4 Interpretation of Corporation Tax Acts

Summary

This section gives the meaning of certain terms and sets out the rules for the construction of certain references used in the Corporation Tax Acts. The various definitions and rules of construction apply unless the context requires otherwise.

Details

Definitions

(1) Certain of the terms mentioned in the section are, in fact, defined elsewhere in the Corporation Tax Acts and are listed in this section so as to give them general application throughout the Corporation Tax Acts. The provisions where these definitions are found are —

section 156 – franked investment income and franked payment;

section 243(1) – charges on income;

section 411 – group relief;

sections 430 and 431 – close company;

Chapter 2 of Part 6 and sections 436, 437 and 816(2)(b) – distribution.

The definitions of “accounting date”, “period of account”, “branch or agency”, “the financial year”, “interest”, “preference dividend” and “profits” are self-explanatory.

For the purposes of corporation tax on chargeable gains —

• “chargeable gain” has the same meaning as in the Capital Gains Tax Acts (this meaning is found in section 545). Excluded, however, are gains accruing to a company on disposals made before 6 April, 1976; and
• “allowable loss” does not include a loss accruing on a disposal of an asset if a gain from the disposal (had such arisen) would have been exempt from corporation tax.

The section defines “company” in very broad terms as meaning any body corporate including a trustee savings bank, and then excludes from its scope —

• the Health Service Executive,
• European Economic Interest Groupings as defined in section 1014,
• education and training boards,
• committees of agriculture, and
• local authorities (as defined in section 2(2) of the Local Government Act, 1941), including bodies established under the Local Government Services (Corporate Bodies) Act, 1971.

In regard to the definition of “local authority”, it should be noted that, by virtue of section 3(2) of, and Schedule 2 to, the Local Government Act 2001, references in any other enactment to “local authority for the purposes of the Local Government Act, 1941”, and to similar or analogous expressions, are now to be construed as references to “a county council, city council and town council, and where the context so requires includes a joint body” within the meaning respectively assigned to each of those terms in the Local Government Act 2001.

The section defines the following terms which are used in section 76A dealing with the computation of profits or gains of a company.

“generally accepted accounting practice” is defined as being either International Accounting Standards (IAS) or Irish generally accepted accounting practice (Irish GAAP). The concept of generally accepted accounting practice is used in section 76A. IAS and Irish GAAP are separately defined.

“International Accounting Standards” (IAS) are defined as international accounting standards within the meaning of Regulation (EC) No. 1606/2002 of the European Parliament and the Council of 19 July 2002 on the application of international accounting standards.

“Irish generally accepted accounting practice” means generally accepted accounting practice with respect to accounts, that are not prepared in accordance with International Accounting Standards, of Irish incorporated companies and which are intended to give a true and fair view.

The section defines the terms “SE” and “SCE”. These terms are used for the purposes of implementing Council Directive 2005/19/EC, which amended the 1990 Merger Directive (90/434/EEC):

• An “SE” is a European public limited liability company (Societas Europaea or SE) as provided for by Council Regulation (EC) No. 2157/2001 of 8 October 2001. The Regulation, which has direct effect, provides for a new type of company that can operate across borders and that must be registered and have its head office in an EU Member State. Such a company can move its registered office from one Member State to another. The Regulation provides for the formation and regulation of an SE. In certain cases, an SE can be formed by the merger of existing companies.
• An “SCE” is a European Cooperative Society as provided for by Council Regulation (EC) No. 1435/2003 of 22 July 2003. The Regulation, which has direct effect, provides for a new type of legal entity that can operate across borders. In many ways it is similar to an SE. The Regulation provides for the formation and regulation of an SCE. In certain case an SCE can be formed by a merger of existing entities.

The definition of “standard credit rate” provides a percentage which is used in calculating the credit to be allowed under section 143(7) against the income of an individual which is chargeable at the higher rate of income tax and is represented by distributions made by a company out of tax relieved income of coal, gypsum and anhydrite mining operations. It is —

• for the year of assessment 1997–98 —
  • 21 per cent as respects distributions made before 3 December, 1997, and
  • 11 per cent as respects distributions made on or after that date,
• for the year of assessment 1998–99 11 per cent.

No figure is given for further years of assessment as tax credits on distributions were abolished from 6 April, 1999.

The definition of “standard credit rate per cent” provides a figure, namely 21 or 11 as appropriate, which is used in various formulae to calculate the tax credit attaching to distributions (see section 136 – tax credit for certain recipients of distributions; section 143 – distributions out of profits from coal, gypsum and anhydrite mining operations; and section 145 – distributions out of profits from export of certain goods). It is also used in the formula in section 139 to determine the amount of “gross dividends” and in the formula in section 729(5) to restrict the set-off of tax credits against certain corporation tax payable by overseas life assurance companies.

The definition of “standard rate per cent” provides a figure, currently 20, which is based on the standard rate of income tax and which is used in section 725(2) to calculate the additional corporation tax liability of life assurance companies which arises where a policy of life assurance ceases to be a special investment policy, in section 738(2) to determine the corporation tax liability of collective investment undertakings, and in section 739(2) to calculate the increase in income attributable to a payment to a unit holder in an undertaking for collective investment for the purposes of set off against the corporation tax liability of the unit holder.

As in the Income Tax Acts “trade” is not defined in any detail, but is expressed to include a vocation, office or employment. Thus, it is necessary to refer to the extensive body of case law so as to obtain a full picture on what is or is not a trade. Some assistance in the matter is given in the U.K. report of the Royal Commission on the Taxation of Profits and Income which identified a number of “badges of trade” – that is, factors which should be taken into consideration when deciding whether or not a particular activity constitutes trading.

Construction

(2) Words and expressions used in the Corporation Tax Acts have the same meaning as they have in the Income Tax Acts. However, words and expressions which are specifically defined in the Corporation Tax Acts do not affect the meaning of the same words and expressions in the Income Tax Acts even where the Income Tax Acts apply for the purposes of corporation tax. This applies unless the corporation tax provision expressly states that the meaning is to apply also for the purposes of the Income Tax Acts.

(3) References to distributions or payments received by a company apply to those received by another person on behalf of the company, but not to those received by the company on behalf of another person.

(4) References to “profits brought into charge to corporation tax” are to be taken as references to the gross amount of profits chargeable to corporation tax before any deduction for charges, management expenses, group relief, etc. References to “total income brought into charge to corporation tax” are to be taken as references to the total of all income (that is, trading profits, investment income, etc) from all sources included in the amount of gross profits brought into charge to corporation tax without any deduction for charges, management expenses or group relief, etc. Finally, references to “an amount of profits on which corporation tax falls finally to be borne” is to be taken as the net amount of profits after making all the deductions which reduce those profits.

(5) Dividends are to be treated as paid on the date they become due and payable.

(6) Apportionments to different periods are to be made on a time basis in accordance with the respective lengths of the periods.

(7) Where the European Commission adopt an IAS subject to some modification, generally accepted accounting practice under IAS can be regarded as allowing the use of the IAS standard with or without that modification, and accounts prepared on either basis will be regarded as according with IAS.

Relevant Date: Finance Act 2021