Revenue Note for Guidance
This Chapter, in recognition of the fact that groups of companies generally comprise a single economic entity, provides in section 411 for a system of relief for trading losses and related matters (for example, excess Case V capital allowances, excess management expenses or excess charges on income) under which the loss, etc of one member of a group (the surrendering company) may be set off against the profits of another member of the group (the claimant company). The relief is also available to a consortium (section 411). Group relief is available in the first instance where the loss arises in a trade within the charge to Irish corporation tax and all companies taken into account to determine whether those companies are members of a group are resident in an EU Member State or an EEA Member State with which Ireland has a tax treaty. In addition, an Irish-resident company may offset against its taxable income the losses of a subsidiary in an EU/EEA Member State, where certain conditions are met.
The Chapter also provides that, where a company resident in an EU Member State or in a country outside the EU which is in the EEA and with which Ireland has a double tax treaty receives from another such company payments from which income tax is deductible and both companies are members of the same group, such payments are to be made without deduction of income tax (section 410).
A number of restrictions apply to the availability of group relief. For instance —
Where a company resident in a relevant Member State (defined in the section to cover both EU Member States and countries outside the EU which are in the European Economic Area and with which Ireland has a double tax treaty) receives from another such company payments from which income tax is deductible, the payments are to be made without deduction of income tax where certain relationships exist between the companies. The requirement to pay without deduction of tax applies where the company making the payment is —
Alternatively, the recipient company may be a 51 per cent subsidiary of the paying company. The section does not apply to payments received by a company on any investments if a profit on the sale of the investments would be treated as a trading receipt of that company. The effect of the section is simply to take the relevant payments outside the machinery for deducting and accounting for income tax on charges. The corporation tax treatment of the payments is not affected. Accordingly, the payments remain deductible as charges on income against the profits of the paying company, and are to be included in the chargeable profits of the recipient company.
(1)(a) “EEA Agreement” is the agreement signed at Oporto on 2 May 1992, which established the European Economic Area.
“EEA State” is a State which is a contracting party to the EEA Agreement, this consists of all EU Member States and Norway, Iceland and Liechtenstein.
“relevant Member State” is a Member State of the EU or a member state of the EEA with which Ireland has a tax treaty (under section 826). Ireland currently has a tax treaty with Iceland and Norway.
“tax” in relation to a relevant Member State other than the State, is any tax which corresponds to Irish corporation tax.
“trading or holding company” is either a trading company or a company whose business consists primarily of the holding of shares in companies which are its 90 per cent subsidiaries.
“trading company” is a company whose business consists primarily of the carrying on of a trade or trades.
(1)(b) For a company to be regarded as owned by a consortium, not less than 75 per cent of its ordinary share capital must be beneficially owned by 5 or fewer companies resident in a relevant Member State none of which beneficially owns less than 5 per cent of that capital.
A company is to be regarded as resident in a relevant Member State if it is resident there for tax purposes under the law of that Member State.
The number of companies to which payment could be made without deduction of tax is not limited to 5 (for example, 10 companies could own the whole of the ordinary share capital of another company (being a trading or holding company), one owing 55 per cent of the shares and 5 per cent being held by each of the other 9. Any 4 of the latter, together with the company owning the 55 per cent, would comprise a consortium for the purposes of the section. In such a case, payments made by the trading or holding company to any of the 10 companies would be made without deduction of tax. If, however, any one of the 9 companies owned less than 5 per cent of the shares, that company could not be included as a member of a consortium.
(2) Payments received by another person on behalf of a company are to be treated as if they were received by the company.
(3) The meaning of “51 per cent subsidiary” is given in section 9. However, for the purposes of the definition as it applies for this section, it is necessary, in determining whether a company is a 51 per cent subsidiary of another company, to disregard any share capital held by that other company —
(4) Where a company resident in a relevant Member State receives from another such company payments from which income tax is deductible, then, if either of the following conditions are satisfied, the payments are to be made without deduction of tax and neither section 238 or 246 (which provide for such deductions) apply to the payments. The conditions referred to are that the company making the payment must be —
Alternatively, the receiving company must be a 51 per cent subsidiary of the paying company.
(5) The payments to which the section applies are those which are charges on income or would be so if they were not deductible in computing profits or if they were not excluded by section 243(7) (which limits the amount of certain interest which is to be treated as a charge on income), and, where the recipient is not resident in the State, the payments are taken into account in computing income subject to tax in such a “relevant Member State”. However, payments received by a company in relation to any investments are excluded if a profit arising on the sale of those investments would be treated as a trading receipt of that company.
(6) Where a company, erroneously or by design, does not deduct income tax from a payment from which it should have made such a deduction, the inspector may make any necessary adjustments to correct the position.
(7) Where an assessment has been made on the paying company to recover income tax which should have been deducted and the tax is unpaid after 3 months, recovery may be enforced against the receiving company.
Relevant Date: Finance Act 2019