Revenue Note for Guidance

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Revenue Note for Guidance

Section 126 Certain statements of interest


This section imposes a levy on the amount of interest received by a company in respect of certain loans i.e. so-called “section 84” loans.

The general scheme of the section is that a company which has made a loan to another company on a “section 84” basis must furnish statements of interest received to the Revenue Commissioners. A statement must be furnished within 30 days of the 31 January and 31 July in each year in respect of the relevant interest received by the lender during the 6 month period ending on each of those dates. Stamp duty is levied at the rate of 12% on the amount of the interest received. The duty is payable on the delivery of the statement, that is, within 30 days from the end of each 6 month period.

Because the duty is a stamp duty other appropriate provisions of this Act apply, in particular:

  • section 14(3) which enables the Revenue Commissioners to mitigate penalties payable in respect of late payment of duty,
  • section 152 which enables the Revenue Commissioners to refund duty in certain circumstances – but see also section 159A as regards the time limit for making a refund claim and section 159B as regards interest that may be payable on such refunds.


The purpose of this section is to recoup some of the corporation tax which had been avoided through the use of “section 84” loans. Section 84 of the Corporation Tax Act, 1976 (now section 130 of the Taxes Consolidation Act, 1997), was introduced to combat an avoidance scheme whereby a company which received a loan from another company could obtain tax relief on its interest payments. Simply stated, section 84 deemed such interest payments to be distributions and, therefore, not tax deductible. However, another provision, in section 2 (now section 129 of the Taxes Consolidation Act, 1997) of the same Act, exempted from corporation tax dividends or other distributions received by one Irish resident company from another.

By exploiting the definition of “distributions” it was possible for a company to reduce its liability for corporation tax. Expressing the interest on a loan at a rate per cent plus a minuscule percentage of the company’s profits was sufficient to convert the interest into a distribution. The result was that one company could lend money to another and have the repayment of interest on the loan so structured that the interest received was not taxable in the hands of the lender. The attraction of structuring the loan in this way for the borrower lay in the fact that the lender passed on some of its profit on the loan to the borrower in the form of a lower interest rate. This benefit outweighed the cost to the borrower of having to pay corporation tax on the distribution because the typical “section 84” borrower is one who suffers little or no corporation tax.

(1)(a) “corporation tax”, “Corporation Tax Acts”, “relevant interest” and “relevant period” are self-explanatory. The definition of “relevant interest” refers to a number of subparagraphs in section 130(2)(d) of the Taxes Consolidation Act, 1997. The subparagraphs referred to are:

  • subparagraph (ii) - this treats interest as a distribution where the security for the loan is convertible (or has a right of conversion) into shares,
  • subparagraph (iii)(I) - this treats interest as a distribution where the rate or level of the interest is to any extent dependent on the results of the business of the borrower, and
  • subparagraph (v) - this treats interest as a distribution where the security for the loan is connected with the holding by the lender of some shares in the borrower.

(1)(b) Where the account of the borrowing company is debited with an amount of relevant interest, the amount so debited is treated as received by the lender. This is to counter any arguments as to whether an amount so debited could be regarded as within the strict meaning of the word “received”.

(2) The lender must deliver a statement of the relevant interest to the Revenue Commissioners within 30 days of the end of each 6 month period ending on 31 January and 31 July.

(3) Stamp duty at a rate of 12% is chargeable on the amount of the relevant interest shown in the statement.

(4) Where, however, the interest received on foot of the security (or loan) is less than 6% p.a. throughout the period for which the interest is payable (which will be normally be 6 months but may be less for an initial payment or for a final payment in respect of a loan), the rate of duty is 8%.

(5) The statement must be accompanied by the amount of duty payable.

(6) The Revenue Commissioners may obtain whatever information they need to ensure that the correct amount of duty is paid.

(7) On failure to deliver the statement by the due date or to pay the duty interest is chargeable, in addition to the duty, at the rate of 2.5% per month or part of a month from the expiration of the relevant period.

(8) This subsection enables the Revenue Commissioners to enforce delivery of the statement.

(9) A lender may not claim the duty paid as a deduction in the computation of any other tax or duty which is payable by the lender.

Relevant Date: Finance Act 2014