Tax free securities: exclusion of interest on borrowed money

Summary

This section prevents relief from tax being given in respect of interest on money borrowed for the purposes of a business carried on in the State by a non-resident bank, insurance company or company dealing in securities and used for the purchase of the exempt Government and certain other securities referred to in section 845. Such interest is not dealt with in section 845(4) and is therefore dealt with as a separate matter by this section which provides detailed rules for its exclusion, in computing for corporation tax purposes, the Irish branch profits of such a company.

Details

(1) The section applies where section 845(4) applies. It is therefore to have effect where a non-resident bank, insurance company or company dealing in securities carries on business in the State through a branch or agency and holds tax free securities, as defined in section 845(2), for the purposes of the business of the branch or agency.

(2) Interest on money borrowed for the purposes of the business up to the amount determined under the section (“the amount ineligible for relief”) is to be excluded in computing the profits or loss of the business (which includes in the case of an overseas life assurance company the annuity business or the pension business), and is to be excluded in arriving at the amount to be taken into account for the purposes of section 243 (relief for charges on income).

(3) In determining the amount ineligible for relief account is to be taken of all money borrowed for the purposes of the business which is outstanding in the accounting period, up to the total cost of the tax-free securities held for the purposes of the business in the accounting period. Interest which, apart from subsection (2), is not allowable or is not treated as a charge on income is to be disregarded. An example is interest charged to capital.

(4) The interest ineligible for relief is to be one year’s interest on the amount borrowed and taken into account under subsection (3) at the average rate of interest in respect of the whole of the money borrowed for the purposes of the business in the accounting period. Where, however, the accounting period is less than 12 months interest is to be calculated for that shorter period instead of for a year.

(5) The cost of a holding of tax free securities where the holding has fluctuated during the accounting period, for the purposes of the section, is to be the average cost of acquisition of the initial holding, and of any subsequent additions during the accounting period, applied to the average amount of the holding in the accounting period. This rule is to be applied separately to securities of different classes.

Relevant Date: Finance Act 2021