Revenue Tax Briefing Issue 31, April 1998
Section 48 amends the provisions in relation to group relief for companies, in the main to comply with a ruling of the European Court of Justice on foreign losses. The ruling was that the UK model of group relief (which the Irish model broadly matched) contravened EU law where a parent company resident in the UK was precluded from getting relief for the losses of a subsidiary company resident elsewhere in the EU, in circumstances where the subsidiary’s losses could not otherwise be relieved.
This section gives relief to Irish companies in respect of trading losses incurred by their non-Irish subsidiary companies that are resident in EU Member States and EEA states with which Ireland has a double tax treaty. The losses will be available for relief “vertically upwards” from the non-resident subsidiary to the Irish-resident parent but will only be available when certain conditions - for example, in relation to the way the loss is computed and the type of loss involved - are met. Losses that are available for offset against profits in another territory, or that can be used at any time by setting them against any company’s profits in the country where the loss is incurred, are not covered by the new rule.
Where the new rule is applicable, it will allow an Irish-resident parent company to offset against its taxable income the losses of an EU/EEA resident subsidiary. The legislation includes an anti-avoidance provision to disallow losses where arrangements are entered into primarily to secure an amount that would qualify for the new group relief.