403 Restriction on use of capital allowances for certain leased assets.

[FA84 s40(1) to (10); FA86s53; FA87 s26; FA90 s41(5)(a) and (c); FA94 s61(1)]

(1) (a) In this section—

“chargeable period or its basis period” has the same meaning as in section 321(2);

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“lease adjacent activities”, in relation to a company, means the activities referred to in clauses (II) to (V) of paragraph (d)(ii),

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“lessee” and “lessor”, in relation to machinery or plant provided for leasing, mean respectively the person to whom the machinery or plant is or is to be leased and the person providing the machinery or plant for leasing, and “lessee” and “lessor” include respectively the successors in title of a lessee or a lessor;

“the relevant period” has the meaning assigned to it by subsection (9)(b);

“the specified capital allowances” means capital allowances in respect of—

(i) expenditure incurred on machinery or plant provided on or after the 25th day of January, 1984, for leasing in the course of a trade of leasing, or

(ii) the diminished value of such machinery or plant by reason of wear and tear,

other than capital allowances in respect of machinery or plant to which subsection (6), (7), (8) or (9) applies;

“trade of leasing” means—

(i) a trade which consists wholly of the leasing of machinery or plant, or

(ii) any part of a trade treated as a separate trade by virtue of subsection (2).

(b) For the purposes of this section—

(i) letting on charter a ship or aircraft which has been provided for such letting, and

(ii) letting any item of machinery or plant on hire,

shall be regarded as leasing of machinery or plant if apart from this paragraph it would not be so regarded.

(c) Where a company carries on a trade of operating ships in the course of which a ship is let on charter, paragraph (b) shall not apply so as to treat the letting on charter as the leasing of machinery or plant if apart from this section the letting would be regarded for the purposes of Case I of Schedule D as part of the activities of the trade.

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(d) For the purposes of this section, where, in relation to a company which carries on a business—

(i) the activities—

(I) of the company,

(II) of the company and all companies of which it is a 75 per cent subsidiary (within the meaning of section 9) and all companies which are its 75 per cent subsidiaries (within the same meaning), ^[14]>or^<[14]

(III) of the company and all companies (being companies which, by virtue of the law of the territory in which the company is resident for the purposes of tax, are so resident in that territory; and for this purpose, “tax”, in relation to such a territory, means any tax imposed in the territory which corresponds to corporation tax in the State) of which it is a 75 per cent subsidiary (within the meaning of section 9) or which are its 75 per cent subsidiaries ^[15]>(within the same meaning)^<[15][15]>(within the same meaning), or^<[15],

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(IV) of the company and all companies that are members of the same group of companies construed in accordance with section 411(1),

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consist wholly or mainly of the leasing of machinery or plant, and

(ii) not less than 90 per cent of the activities of the company consist of one or more of the following:

(I) the leasing of machinery or plant;

(II) the provision of finance and guarantees to fund the purchase of machinery or plant of a type which is similar to the type of machinery or plant leased by the companies referred to in subparagraph (i);

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(IIA) the provision of finance to a member of the leasing business group (in this clause referred to as ‘the intermediate financing company’) that carries on the activity referred to in clause (II), subject to the following requirements:

(A)the provision of finance and guarantees by the intermediate financing company is to a member of the leasing business group who carries on activities referred to in clause (I) (in this clause referred to as ‘the borrower company’);

(B)the moneys provided by the intermediate financing company are moneys which it has borrowed from persons who are not connected with any member of the leasing business group;

(C)the moneys so provided as referred to in subclause (B) are repaid by the borrower company on the disposal of the machinery or plant.

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(III) the provision of leasing expertise in connection with machinery or plant of a type which is similar to the type of machinery or plant leased by the companies referred to in subparagraph (i);

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(IV) the disposal of machinery or plant acquired by the company in the course of its leasing trade;

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(IV) the disposal of machinery or plant acquired by the company for the purpose of carrying on the activity referred to in clause (I);

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(IVA) the disposal of the right to acquire machinery or plant (or an interest therein) of a type which is similar to the type of machinery or plant leased by the leasing business group where, at the time that the contract giving rise to the right to acquire the machinery or plant was entered into it was intended that the machinery or plant would be—

(A)acquired by the leasing business group, and

(B)used by the leasing business group for the activity referred to in clause (I);

(IVB) the disposal by a company of any part of an item of plant or machinery, not including the creation of an interest or a right in or over the plant or machinery, where that plant or machinery was in use by that company for the activity referred to in clause (I);

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(V) activities which are ancillary to the activities referred to in ^[20]>clauses (I) to (IV)^<[20][20]>clauses (I) to (IVB)^<[20]:

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then, subject to section 80A(2)(c), income from the company’s trade of leasing shall be treated as including—

(A) income from the activities referred to in subparagraph (ii), and

(B) chargeable gains on the disposal of machinery or plant acquired by the company in the course of its leasing trade; and for this purpose the amount of such a gain shall be computed without regard to any adjustment made under section 556(2).

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then, subject to section 80A(2)(c), income from the company’s trade of leasing shall be treated as including—

(A) income from the activities referred to in subparagraph (ii), and

(B) chargeable gains on the disposal of machinery or plant acquired by the company in the course of its leasing trade; and for this purpose the amount of such a gain shall be computed without regard to any adjustment made under section 556(2).

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then, subject to paragraph (c) and section 80A(2)(c), the activities referred to in clause (I) and the lease adjacent activities carried on by such a company shall, for the purposes of this section, be regarded as the leasing business of that company, and references in this section to profits of the leasing business shall be construed as references to the profits arising directly from these activities.

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(e) For the purposes of this section, where a company carries on a leasing business, that company shall form a leasing business group with those companies that are relevant to determining its status as a company carrying on a leasing business under paragraph (d).

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(2) Where in any chargeable period or its basis period a person carries on as part of a trade any leasing of machinery or plant, that leasing shall be treated for the purposes of the Tax Acts, other than any provision of those Acts relating to the commencement or cessation of a trade, as a separate trade distinct from all other activities carried on by such person as part of the trade, and any necessary apportionment shall be made of receipts or expenses.

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(2A) Where the person carrying on the trade of leasing is a company, any lease adjacent activities carried on by that company which would, but for subsection (2), be part of the same trade as the leasing of machinery or plant, shall, for the purposes of subsection (2), be treated as part of the separate trade of leasing.

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(3) (a) Notwithstanding section 381, where relief is claimed under that section in respect of a loss sustained in a trade of leasing, the amount of that loss, in so far as by virtue of section 392 it is referable to the specified capital allowances, shall be treated for the purposes of subsections (1) and (3)(b) of section 381 as reducing profits or gains of that trade of leasing only and shall not be treated as reducing any other income.

(b) Where paragraph (a) applies in the case of any claimant to relief under section 381—

(i) any limitation imposed by section 393 on the amount of capital allowances which may be taken into account under section 392 shall be referred, as far as may be, to the specified capital allowances rather than to any other capital allowances, and

(ii) notwithstanding section 392(2) (but without prejudice to paragraph (a) and to the order in which income is to be treated as reduced under section 381(3)(b)), the claimant may specify the extent to which any reduction of income treated as occurring by virtue of section 381 is to be referred to so much of the loss as is attributable to the loss, if any, actually sustained in the trade of leasing, the specified capital allowances or any other capital allowances, and, where the claimant so specifies, section 394 shall apply in accordance with the claimant’s specification and not in accordance with section 392(2).

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(4) (a) Where in an accounting period a company carrying on a trade of leasing incurs a loss in that trade and any specified capital allowances have been treated by virtue of section 307 or 308 as trading expenses in arriving at the amount of the loss, the relevant amount of the loss shall not be available—

(i) for relief under section 396(2), except to the extent that it can be set off under that section against the company’s income from the trade of leasing only, or

(ii) to be surrendered by means of ^[6]>group relief^<[6][6]>group relief except to the extent that it could be set off under section 420A against income of a trade of leasing carried on by the claimant company if paragraph (b) of the definition of relevant trading loss in section 420A were deleted^<[6].

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(4) (a) A company shall have incurred a relevant leasing loss where—

(i) the company is carrying on a trade of leasing and incurs a loss in that trade, and

(ii) any specified capital allowances have been treated by virtue of section 307 or 308 as trading expenses in arriving at the amount of the loss.

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(b) ^[25]>For the purposes of paragraph (a)^<[25][25]>For the purposes of paragraph (c)^<[25], the relevant amount of the loss shall be the full amount of the loss or, if it is less, an amount equal to—

(i) where no capital allowances, other than the specified capital allowances, have been treated by virtue of section 307 or 308 as trading expenses in arriving at the amount of the loss, the amount of the specified capital allowances, or

(ii) where, in addition to the specified capital allowances, other capital allowances have been so treated by virtue of section 307 or 308, the lesser of—

(I) the amount of the specified capital allowances, and

(II) the amount by which the loss exceeds the amount of the other capital allowances;

but, where the amount of the loss does not exceed the amount of the other capital allowances, the relevant amount of the loss shall be nil.

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(c) Where in an accounting period a company incurs a relevant leasing loss, the relevant amount of that loss shall not be available for relief under—

(i) section 396A(3), except to the extent that the amount can be used to reduce the income of the leasing business of the company,

(ii) section 396B, except to the extent that the amount can be used to reduce the relevant corporation tax chargeable on the profits of the leasing business of the company,

(iii) section 420A, except to the extent the amount can be surrendered by the company for set off against the relevant trading income arising from—

(I) the leasing of machinery or plant by a company, or

(II) the leasing business of a member of the company’s leasing business group,

or

(iv) section 420B, except to the extent that the amount can be surrendered by the company to reduce the relevant corporation tax chargeable on the profits of the leasing business of a member of the company’s leasing business group.

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(5) Sections 305(1)(b), 308(4) and 420(2) shall not apply in relation to capital allowances—

(a) in respect of expenditure incurred on or after the 25th day of January, 1984, on the provision of machinery or plant, or

(b) in respect of the diminished value of machinery or plant by reason of wear and tear, if that machinery or plant was first acquired on or after the 25th day of January, 1984, by the person to whom the capital allowances are to be or have been made,

other than capital allowances in respect of machinery or plant to which subsection (6) or (7) applies.

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(5) (a) Section 305(1)(b) shall not apply in relation to capital allowances other than capital allowances in respect of machinery or plant to which subsection (6) or (7) applies.

(b) Where a capital allowance in respect of machinery or plant to be made to a company in an accounting period is a specified capital allowance, arising other than in the course of a trade, to which sections 308(4) and 420(2) apply, those allowances shall not be available—

(i) for relief under section 308(4), except to the extent that the amount can be used against profits of the leasing business of the company, or

(ii) for relief under section 420(2), except to the extent that the amount can be set off against profits of—

(I) the leasing of machinery or plant by a company, or

(II) the leasing business of a member of the company’s leasing business group.

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(5A) (a) In this subsection “appointed day” has the same meaning as in section 284(3A).

(b) In relation to capital allowances in respect of machinery or plant to which section 284(3A) applies—

(i) notwithstanding subsections (3) and (5)—

(I) subsection (3) shall not apply, and

(II) section 305(1)(b) shall apply,

where the capital expenditure on that machinery or plant is incurred in the period of 2 years commencing on the appointed day, and

(ii) notwithstanding subsections (4) and (5)—

(I) subsection (4) shall not apply, and

(II) sections 308(4) and 420(2) shall apply,

where the capital expenditure on that machinery or plant is incurred in the period of ^[5]>3 years^<[5][5]>6 years^<[5] commencing on the appointed day.

(c) This subsection shall come into operation on the appointed day.

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(6) References in this section to machinery or plant to which this subsection applies are references to machinery or plant provided on or after the 25th day of January, 1984, for leasing where the expenditure incurred on the provision of the machinery or plant was incurred under an obligation entered into by the lessor and the lessee before—

(a) the 25th day of January, 1984, or

(b) the 1st day of March, 1984, pursuant to negotiations which were in progress between the lessor and the lessee before the 25th day of January, 1984.

(7) References in this section to machinery or plant to which this subsection applies are references to machinery or plant ^[8]>(not being either or both a film negative and its associated soundtrack, or a film tape or a film disc)^<[8] provided on or after the 25th day of January, 1984, for leasing where the expenditure incurred on the provision of the machinery or plant (or, in the case of a film to which section 6 or 7 of the Irish Film Board Act, 1980, applies, the cost of the making of the film) has been or is to be met directly or indirectly, wholly or partly, by the Industrial Development Authority, the Irish Film Board, the Shannon Free Airport Development Company Limited, or Údarás na Gaeltachta; but this subsection shall not apply to machinery or plant provided for leasing on or after the 13th day of May, 1986, unless—

(a) the machinery or plant is a film to which section 6 or 7 of the Irish Film Board Act, 1980, applies, or

(b) the expenditure incurred on the provision of the machinery or plant (not being a film of the kind mentioned in paragraph (a)) was incurred under an obligation entered into by the lessor and the lessee before—

(i) the 13th day of May, 1986, or

(ii) the 1st day of September, 1986, pursuant to negotiations which were in progress between the lessor and the lessee before the 13th day of May, 1986.

(8) The reference in the definition of “the specified capital allowances” to machinery or plant to which this subsection applies is a reference to machinery or plant provided for leasing by a lessor to a lessee in the course of the carrying on by the lessor of relevant trading operations within the meaning of section 445 or 446, and—

(a) in respect of the expenditure on which no allowance has been or will be made under section 283, or

(b) in respect of which no allowance on account of wear and tear to be made under section 284 has been or will be increased under section 285.

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(8A) Where, but for the deletion of sections 445 and 446, any machinery or plant would, for the purposes of the definition of ‘the specified capital allowances’, be machinery or plant to which subsection (8) applies, then, notwithstanding the deletion of those sections, the machinery or plant shall be machinery or plant to which subsection (8) applies for those purposes and this section shall apply with any modifications necessary to give effect to this subsection.

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(9) (a) (i) In this subsection, “specified trade”, in relation to a ^[3]>lessee^<[3][3]>lessee or lessor^<[3], means a trade which throughout the relevant period consists wholly or mainly of the manufacture of goods (including activities which, if the ^[3]>lessee^<[3][3]>lessee or lessor^<[3] were to make a claim for relief in respect of the trade under Part 14, would be regarded for the purposes of that Part as the manufacture of goods).

(ii) For the purposes of subparagraph (i), a trade shall be regarded, as respects the relevant period, as consisting wholly or mainly of particular activities only if the total amount receivable by the ^[3]>lessee^<[3][3]>lessee or lessor^<[3] from sales made or, as the case may be, in payment for services rendered in the course of those activities in the relevant period is not less than 75 per cent of the total amount receivable by the ^[3]>lessee^<[3][3]>lessee or lessor^<[3] from all sales made or, as the case may be, in payment for all services rendered in the course of the trade in the relevant period.

(iii) As respects a person who carries on a trade of leasing and who incurred expenditure on the provision before the 20th day of April, 1990, of machinery or plant for leasing under an obligation entered into before that date by the lessor and a lessee who carries on a trade which but for section 443(6) would be a specified trade, this subsection shall apply as if the trade carried on by the lessee were a specified trade.

(iv) For the purposes of subparagraph (iii), an obligation shall be treated as entered into before the 20th day of April, 1990, only if before that date there were in existence a binding contract in writing under which that obligation arose.

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(b) The reference in the definition of “the specified capital allowances” to machinery or plant to which this subsection applies is a reference to machinery or plant (not being a film of the kind mentioned in subsection (7)(a)) provided on or after the 13th day of May, 1986, for leasing by a lessor to a lessee (who is not a person connected with the lessor) under a lease the terms of which include an undertaking given by the lessee that, during a period (in this section referred to as “the relevant period”) which is not less than 3 years and which commences on the day on which the machinery or plant is first brought into use by the lessee, the machinery or plant so provided will be used by the lessee for the purposes only of a specified trade carried on in the State by the lessee.

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(b) The reference in the definition of “the specified capital allowances” to machinery or plant to which this subsection applies is a reference to machinery or plant (not being a film of the kind mentioned in subsection (7)(a)) provided on or after the 13th day of May, 1986, for leasing by a lessor to a lessee (who is not a person connected with the lessor) under a lease the terms of which include an undertaking given by the lessee that, during a period (in this section referred to as “the relevant period”) which is not less than 3 years and which commences on the day on which the machinery or plant is first brought into use by the lessee, the machinery or plant so provided will—

(i) where it is so provided before the 4th day of March, 1998, be used by the lessee for the purposes only of a specified trade carried on in the State by the lessee, and

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(ii) where it is so provided on or after that day, be used by the lessee for the purposes only of a specified trade carried on in the State by the lessee and that it will not be used for the purposes of any other trade, or business or activity other than the lessor’s trade.

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(ii) where it is so provided on or after that day, be used by the lessee for the purposes only of a specified trade carrried on in the State by the lessee and, except where the lessor provides the machinery or plant for leasing in the course of a specified trade carried on by the lessor, that it will not be used for the purposes of any other trade, or business or activity other than the lessor’s trade.

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(c) Any machinery or plant in respect of which an undertaking mentioned in paragraph (b) has been given by a lessee, and which at any time has been treated as machinery or plant to which this subsection applies, shall at any later time cease to be machinery or plant to which this subsection applies if at that later time ^[12]>it appears to the inspector (or on appeal to the Appeal Commissioners) that^<[12] the undertaking has not been fulfilled by the lessee.

(d) Where any machinery or plant ceases in accordance with paragraph (c) to be machinery or plant to which this subsection applies, such assessments or adjustments of assessments shall be made to recover from the lessor any relief from tax given to the lessor because the machinery or plant was treated as machinery or plant to which this subsection applies.

(e) This subsection shall not apply to machinery or plant provided for leasing on or after the 13th day of May, 1986, if the expenditure incurred on the provision of the machinery or plant was incurred under an obligation entered into by the lessor and the lessee before—

(i) the 13th day of May, 1986, or

(ii) the 1st day of September, 1986, pursuant to negotiations which were in progress between the lessor and the lessee before the 13th day of May, 1986.

(10) For the purposes of subsections (6), (7) and (9)—

(a) an obligation shall be treated as having been entered into before a particular date only if before that date there was in existence a binding contract in writing under which that obligation arose, and

(b) negotiations pursuant to which an obligation was entered into shall not be regarded as having been in progress between a lessor and a lessee before a particular date unless on or before that date preliminary commitments or agreements in relation to that obligation had been entered into between the lessor and the lessee.

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(11) A company, the capital allowances of which are subject to the restrictions in subsection (4) or (5), shall provide the following information, where it is required by the return required under Part 41A:

(a) details of the specified capital allowances claimed in the period to which the return relates including—

(i) the amounts claimed, both in the course of a trade and otherwise than in the course of a trade, and

(ii) where an event referred to in section 288 occurs in relation to an asset on which specified capital allowances are made in the period, details relating to that event including the amount of any balancing allowance or charge made on the asset;

(b) the amount of any relevant leasing loss, within the meaning of this section, available for set off at the commencement of the period to which the return relates;

(c) details of any claims of relevant losses made for set off in the period to which the return relates, under section 396(1), 396A or 396B, as the case may be, insofar as those losses pertain to relevant leasing losses;

(d) details in respect of relevant leasing losses surrendered under section 420A or 420B insofar as those losses pertain to relevant leasing losses, in the period to which the return relates, including details of the relationship between the claimant company and the surrendering company (both within the meaning of section 411(2));

(e) details of any claims made under section 308(4) in the period to which the return relates, insofar as the capital allowances concerned pertain to specified capital allowances;

(f) details in respect of capital allowances surrendered under section 420(4) in the period to which the return relates, insofar as those capital allowances pertain to specified capital allowances, including details of the relationship between the claimant company and the surrendering company (both within the meaning of section 411(2));

(g) where, in the period to which the return relates, a company disposes of machinery or plant in respect of which specified capital allowances were claimed details—

(i) in respect of any chargeable gain or capital loss arising, or

(ii) in relation to the appropriation of that asset into trading stock under section 596.

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