79C Exclusion of foreign currency as an asset of certain companies

Summary

This section, which was inserted by section 65 of the Finance Act 2012, provides that gains or losses arising from the disposal of foreign currency held in an Irish bank by certain holding companies will be chargeable to Corporation Tax rather than Capital Gains Tax.

In order that there is no loss to the Exchequer, the amount brought into charge is increased by an amount that will make the tax payable equate to the amount that would have been payable if Capital Gains Tax rather than Corporation Tax applied.

This section will facilitate the development of the holding company regime and applies as respect of accounting periods ending on or after 1 January 2012.

Detail

Definitions

(1) “approved accounting standards” refers to accounts prepared under either Irish generally accepted accounting practice (Irish GAAP) or International Financial Reporting Standards (IFRS).

“net foreign exchange gain” means the excess of foreign exchange gains over foreign exchange losses arising from the disposal of currency in a “relevant bank deposit” by a “relevant holding company”.

It would not include any such gains or losses which are chargeable to Corporation Tax under Case I of Schedule D.

“net foreign exchange loss” means the excess of foreign exchange losses over foreign exchange gains arising from the disposal of currency in a “relevant bank deposit” by a “relevant holding company”.

It would not include any such gains or losses which are chargeable to Corporation Tax under Case I of Schedule D.

“profit and loss account” is given the same meaning as in section 81C (i.e. a profit an loss account has the meaning assigned to it by generally accepted accounting practices and includes an income and expenditure account where a company prepares accounts in accordance with international accounting standards.

“relevant bank deposit” is defined as a sum standing to the credit of a “relevant holding company” in a bank and which is not denominated in the currency of the state.

“relevant holding company” is defined as a company-

1. that has a least one wholly owned subsidiary where that subsidiary derives the greater part of its income from trading activities, or
2. which acquires or establishes, within one year of a net foreign exchange gain being credited to its accounts, a wholly owned subsidiary which derives the greater part of it income from trading activities.

Application

(2) Subsection (2) provides that currency held in a “relevant bank deposit” will not be an asset to which section 532 applies.

The effect of this is to remove the foreign currency deposits of holding companies from the Capital Gains Tax regime.

(3) Subsection (3) is the charging section and provides that the amount to be chargeable as income under Case IV of Schedule D is the amount determined by the formula:

where-

A is the net foreign exchange gain credited to the profit an loss account of the relevant holding company as reduced by so much of any loss under section 383 as is attributable to a net foreign exchange loss and which has not been deducted from any other income.

B is the rate referred to in section 21A(3)(a), being the current rate of Corporation Tax on case IV income.

and

C is the rate referred to in section 28(3), being the current rate of Capital Gains Tax

Example

A = €100

B = 25% (i.e. the current rate of Corporation Tax on Case IV income).

and

C = 33% (i.e. the current rate of Capital Gains Tax).

The amount by which the gain is to be increased to is €132 i.e.

The amount of Corporation Tax chargeable will be €33 (i.e. €132 @ 25%).

The above formula applies in respect of accounting periods ending on or after 1 January 2013.

The formula to be used for accounting periods ending in the period 1 January 2012 to 31 December 2012 is as follows:

where-

A is the net foreign exchange gain credited to the profit and loss account of the relevant holding company as reduced by so much of any loss under section 383 as is attributable to a net foreign exchange loss and which has not been deducted from any other income.

6/5 is used to ensure that the rate applicable will be the Capital Gains Tax rate and not the Corporation Tax rate (i.e. 25%).

Approved accounting standards

(4) The provisions of this section will not apply unless the accounts of the holding company are drawn up in accordance with approved accounting standards.

Allowable losses

(5) Any losses arising from the disposal of currency in a “relevant bank deposit” of a “relevant holding company” which are unused at the date that this section comes into effect may be treated as either-

• an unused loss under the provisions of section 383(5), or
• an unused loss under the provisions of section 546(6)

(6) Losses can be claimed under either section 383(5) or section 546(6) but cannot be claimed under both section 383(5) and section 546(6).

Relevant Date: Finance Act 2021