Revenue Note for Guidance

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Revenue Note for Guidance

Non-application of section 130 in the case of certain interest paid by banks

Summary

This section allows interest paid by banks to their foreign parents and other associated companies (which would under normal corporation tax rules be treated as a distribution by virtue of section 130(2)(d)(iv)) not to be so treated, provided certain conditions are met. The effect of not treating interest paid in these circumstances as a distribution is that the bank paying the interest is entitled to a tax deduction which it might not otherwise be entitled to.

Details

Definition

(1) The definition of “bank” is more restrictive than in certain other provisions of the Taxes Consolidation Act, 1997 as this section is intended to have a limited scope.

Qualifying interest

The type of interest which qualifies for the tax treatment is identified as interest which —

  • (2)(a) is a distribution by virtue only of the rule in section 130(2)(d)(iv);
  • (2)(b) is payable by a bank carrying on a genuine banking business in the State and, if the rule in section 130(2)(d)(iv) did not exist, would be deductible as a trading expense in computing the profits of the bank from its banking business; and
  • (2)(c) represents no more than a reasonable commercial return for the money loaned.

Tax treatment

(3) Where a bank proves that interest payable by it meets the above criteria and the bank elects not to have the interest treated as a distribution under the rule in section 130(2)(d)(iv) then the interest concerned is not to be so treated.

Elections

(4) The election must be included in the bank’s tax return for the period in which the interest is paid.

Relevant Date: Finance Act 2017