 31A by the formula

A (C−O)

____

N

where—

A is the number of months in the company's accounting period;

C is the value of the company's trading stock at the end of the reference period;

O is the value of the company's trading stock at the beginning of the reference period; and

N is the number of months in the reference period.

(2) In any case where a company's increase in stock value in an accounting period falls to be determined in accordance with subparagraph (1), then, in section 31A and in the following provisions of this Schedule, any reference to the company's closing stock value shall be construed as a reference to the value of the company's trading stock at the end of the reference period.

3. (1) The provisions of this paragraph shall have effect for the purposes of section 31A and the preceding provisions of this Schedule in any case where—

(a) there are two companies one of which is engaged in a trade consisting wholly or mainly of the manufacture of goods (in this paragraph referred to as the transferor company) and the other of which (in this paragraph referred to as the transferee company) acquires those goods as trading stock; and

(b) the acquisition occurs during an accounting period of the transferee company or, if paragraph 1 (1) applies in relation to that company, during a reference period; and

(c) the acquisition referred to in paragraph (a) results in a reduction in the trading stock held by the transferor company and a corresponding increase in the trading stock held by the transferee company; and

(d) the business of the transferee company consists wholly or mainly of the sale of goods manufactured by the transferor company; and

(e) the transferee company is not entitled to a deduction under section 31A otherwise than by virtue of this paragraph.

(2) If a claim for relief under section 31A is made by the transferor company, then that company and the transferee company, if it has the same accounting period as the transferor company, shall be treated as one company for the purpose of determining the aggregate amount of the deductions to which they are entitled under section 31A:

Provided that if paragraph 1 (1) applies in relation to the transferor company, the transferee company shall not be treated as falling within this subparagraph unless paragraph 1 (1) also applies in relation to the transferee company and both the transferee company and the transferor company have the same reference period.

(3) For the purpose specified in subparagraph (2), any reference in section 31A or in the preceding provisions of this Schedule to the value of a company's trading stock at any time or to its trading income for any period shall be construed as a reference to the aggregate of the values of trading stocks at that time or, as the case may be, the aggregate of the trading incomes for that period, of the companies which, for that purpose, are treated as one by virtue of that subparagraph.

(4) Where the aggregate amount of the deductions to which the transferor company and the transferee company are entitled under section 31A has been determined in accordance with subparagraphs (2) and (3), that amount shall be apportioned between them so that the deduction to which one of them is so entitled bears to the deduction to which the other is so entitled the same proportion as the closing stock value of that one of them bears to the closing stock value of the other.

(5) The provisions of this paragraph shall apply only where one of the two companies referred to in subparagraph (1) (a) holds throughout the relevant accounting period or reference period either in its own name or in that of a nominee all of the ordinary shares in the other company referred to in the said subparagraph or where some other company holds throughout the relevant accounting period or reference period either in its own name or in that of a nominee all of the ordinary shares in each of the two companies referred to in the said subparagraph.

(6) For the purposes of computing the aggregate amount of the deductions to which the transferor company and the transferee company treated as one by virtue of subparagraph (2) are entitled under section 31A pursuant to this paragraph and the apportionment of that amount between them, the transferee company shall be regarded as carrying on a trade.

4. (1) A company shall not be entitled to a deduction under section 31A for an accounting period if that accounting period ends by virtue of the company—

(a) ceasing to carry on a trade; or

(b) ceasing to be resident in the State; or

(c) ceasing to be within the charge to corporation tax under Case I of Schedule D.

(2) In any case where a company's increase in stock value in an accounting period falls to be determined in accordance with paragraph 2 (1), subparagraph (1) shall have effect as if the reference therein to the company's accounting period were a reference to any of the accounting periods comprised in the company's reference period.

5. (1) Subject to the following provisions of this paragraph, where a company claims a deduction under section 31A and, immediately before the beginning of an accounting period, the company was not carrying on the trade to which the claim relates, then, unless—

(a) the company acquired the initial trading stock of that trade on a sale or transfer from another person on that person's ceasing to carry on that trade, and

(b) the stock so acquired is, or is included in, the company's trading stock as valued at the beginning of the accounting period,

the company shall be treated for the purposes of section 31A and the preceding provisions of this Schedule as having at the beginning of the accounting period trading stock of such value as appears to the inspector to be reasonable and just.

(2) In determining, for the purposes specified in subparagraph (1), the value of trading stock to be attributed to a company at the beginning of the accounting period, the inspector shall have regard to all the relevant circumstances of the case and, in particular—

(a) to movements during the company's accounting period in the costs of items of a kind comprised in the company's trading stock during that period; and

(b) to changes during that period in the volume of the trade in question carried on by the company.

(3) The Appeal Commissioners dealing with an appeal from the decision of an inspector on a claim in a case where, in accordance with subparagraph (1), the inspector has attributed to a company at the beginning of an accounting period trading stock of a particular value shall, in hearing and determining the appeal, in so far as it relates to the value of the trading stock to be so attributed, determine such value as appears to them to be reasonable and just, having regard to those factors to which the inspector is required to have regard by virtue of subparagraph (2).

(4) In any case where paragraph 1 (1) applies to a company's accounting period, for any reference in subparagraphs (1) to (3) to that accounting period there shall be substituted a reference to the reference period.

6. (1) In this Schedule ‘trade’, ‘trading income’, and ‘trading stock’ have the same meanings, respectively, as in section 31A.

(2) In any case where a company's accounting period or reference period consists of a number of complete months and a fraction of a month, any reference in the preceding provisions of this Schedule to the number of months in the period shall be construed as including that fraction of a month (and in any case where any such period is less than one month any such reference shall be construed as a reference to that fraction of a month of which the period consists).”,

and the said definition of “accounting period”, as so amended by subsection (1) (a) (i), is set out in the Table to this subsection.

TABLE

“accounting period”, in relation to a company, means an accounting period determined in accordance with the provisions of section 54 of the Finance Act, 1920 , which ends on a date in the period from the 6th day of April, 1973, to the 5th day of April, 1976.

(2) A company shall not be entitled to a deduction by virtue of subsection (1) (a) in respect of an assessment unless it makes a claim before—

(a) the date on which the assessment becomes final and conclusive,

or

(b) the expiry of the period of six months beginning with the date of the passing of this Act,

whichever is the later.