438A Extension of section 438 to loans by companies controlled by close companies

Summary

This section brings within the scope of the close company charge to tax on loans to participators a case where the close company does not itself make the loan but sets up or acquires a subsidiary to make the loan to the participators in the parent close company. This provision applies regardless of the residence status of the various companies making the loans.

Details

(1) A “relevant arrangement” is defined as an arrangement, the main purpose, or one of the main purposes, of which is to avoid or reduce a charge under section 438.

(2) Brought within the ambit of section 438 is a loan made by a company to participators in the Irish close company where the Irish close company controls (sections 432 gives the meaning of “controls”) the company making the loan.

(3) The application of section 438 is also extended in circumstances where the loan is made to the participators in the Irish close company before the company making the loan is acquired by the Irish close company.

(3A) The application of section 438 is further extended in circumstances where a loan is made to a participator, or an associate of a participator, as a result of a relevant arrangement entered into on or after 18 October 2018.

(4) The above provisions are applied also to a case where two or more close companies acquired or set up the company which makes the loan to the participators. In such a case each close company is treated as controlling the lending company and making a loan on the appropriate portion of the loan made by the lending company.

(5) These provisions do not apply where it is shown that no persons has made any arrangements which results in a connection —

• between the making of the loan and the acquisition of control, or
• between the making of the loan and the provision by the close company of funds for the company making the loan.

In this regard, the close company provides funds if it directly or indirectly makes any payment to, transfers any property to, releases or satisfies (in whole or in part) a liability of, the company which makes the loan. The intention here is to limit the application of these provisions to cases where a loan by the controlled company is clearly related to an application of the controlling company’s own funds.

(6) Provision is made for determining the answers to a number of questions raised by the provisions of section 438 which have to be asked of the company which “makes the loan” which is the target of the taxing provisions of section 438. Accordingly, it is made clear that for the purposes of providing answers to these questions the company which “made the loan” is the company which —

• actually made the loan or advance to the participators, or
• on the incurring or assigning of a debt, is regarded as having made a loan.

(7) The provisions of section 438(2) are extended to companies which are not close companies. For example, where a debt is assigned to a non-resident company controlled by an Irish close company, the debt is first treated by section 438(2) as adapted by this subsection as a loan made by the non-resident company. The loan so treated may then be treated by subsection (1) as a loan made by the Irish close company.

(8) The provisions of the section are to be construed as one with section 438.

Relevant Date: Finance Act 2021