Taxes Consolidation Act, 1997 (Number 39 of 1997)
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840A Interest on loans to defray money applied for certain purposes.
(1) In this section—
“asset” means any asset other than —
(a) an asset that is treated by the provisions of section 291A(2) as machinery or plant for the purposes of Chapters 2 and 4 of Part 9, or
(b) an asset acquired as trading stock;
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“loan” includes a promissory note and any other agreement or arrangement having a similar effect;
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“trading stock” has the same meaning as in section 89.
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(2) Subject to subsections (3), (6), (7) and (8) in computing the amount of the profits or gains to be charged to corporation tax under Schedule D, no sum shall be deducted in respect of any interest payable on a loan to a company (in this section referred to as the “investing company”) used in acquiring assets from a company which, at the time of the acquiring of the assets, was connected with the investing company if the loan is made to the investing company by a person who is connected with the investing company.
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(2) [5]>Subject to subsections (3), (6), (7) and (8)<[5][5]>Subject to subsections (3), (6), (7), (7A) and (8)<[5], in computing the amount of the profits or gains to be charged to corporation tax under Schedule D, no sum shall be deducted in respect of—
(a) any interest payable on a loan to a company (in this section referred to as the “investing company”) used in acquiring assets from a company which, at the time of the acquiring of the assets, was connected with the investing company, where the loan is made to the investing company by a person who is connected with the investing company, or
(b) any interest payable on any form of refinancing of a loan referred to in paragraph (a).
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(3) Where, in an accounting period, interest is payable by an investing company on a loan to defray money applied in acquiring a trade (in this section referred to as an “acquired trade”) which immediately before its acquisition by the investing company was carried on by a company which was not within the charge to corporation tax, then subsection (2) shall not apply to so much of that interest as does not exceed the amount of the profits or gains of the acquired trade for that accounting period which are chargeable to tax under Case I of Schedule D.
(4) This section shall apply where a company acquires part of a trade as if that part were a separate trade.
(5) Where the investing company begins to carry on the activities of an acquired trade as part of its trade, then that part of its trade shall for the purposes of subsection (3) be treated as a separate trade and any necessary apportionment shall be made so that profits or gains shall be attributed to the separate trade on a just and reasonable basis and the amount of those profits or gains shall not exceed the amount which would be attributed to a distinct and separate company, engaged in those activities, if it were independent of, and dealing at arm's length with, the investing company.
(6) (a) Where, in an accounting period, interest is payable by an investing company on a loan to defray money applied in acquiring an asset (in this subsection referred to as an “acquired asset”) which is leased by the company for that accounting period in the course of a trade (in this paragraph referred to as the “first-mentioned trade”) then, if immediately before that asset was acquired by the investing company it was not in use for the purposes of a trade carried on by a company which was within the charge to corporation tax, subsection (2) shall not apply to so much of that interest as does not exceed the amount of the profits or gains of the first-mentioned trade for that accounting period as is attributable to the acquired asset.
(b) For the purposes of paragraph (a), in arriving at the profits or gains of a trade attributable to an acquired asset, any necessary apportionment shall be made of the expenses and receipts of the trade.
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(7) This section shall not apply to interest payable to a company (in this subsection referred to as the “first-mentioned company”) by an investing company where the sole business of the first-mentioned company is the on-lending to the investing company of moneys which the first-mentioned company has borrowed from persons who are not connected with either or both the first-mentioned company and the investing company.
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(7) This section shall not apply to interest payable to a company (in this subsection referred to as ‘the first-mentioned company’) by an investing company in either of the following circumstances:
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(a) where the sole business of the first-mentioned company is the on-lending to the investing company of moneys which the first-mentioned company has borrowed from persons who are not connected with either or both the first-mentioned company and the investing company;
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(a) where, other than the holding of shares in an investing company or investing companies, the only business of the first-mentioned company is the on-lending to the investing company or investing companies of moneys which the first-mentioned company has borrowed from persons who are not connected with either or both the first-mentioned company and the investing company or investing companies;
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(b) where the first-mentioned company is a qualifying financing company within the meaning of section 76E.
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(7A) (a) For the purpose of subparagraph (b)(ii)(II), “relevant territory” and “tax” have the same meaning, respectively, as in section 246.
(b) Subject to paragraph (c), subsection (2) shall not apply to an amount of interest on a loan (in this subsection referred to as the ‘connected loan’) made to an investing company by a person who is connected with the investing company (in this subsection referred to as the ‘connected lender’) used in acquiring an asset for the purposes of its trade from a company which, at the time of the acquiring of the asset, was connected with the investing company (in this subsection referred to as the ‘connected seller’), where—
(i) the connected seller had borrowed to acquire the asset such that the interest on the borrowings of the connected seller gave rise to a reduction or relief in computing the amount of profits or gains of the connected seller to be charged to corporation tax under Schedule D, prior to the acquisition of the asset by the investing company,
(ii) the connected lender—
(I) is subject to tax in the State on the interest income in relation to the connected loan, or
(II) by virtue of the law of a relevant territory, is resident in a relevant territory for the purposes of tax and, under the laws of the relevant territory, is subject, without any reduction computed by reference to the amount of such interest, to a tax on the interest income in relation to the connected loan,
and
(iii) it is reasonable to consider that the connected loan is made for bona fide commercial purposes and does not form part of any arrangement or scheme of which the main purpose, or one of the main purposes, is the avoidance of tax.
(c) (i) For the purposes of calculating the amount of interest to which paragraph (b) applies, the principal on the connected loan shall not exceed—
(I) the principal outstanding on the borrowings of the connected seller in respect of the asset concerned at the time immediately prior to the acquisition of the asset by the investing company, or
(II) where subparagraph (ii) applies, the maximum principal amount.
(ii) (I) This subparagraph shall apply where, by virtue of paragraph (b), subsection (2) has not applied to an amount of interest on a connected loan made to a company that is connected with the investing company (referred to in this subparagraph as the ‘previous investing company’) in respect of a previous acquisition of the asset concerned from a company connected with the previous investing company (referred to in this subparagraph as the ‘previous connected seller’).
(II) Where this subparagraph applies, the ‘maximum principal amount’ shall be an amount equal to the principal outstanding on the borrowings of the previous connected seller at the time immediately prior to the acquisition of the asset concerned by the previous investing company and, where there has been more than one previous acquisition referred to in clause (I) in respect of the asset concerned, the maximum principal amount shall be an amount equal to the principal outstanding on the borrowings of the previous connected seller at the time immediately prior to the acquisition of the asset concerned by the previous investing company in the earliest such previous acquisition of the asset concerned to occur.
(iii) For the purposes of calculating—
(I) the principal outstanding on the borrowings of the connected seller in respect of the asset concerned at the time immediately prior to the acquisition of the asset by the investing company, or
(II) where subparagraph (ii) applies, the maximum principal amount,
where only a portion of the borrowings relate to the asset that is acquired by the investing company, then the principal outstanding on the borrowings or the maximum principal amount shall be apportioned on a just and reasonable basis.
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(8) This section shall not apply to any interest payable by a qualifying company (within the meaning of section 110).
(9) Where, as a part of, or in connection with, any scheme or arrangement for the making of a loan to the investing company by a person (in this subsection referred to as the “first-mentioned person”) who is not connected with the investing company, another person who is connected with the investing company directly or indirectly makes a loan to, a deposit with, or otherwise provides funds to the first-mentioned person or to a person who is connected with the first-mentioned person, then the loan made to the investing company shall be treated for the purposes of subsection (2) as being a loan made to the investing company by a person with whom it is connected.
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Inserted by FA11 s36(1). This section shall apply in respect of a loan made on or after 21 January 2011 other than any such loan made in accordance with a binding written agreement made before that date.
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Substituted by FA25 s49(1)(a). Applies to an acquisition of an asset (within the meaning of section 840A of the Principal Act) on or after 1 January 2024.
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Substituted by FA25 s49(1)(b). Applies to an acquisition of an asset (within the meaning of section 840A of the Principal Act) on or after 1 January 2024.
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Inserted by FA25 s49(1)(c). Applies to an acquisition of an asset (within the meaning of section 840A of the Principal Act) on or after 1 January 2024.