Revenue Note for Guidance

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Revenue Note for Guidance

411 Surrender of relief between members of groups and consortia

Summary

This section sets out the general nature of group relief and the conditions under which it is available for trading losses and other amounts such as excess management expenses and charges on income. The loss, etc is surrendered by the company sustaining it and allowed to any other company or companies with which it is associated either as a member of the same group or as a member in a consortium of companies. Two companies are members of the same group if one is a subsidiary of the other or both are subsidiaries of a third company, the parent/subsidiary relationship being determined according to the test of not less than 75 per cent ownership of the ordinary share capital.

Group relief within a consortium is available where the surrendering company is a trading company that is owned by a consortium and is not a 75 per cent subsidiary of any company and the claimant company is a member of the consortium. Similar relief is available where a holding company which owns 90 per cent of the ordinary share capital of the surrendering trading company is interposed between the latter company and the members of the consortium. A company is owned by a consortium if all of the ordinary share capital of the company is owned directly and beneficially by 5 or fewer companies. Two or more claimant companies are permitted to share in the surrendered group (but not consortium) relief in any proportion desired and, in the case of group (including consortium) relief, any deficiency or subvention payment in respect of a loss, etc made by a claimant company to the surrendering company is to be disregarded for corporation tax purposes.

Details

Definitions/interpretation

(1)(a)EEA Agreement” is the agreement signed at Oporto on 2 May 1992, as adjusted by Protocol signed at Brussels 1993, which established the European Economic Area (EEA).

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.

holding company” is a company whose business consists primarily of the holding of shares in companies which are its 90 per cent subsidiaries and are trading companies.

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 Norway and Iceland. This definition is deemed to include the United Kingdom, other than for the purposes of subsection (2A) and section 420C.

“relevant territory” means-

  1. a relevant Member State,
  2. not being such a Member State, a territory with the government of which arrangements having the force of law by virtue of section 826(1) have been made, or
  3. not being a territory referred to in subparagraph (i) or (ii), a territory with the government of which arrangements have been made which on completion of the procedures set out in section 826(1) will have the force of law.

tax” in relation to a relevant Member State other than the State is tax which corresponds to Irish corporation tax.

trading company” is a company whose business consists primarily of the carrying on of a trade or trades.

A company shall be owned by a consortium if 75% or more of the ordinary share capital of the company is directly and beneficially owned by 5 or fewer companies and those companies are then members of the consortium.

Two companies are members of a group of companies if one company is a 75 per cent subsidiary (within the meaning of section 9) of the other company or both of those companies are 75 per cent subsidiaries of a third company.

Example

The shareholdings of a number of companies are as follows —

S Ltd is in group relationship with F, G and I Ltd as there is a 75% shareholding link between the companies, namely,

F Ltd owns

90


×90%

100

of S Ltd

=

81%

F Ltd owns

60


×60%

100

of I Ltd

=

78%

F Ltd owns

40


×40%

100

of I Ltd

F Ltd owns 90% of G Ltd

B Ltd however is not in a group relationship with F Ltd as the indirect shareholding of the latter is less than 75%, that is —

90

90


×


×90%

= 72.9%

100

100

(1)(b) In applying the 75 per cent subsidiary test (section 9), share capital of a registered industrial and provident society is to be treated as ordinary share capital.

(1) The group relief provisions apply only to relevant territory resident companies and only as respects activities, which are within the charge to Irish tax. For accounting periods ending after 1 January 2013, in determining whether one company is a 75 per cent subsidiary of a second company, the second company is to be treated as not being the owner of —

  • any share capital directly held by it on its trading account,
  • any share capital indirectly held and which is owned directly by a company on its trading account, and
  • any share capital held directly or indirectly in a company which is not resident in an relevant territory.

Furthermore, the first mentioned company, referred to above, shall not be treated as a 75% subsidiary of the second company unless that second company is resident in a relevant territory or is listed on a recognised stock exchange.

Group relief

(2) Trading losses and other amounts such as excess management expenses and charges on income on which relief may be given for corporation tax may be surrendered by a company which is a member of a group of companies and the relief given to another company in the same group. This is termed “group relief”. Group relief is also available in respect of trading losses and other amounts that are not subject to corporation tax (i.e. losses incurred outside the State).

(2A) Group relief in respect of losses incurred outside the State is only available “vertically upwards”, i.e. from i.e. from a surrendering company that is in an EEA country (other than Ireland) and is a 75% subsidiary of a claimant that is resident in Ireland. [See notes on section 420C.]

Consortium relief

(3) Group relief is also available where the claimant company is a member of a consortium and —

  • the surrendering company (being a trading company) is owned by the consortium and is not a 75 per cent subsidiary of any other company,
  • the surrendering company (being a trading company) —
    • is a 90 per cent subsidiary of a holding company owned by the consortium, and
    • is not a 75 per cent subsidiary of a company other than the holding company, or
  • the surrendering company is a holding company owned by the consortium and is not a 75 per cent subsidiary of any other company.

This form of group relief is often referred to as “consortium relief”.

A claim by a consortium member is precluded if a profit on a sale of shares of the surrendering or holding company which that member owns would be treated as a trading receipt of that member. A claim is also precluded if the claimant’s share in the consortium in the relevant accounting period of the surrendering or holding company is nil.

Ownership of a company by a consortium is ownership of 75 per cent of the ordinary share capital of the company by 5 or fewer Irish resident companies.

Example 1

A consortium of 4 companies owns E Ltd, a trading company with issued shares of 1,000 €1 shares as follows —

A Ltd holds

300

shares

B Ltd holds

300

shares

C Ltd holds

200

shares

D Ltd holds

200

shares

1,000

If E Ltd incurs a trading loss of €10,000 it can “surrender” an appropriate share of the loss to all or any of the claimants A, B, C, D Ltd namely —

300


× 10,000

= 3,000

A could obtain relief on loss

1,000

Example 2

If a holding company is interposed between the consortium members and the trading company, a loss may also be surrendered, namely, A, B, C and D Ltd own all the shares of F Ltd, a holding company which owns 90 per cent of the shares of E Ltd a trading company. E Ltd may surrender a trading loss incurred by it to A, B, C and D Ltd in the shares determined by their holdings in F Ltd. For example, the issued shares of F Ltd are 1,000 €1 shares of which —

A Ltd holds

400

B Ltd holds

200

C Ltd holds

300

D Ltd holds

100

1,000

400

A Ltd could claim


1,000

of a trading loss of €10,000 incurred by E Ltd (that is, €4,000).

In this example F Ltd the holding company could also surrender to the consortium members (in the shares appropriate to each) any unrelieved management expenses due to it.

Example 3

If however the shareholdings in the holding company F Ltd are —

A Ltd

850

B Ltd

50

C Ltd

50

D Ltd

50

1,000

then, the trading company E Ltd is a 75 per cent subsidiary of A Ltd by reference to the latter’s indirect holding, namely, 85/100 x 90% = 76.5%. In such circumstances consortium relief is not available to A, B, C and D Ltd. E Ltd is in fact in a group relationship with A Ltd (and F Ltd) and may surrender a trading loss to those companies only under the group relief provisions.

Sharing of group relief

(4) Two or more claimant companies may share in the surrendered group relief in any proportion desired. (In the case of consortium relief, the fraction which each claimant can claim is determined by reference to the member company’s share in the consortium).

Payment for group relief

Any deficiency or subvention payment made by the claimant company to the surrendering company in consideration for the surrender of relief is to be ignored for corporation tax purposes.

Relevant Date: Finance Act 2020