835AY Interpretation (Part 35D)

Summary

This section is the interpretation section for the Part. Many of the definitions introduced are new concepts while others are defined by reference to provisions in the Taxes Acts.

Details

Definitions

(1) “allowable amount” is defined below in subsection (2)

“alternative body of accounting standards” means standards that accounts of companies must comply with in the following countries: Australia, Canada, Hong Kong, Japan, New Zealand, the Republic of Korea, Singapore, the United States of America, the Republic of India and the People’s Republic of China;

“associated enterprise” other than in Chapter 3, is an enterprise that is associated as defined in section 835AA subsections (2) and (4) but does not include enterprises that are associated solely as a result of paragraphs (e), (f or (g) of subsection (2).

“CGT rate” is the rate of Capital Gains Tax specified in section 28(3), the rate applicable to disposals of development land in section 649(1)(b) or the rate in section 747A(4) applicable to disposals of interests in offshore funds, as applicable.

“consolidating entity” means an entity which is included in the ultimate consolidated financial statements, other than a non-consolidating entity.

“de minimis amount” in respect of an accounting period means €3,000,000 or where the accounting period is less than 12 months an amount adjusted in proportion to the length of the accounting period.

“deductible interest equivalent” means the amount of interest equivalent that is deductible in calculating the relevant profit or loss of a relevant entity.

“deemed borrowing cost” is defined in section 835AAD(1).

“Directive (EU) 2016/1164” means Council Directive (EU) 2016/1164 of 12 July 2016 laying down rules against tax avoidance practices that directly affect the functioning of the internal market, as amended by Directive (EU) 2017/952 of 29 May 2017.

“disallowable amount” means the amount by which the exceeding borrowing costs is greater than the allowable amount and represents the amount of interest equivalent to which the interest restriction applies.

“EBITDA” means an amount calculated under section 835AAB(5).

“EBITDA limit” is 30% or where an election is made, the group ratio (see section 835AAH).

“enterprise” has the meaning assigned to it in Part 35C.

“entity” has the meaning assigned to it in Part 35C.

“exceeding borrowing costs” has the meaning assigned to it in section 835AAB(4).

“finance cost element of non-finance lease payments” is the fraction of the deductible operating lease payment that is obtained by dividing the difference between the total expected cost of the lease and the right of use asset recognised in the accounts of the lessee (or would be so recognised if accounts were prepared under international accounting standards), by the total expected cost of the lease. Where the terms of the lease are amended during the life of the lease, the amounts used in the fraction must be calculated as if a new lease was entered into at the date of the amendment.

“finance element of finance lease payments” is the fraction of the deductible or taxable finance lease payment or receipt obtained by dividing the total finance cost or finance income of the lease recognised in the accounts over the life of the lease by the total expected cost or income of the lease. Where the terms of the lease are amended during the life of the lease, the amounts used in the fraction must be calculated as if a new lease was entered into at the date of the amendment.

“finance income element of non-finance lease payments” is the fraction of the taxable operating lease payment obtained by dividing the difference between

• the total expected income of the lease, and
• the value of the leased asset recognised in the accounts on the date the lease was entered into less the expected depreciated value of the leased asset at the end of the lease,

by the total expected income of the lease. Where the terms of the lease have been amended during the life of the lease, the amounts used in the fraction must be calculated as if a new lease was entered into at the date of the amendment.

“finance lease” is a lease which is treated as a finance lease in accordance with international accounting standards or Irish generally accepted accounting practice.

“interest equivalent” means interest and amounts which are economically equivalent to interest, including:

• discounts on securities issued at a discount,
• the finance element of finance leases,
• the finance income and finance cost element of non-finance lease payments in relation to lessors that carry on a trade of leasing as defined in section 403,
• amounts under derivative instruments or hedging arrangements directly connected with the raising of finance,
• profits and losses on financial assets or liabilities the return on which principally comprises interest or interest equivalent, to the extent that it would be reasonable to consider that such amounts are economically equivalent to interest,
• amounts referred to above that are claimed under section 420(6),
• amounts directly connected with the raising of finance such as guarantee, arrangement and commitment fees, and
• foreign exchange gains and losses on interest or amounts economically equivalent to interest.

Interest equivalent also includes amounts arising from an arrangement which could reasonably be considered to be economically equivalent to interest when the arrangement is considered in the whole.

“interest group” has the meaning assigned to it in section 835AAK(1).

“interest spare capacity” has the meaning assigned to it in section 835AAB(4).

“large scale asset” means an asset with a minimum expected life span of 10 years that is:

1. a development within the meaning of the Seventh Schedule of the Planning and Development Act 2000, as amended, where such a development has been approved by An Bord Pleanâla under section 37G on foot of an application made pursuant to section 37A (2)(a) or (b) of that Act, or a Local Authority under section 170 of that Act (this includes certain energy, transport, environmental and health care infrastructure);
2. a development within the meaning of section 182A of the Planning and Development Act 2000, as amended, where such a development has been approved by An Bord Pleanâla under section 182B of that Act (this includes electricity transmission lines);
3. a development within the meaning of section 182C of the Planning and Development Act 2000, as amended, where such a development has been approved by An Bord Pleanâla under section 182D of that Act (this includes strategic gas infrastructure);
4. railway works within the meaning of Transport (Railway Infrastructure) Act 2001, as amended, for which an order has been granted under section 43 of that Act;
5. a scheme within the meaning of the Roads Act 1993, as amended, which has been approved under section 49 of that Act;
6. a strategic housing development within the meaning of section 3 of the Planning and Development (Housing) and Residential Tenancies Act, 2016, as amended, which has been approved by An Bord Pleanâla under section 9 of that Act or a Local Authority under section 170 of the Planning and Development Act 2000;
7. an asset (within the meaning of the State Authorities (Public Private Partnership Arrangements) Act 2002) constructed pursuant to a public private partnership arrangement (within the meaning of that Act);
8. an installation generating energy from renewable sources (within the meaning of the European Union (Renewable Energy) Regulations (S I. No. 365 of 2020), which is regulated, either solely or jointly with another party, by the Commission for the Regulation of Utilities; or
9. an asset specified by the Minister for Finance in regulations made under section 835AAA(1).

“limitation spare capacity” is the amount by which exceeding borrowing costs is less than the allowable amount.

“long-term infrastructure project” is a project to provide, upgrade, operate or maintain a large-scale asset.

“non-consolidating entity” means an entity that is valued using fair value accounting in ultimate consolidated financial statements, or on the basis that it is held for sale or distribution, or on an equivalent basis under an alternative body of accounting standards.

“non-finance element of finance lease payments” means the deductible, or taxable, finance lease payments in the accounting period which does not relate to the finance element of the finance lease payments as defined above.

“P rate” is the rate of corporation tax specified in section 21A(3)(a).

“payment for relief” means a payment made by one member of an interest group to another member of an interest group, pursuant to an agreement for the allocation of disallowable amount or total spare capacity. The payment for relief must not exceed the tax value of the relief being paid for.

“qualifying long-term infrastructure project” means a long-term infrastructure project where the project operator is established and tax resident in a Member State, the large scale asset concerned is in a Member State, and the income and the deductible interest equivalent costs from which arise in a Member State.

“ relevant entity” is either a company or an interest group, as defined.

“relevant loss” has the meaning assigned to it in section 835AZ(7).

“relevant profit” has the meaning assigned to it in section 835AZ(1).

“reporting company” has the meaning assigned to it in section 835AAM(1).

“single company worldwide group” means a company that is not a member of a worldwide group, is not a member of an interest group or is not a standalone entity.

“specified return date for the accounting period” has the same meaning as in Part 41A.

“standalone entity” means a company resident in Ireland, that is not a member of a worldwide group, has no associated enterprises and does not have a permanent establishment in a territory other than Ireland.

“T rate” is the rate of corporation tax specified in section 21(1)(f).

“taxable interest equivalent” is the amount interest equivalent income, profits or gains included in the calculation of the relevant profit or loss of a relevant entity and includes an amount previously treated as deductible interest equivalent which is subsequently reversed.

“total spare capacity” is the total of the interest spare capacity and limitation spare capacity.

“ultimate consolidated financial statements” means the consolidated financial statements prepared by the ultimate parent in accordance with international accounting standards or Irish generally accepted accounting practice or an alternative body of accounting standards.

“ultimate parent” means an entity that prepares consolidated financial statements in accordance with international accounting standards or Irish generally accepted accounting practice or an alternative body of accounting standards and whose results are not fully included in any other consolidated financial statements prepared under such a practice or standard.

“worldwide group” means the ultimate parent and all consolidating entities in the ultimate consolidated financial statements and a member of this group is a ‘member of a worldwide group’.

(2) “allowable amount” is the amount calculated by multiplying EBITDA by the EBITDA limit and represents the amount of interest which may be deducted in an accounting period without limitation.

(3) Provides that any words or expressions used in this Part, which are also used in Directive (EU) 2016/1164, will have the same meaning unless the context otherwise requires.

Relevant Date: Finance Act 2021