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39 1997

TAXES CONSOLIDATION ACT, 1997

CHAPTER 2

Meaning of distribution

Matters to be treated as distributions.

[CTA76 s84]

130. —(1) The following provisions of this Chapter, together with sections 436 and 437 , shall, subject to any express exceptions, apply with respect to the meaning in the Corporation Tax Acts of “distribution” and for determining the persons to whom certain distributions are to be treated as made; but references in the Corporation Tax Acts to distributions of a company shall not apply to distributions made in respect of share capital in a winding up.

(2) In relation to any company, “distribution” means—

(a) any dividend paid by the company, including a capital dividend;

(b) any other distribution out of assets of the company (whether in cash or otherwise) in respect of shares in the company, except, subject to section 132 , so much of the distribution, if any, as represents a repayment of capital on the shares or is, when it is made, equal in amount or value to any new consideration received by the company for the distribution;

(c) any amount met out of assets of the company (whether in cash or otherwise) in respect of the redemption of any security issued by the company in respect of shares in, or securities of, the company otherwise than wholly for new consideration, or in the redemption of such part of any such security so issued as is not properly referable to new consideration;

(d) any interest or other distribution out of assets of the company in respect of securities of the company (except so much, if any, of any such distribution as represents the principal thereby secured, and, without prejudice to section 135 (9), for this purpose no amount shall be regarded as representing the principal secured by a security in so far as it exceeds any new consideration received by the company for the issue of the security), where the securities are—

(i) securities issued as mentioned in paragraph (c), but excluding securities issued before the 27th day of November, 1975,

(ii) securities convertible directly or indirectly into shares in the company or securities carrying any right to receive shares in or securities of the company, not being (in either case) securities quoted on a recognised stock exchange nor issued on terms which are reasonably comparable with the terms of issue of securities so quoted,

(iii) securities under which—

(I) the consideration given by the company for the use of the principal secured is to any extent dependent on the results of the company's business or any part of the company's business, or

(II) the consideration so given represents more than a reasonable commercial return for the use of that principal; but this shall not operate so as to treat as a distribution so much of the interest or other distribution as represents a reasonable commercial return for the use of that principal,

(iv) securities issued by the company and held by a company not resident in the State, where—

(I) the company which issued the securities is a 75 per cent subsidiary of the other company,

(II) both companies are 75 per cent subsidiaries of a third company which is not resident in the State, or

(III) except where 90 per cent or more of the share capital of the company which issued the securities is directly owned by a company resident in the State, both the company which issued the securities and the company not resident in the State are 75 per cent subsidiaries of a third company which is resident in the State,

or

(v) securities connected with shares in the company, where “connected with” means that, in consequence of the nature of the rights attaching to the securities or shares, and in particular of any terms or conditions attaching to the right to transfer the shares or securities, it is necessary or advantageous for a person who has, or disposes of or acquires, any of the securities also to have, or to dispose of or acquire, a proportionate holding of the shares;

(e) any amount required to be treated as a distribution by subsection (3) or by section 131 .

(3) (a) Where on a transfer of assets or liabilities by a company to its members or to a company by its members the amount or value of the benefit received by a member (taken according to its market value) exceeds the amount or value (so taken) of any new consideration given by the member, the company shall be treated as making a distribution to the member of an amount equal to the difference (in paragraph (b) referred to as “the relevant amount”).

(b) Notwithstanding paragraph (a), where the company and the member receiving the benefit are both resident in the State and either the former is a subsidiary of the latter or both are subsidiaries of a third company also so resident, the relevant amount shall not be treated as a distribution.

(4) The question whether one company is a subsidiary of another company for the purpose of subsection (3) shall be determined as a question whether it is a 51 per cent subsidiary of that other company, except that that other company shall be treated as not being the owner of—

(a) any share capital which it owns directly in a company, if a profit on a sale of the shares would be treated as a trading receipt of its trade,

(b) any share capital which it owns indirectly and which is owned directly by a company for which a profit on the sale of the shares would be a trading receipt, or

(c) any share capital which it owns directly or indirectly in a company not resident in the State.

(5) (a) No transfer of assets (other than cash) or of liabilities between one company and another company shall constitute, or be treated as giving rise to, a distribution by virtue of subsection (2)(b) or (3) if they are companies—

(i) both of which are resident in the State and neither of which is a 51 per cent subsidiary of a company not so resident, and

(ii) which neither at the time of the transfer nor as a result of it are under common control.

(b) For the purposes of this subsection, 2 companies shall be under common control if they are under the control of the same person or persons, and for this purpose “control” shall be construed in accordance with section 11 .

(c) Any amount which would be a distribution by virtue of subsection (3)(a) shall not constitute a distribution by virtue of subsection (2)(b).

Bonus issues following repayment of share capital.

[CTA76 s85]

131. —(1) In this section—

ordinary shares” means shares other than preference shares;

preference shares” means shares—

(a) which do not carry any right to dividends other than dividends at a rate per cent of the nominal value of the shares which is fixed, and

(b) which carry rights in respect of dividends and capital which are comparable with those general for fixed-dividend shares quoted on a stock exchange in the State;

new consideration not derived from ordinary shares” means new consideration other than consideration consisting of the surrender, transfer or cancellation of ordinary shares of the company or any other company or consisting of the variation of rights in ordinary shares of the company or any other company, and other than consideration derived from a repayment of share capital paid in respect of ordinary shares of the company or of any other company.

(2) Where a company—

(a) repays any share capital or has done so at any time on or after the 27th day of November, 1975, and

(b) at or after the time of that repayment, issues as paid up, otherwise than by the receipt of new consideration, any share capital,

the amount so paid up shall be treated as a distribution made in respect of the shares on which it is paid up, except in so far as that amount exceeds the amount or aggregate amount of share capital so repaid less any amounts previously so paid up and treated by virtue of this subsection as distributions.

(3) Subsection (2) shall not apply where the repaid share capital consists of fully paid up preference shares—

(a) if those shares existed as issued and fully paid preference shares on the 27th day of November, 1975, and throughout the period from that date until the repayment those shares continued to be fully paid preference shares, or

(b) if those shares were issued after the 27th day of November, 1975, as fully paid preference shares wholly for new consideration not derived from ordinary shares and throughout the period from their issue until the repayment those shares continued to be fully paid preference shares.

(4) Except in relation to a close company within the meaning of section 430 , this section shall not apply if the issue of share capital mentioned in subsection (2)(b)

(a) is of share capital other than redeemable share capital, and

(b) takes place more than 10 years after the repayment of share capital mentioned in subsection (2)(a).

Matters to be treated or not treated as repayments of share capital.

[CTA76 s86]

132. —(1) In this section, “relevant distribution” means so much of any distribution made in respect of shares representing the relevant share capital as apart from subsection (2)(a) would be treated as a repayment of share capital, but by virtue of that subsection cannot be so treated.

(2) (a) Where—

(i) a company issues any share capital as paid up otherwise than by the receipt of new consideration, or has done so on or after the 27th day of November, 1975, and

(ii) any amount so paid up is not to be treated as a distribution,

then, for the purposes of sections 130 and 131 , distributions made afterwards by the company in respect of shares representing that share capital shall not be treated as repayments of share capital, except to the extent to which those distributions, together with any relevant distributions previously so made, exceed the amounts so paid up (then or previously) on such shares after that date and not treated as distributions.

(b) For the purposes of paragraph (a), all shares of the same class shall be treated as representing the same share capital, and where shares are issued in respect of other shares, or are directly or indirectly converted into or exchanged for other shares, all such shares shall be treated as representing the same share capital.

(3) Where share capital is issued at a premium representing new consideration, the amount of the premium shall be treated as forming part of that share capital for the purpose of determining under this Chapter whether any distribution made in respect of shares representing the share capital is to be treated as a repayment of share capital; but this subsection shall not apply in relation to any part of the premium after that part has been applied in paying up share capital.

(4) Subject to subsection (3), premiums paid on redemption of share capital shall not be treated as repayments of capital.

(5) Except in relation to a close company within the meaning of section 430 , subsection (2)(a) shall not prevent a distribution being treated as a repayment of share capital if it is made—

(a) more than 10 years after the issue of share capital mentioned in subsection (2)(a)(i), and

(b) in respect of share capital other than redeemable share capital.

Limitation on meaning of “distribution” — general.

[CTA76 s84A, FA87 s28(5)(b); FA89 s21(1)(a) and (2), FA90 s41(4) and s46; FA91 s28; FA92 s40; FA93 s45; FA94 s50; FA97 s146(1) and Sch9 PtI par10(2)(b)]

133. —(1) (a) In this section—

agricultural society” and “fishery society” have the meanings respectively assigned to them by section 443 (16);

relevant principal” means an amount of money advanced to a borrower by a company which is within the charge to corporation tax and the ordinary trading activities of which include the lending of money, where—

(i) the consideration given by the borrower for that amount is a relevant security, and

(ii) interest or any other distribution is paid out of the assets of the borrower in respect of that security;

selling by wholesale” means selling goods of any class to a person who carries on a business of selling goods of that class or uses goods of that class for the purposes of a trade or undertaking carried on by the person;

specified trade” means, subject to paragraphs (b), (d) and (e), a trade which consists wholly or mainly of the manufacture of goods, including activities which, if the borrower 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, but not including trading activities in respect of which a certificate has been given by the Minister for Finance under section 445 .

(b) Where the borrower mentioned in subsection (5) is a 75 per cent subsidiary of—

(i) an agricultural society, or

(ii) a fishery society,

specified trade”, in that subsection, means a trade of the borrower which consists wholly or mainly of either or both of—

(I) the manufacture of goods within the meaning of the definition of “specified trade” in paragraph (a), and

(II) the selling by wholesale of—

(A) where subparagraph (i) applies, agricultural products, or

(B) where subparagraph (ii) applies, fish.

(c) For the purposes of the definition of “specified trade” in paragraph (a) and of paragraph (b), a trade shall be regarded, as respects an accounting period, as consisting wholly or mainly of particular activities only if the total amount receivable by the borrower from sales made in the course of those activities in the accounting period is not less than 75 per cent of the total amount receivable by the borrower from all sales made in the course of the trade in that period.

(d) A qualifying shipping trade (within the meaning of section 407 ) shall not be regarded as a specified trade for the purposes of this section.

(e) This section shall apply as respects any interest paid to a company in respect of relevant principal advanced before the 20th day of April, 1990, by the company to another company which carries on in the State a trade which but for section 443 (6) would be a specified trade as if that trade were a specified trade.

(2) Any interest or other distribution which—

(a) is paid out of assets of a company (in this section referred to as “the borrower”) to another company within the charge to corporation tax, and

(b) is so paid in respect of a security (in this section referred to as a “relevant security”) within subparagraph (ii), (iii)(I) or (v) of section 130 (2)(d),

shall not be a distribution for the purposes of the Corporation Tax Acts unless the application of this subsection is excluded by subsection (3), (4) or (5).

(3) Subsection (2) shall not apply where the principal secured has been advanced by a company out of money subscribed for the share capital of the company and that share capital is beneficially owned directly or indirectly by a person or persons resident outside the State.

(4) Subsection (2) shall not apply in a case where the consideration given by the borrower for the use of the principal secured represents more than a reasonable commercial return for the use of that principal; but, where this subsection applies, nothing in subparagraph (ii), (iii)(I) or (v) of section 130 (2)(d) shall operate so as to treat as a distribution for the purposes of the Corporation Tax Acts so much of the interest or other distribution as represents a reasonable commercial return for the use of that principal.

(5) Subject to subsections (6) and (7), subsection (2) shall not apply to any interest paid by the borrower, in an accounting period of the borrower, to another company in respect of relevant principal advanced by that other company, where—

(a) in that accounting period the borrower carries on in the State a specified trade,

(b) the relevant principal in respect of which the interest is paid is used in the course of the specified trade—

(i) for the activities of the trade which consist of the manufacture of goods within the meaning of the definition of “specified trade” in paragraph (a) of subsection (1), or

(ii) where paragraph (b) of subsection (1) applies, for the activities of the trade which consist of such selling by wholesale as is referred to in paragraph (II) of the definition of “specified trade” in that paragraph,

and

(c) the interest, if it were not a distribution, would be treated as a trading expense of that trade for that accounting period.

(6) Subsection (5) shall not apply to interest paid in respect of relevant principal to a company which on the 12th day of April, 1989, had no outstanding amounts of relevant principal advanced.

(7) Notwithstanding subsection (5), where at any time after the 12th day of April, 1989, the total of the amounts of relevant principal (in this subsection referred to as “the current amounts of relevant principal”) advanced by a company in respect of relevant securities held directly or indirectly by the company at that time is in excess of a limit, being a limit equal to 110 per cent of the total of the amounts of relevant principal advanced by the company in respect of relevant securities held directly or indirectly by the company on the 12th day of April, 1989, then, such part of any interest paid at that time to the company in respect of relevant principal as bears, in relation to the total amount of interest so paid to the company, the same proportion as the excess bears in relation to the current amounts of relevant principal shall not be treated as a distribution for the purposes of the Corporation Tax Acts in the hands of the company.

(8) (a) In this subsection and in subsection (10), “specified period”, in relation to relevant principal, means the period commencing on the date on which the relevant principal was advanced and ending on the date on which the relevant principal is to be repaid under the terms of the agreement to advance the relevant principal or, if earlier—

(i) in the case of relevant principal advanced before the 11th day of April, 1994, the 11th day of April, 2001, and

(ii) in any other case, a date which is 7 years after the date on which the relevant principal was advanced.

(b) Notwithstanding subsection (5), where at any time on or after the 31st day of January, 1990, the total of the amounts of relevant principal (in this subsection and in subsections (9) and (10) referred to as “the current amounts of relevant principal”) advanced by a company in respect of relevant securities held directly or indirectly by the company at that time is in excess of a limit, being a limit equal to 75 per cent of the total of the amounts of relevant principal advanced by the company in respect of relevant securities held directly or indirectly by the company on the 12th day of April, 1989, then, any interest paid to the company in respect of relevant principal advanced by the company on or after the 31st day of January, 1990, being relevant principal which is included in the current amounts of relevant principal, shall not be treated as a distribution for the purposes of the Corporation Tax Acts in the hands of the company.

(c) Where apart from this paragraph any part of any interest paid to a company in respect of relevant principal advanced by the company on or after the 31st day of January, 1990, would not be treated as a distribution for the purposes of the Corporation Tax Acts in the hands of the company by virtue only of paragraph (b), then, that paragraph shall not apply in relation to so much of that interest as is paid for a specified period in respect of relevant principal advanced and which was, at the time the relevant principal was advanced, specified in the list referred to in subparagraph (iv) if—

(i) the relevant principal is advanced by the company to a borrower who was in negotiation before the 31st day of January, 1990, with any company for an amount of relevant principal,

(ii) the borrower had received before the 31st day of January, 1990, a written offer of grant aid from the Industrial Development Authority, the Shannon Free Airport Development Company Limited or Údarás na Gaeltachta in respect of a specified trade or a proposed specified trade for the purposes of which trade the relevant principal is borrowed,

(iii) the specified trade is a trade which the borrower commenced to carry on after the 31st day of January, 1990, or is a specified trade of the borrower in respect of which the borrower is committed, under a business plan approved by the Industrial Development Authority, the Shannon Free Airport Development Company Limited or Údarás na Gaeltachta, to the creation of additional employment,

(iv) before the 25th day of March, 1992, the specified trade of the borrower was included in a list prepared by the Industrial Development Authority and approved before that day by the Minister for Industry and Commerce and the Minister for Finance, being a list specifying a particular amount of relevant principal in respect of each trade which amount is considered to be essential for the success of that trade, and

(v) the borrower or a company connected with the borrower is not a company which commenced to carry on relevant trading operations (within the meaning of section 446 ) after the 20th day of April, 1990, or intends to commence to carry on such trading operations;

but this paragraph shall not apply to any interest in respect of any relevant principal advanced after the time when the total of the amounts of relevant principal to which this paragraph applies, advanced by all lenders who have made such advances, exceeds £170,000,000.

(d) For the purposes of this subsection and subsections (9) and (10)

(i) relevant principal advanced by a company at any time on or after a day includes any relevant principal advanced on or after that day to a borrower under an agreement entered into before that day,

(ii) where on or after the 6th day of May, 1993, a period of repayment of relevant principal advanced by a company is extended (whether or not the right to such an extension arose out of the terms of the agreement to advance the relevant principal), the company shall be treated as having—

(I) received repayment of the relevant principal, and

(II) advanced a corresponding amount of relevant principal,

on the date on which apart from the extension the relevant principal fell to be repaid, and

(iii) where at any time after an amount of relevant principal is specified in a list in accordance with paragraph (c)(iv) or subsection (9)(c)(ii) or (10)(b)(ii) a company advances, or is treated as advancing, to a borrower relevant principal the interest in respect of which is treated as a distribution by virtue only of paragraph (c) or subsection (9)(c) or (10)(b), the amount of relevant principal specified in the list shall be treated as reduced by the amount of relevant principal so advanced, or treated as advanced, and the amount so reduced shall be treated as the amount specified in that list.

(e) For the purposes of this subsection and subsections (9) and (10), where a company which has on or after the 31st day of January, 1990, advanced relevant principal to a borrower under the terms of an agreement and, under the terms of that or any other agreement, the company assigns to another company part or all of its rights and obligations under the first-mentioned agreement in relation to the relevant principal, such assignment shall be deemed not to have taken place.

(9) (a) Notwithstanding subsections (5), (7) and (8), where at any time on or after the 31st day of December, 1991, the current amounts of relevant principal advanced by a company in respect of relevant securities held directly or indirectly by the company at that time is in excess of a limit, being a limit equal to 40 per cent of the total of the amounts of relevant principal advanced by the company in respect of the relevant securities held directly or indirectly by the company on the 12th day of April. 1989, then, any interest paid to the company in respect of relevant principal advanced by the company on or after the 31st day of December, 1991, being relevant principal which is included in the current amounts of relevant principal, shall not be treated as a distribution for the purposes of the Corporation Tax Acts in the hands of the company.

(b) (i) Where the total of the amounts of relevant principal advanced by a company in respect of relevant securities held directly or indirectly by the company at any time on or after the 31st day of December, 1991, is less than the limit referred to in paragraph (a), that paragraph shall apply as if that limit were the total of the amounts of relevant principal so advanced as at that time unless the company proves that it has as far as possible, at all times on or after the 31st day of December, 1991, advanced to borrowers relevant principal in respect of the interest on which paragraph (a) does not, or would not, apply by virtue of paragraph (c).

(ii) Where at any time during the period commencing on the 18th day of April, 1991, and ending immediately before the 31st day of December, 1991, an amount of relevant principal which was advanced to a borrower, being a company which carries on one or more trading operations (within the meaning of section 445 (1)), is repaid, this section shall apply as if—

(I) references in subparagraph (i) and in paragraph (a) to the 31st day of December, 1991, were references to the day on which the amount is repaid, and

(II) during that period—

(A) the reference in subparagraph (i) to relevant principal in respect of the interest on which paragraph (a) does not, or would not, apply by virtue of paragraph (c) were a reference to such principal in respect of the interest on which paragraph (b) of subsection (8) does not, or would not, apply by virtue of paragraph (c) of that subsection, and

(B) the reference in paragraph (c) of subsection (8) to paragraph (b) of that subsection were a reference to paragraph (a).

(c) Where apart from this paragraph any part of any interest paid to a company in respect of relevant principal advanced by the company on or after the 31st day of December, 1991, would not be treated as a distribution for the purposes of the Corporation Tax Acts in the hands of the company by virtue only of paragraph (a), then, subject to subsection (11), that paragraph shall not apply in relation to so much of that interest as is paid if—

(i) the specified trade is a trade which the borrower commenced to carry on after the 31st day of January, 1990, or is a specified trade of the borrower in respect of which the borrower is committed, under a business plan approved by the Industrial Development Authority, the Shannon Free Airport Development Company Limited or Údarás na Gaeltachta, to the creation of additional employment,

(ii) the specified trade of the borrower was selected by the Industrial Development Authority for inclusion in a list, approved by the Minister for Industry and Commerce and the Minister for Finance, being a list specifying a particular amount of relevant principal in respect of each trade which amount is considered to be essential for the success of that trade, and

(iii) the borrower or a company connected with the borrower is not a company which commenced to carry on relevant trading operations (within the meaning of section 446 ) after the 20th day of April, 1990, or intends to commence to carry on such trading operations.

(10) (a) Notwithstanding subsections (5) and (7) to (9), any interest paid to a company in respect of relevant principal advanced by the company on or after the 20th day of December, 1991, shall not be treated as a distribution for the purposes of the Corporation Tax Acts in the hands of the company.

(b) Where apart from this paragraph any interest paid to a company in respect of relevant principal advanced by the company on or after the 20th day of December, 1991, would not be treated as a distribution for the purposes of the Corporation Tax Acts in the hands of the company by virtue only of paragraph (a), then, subject to subsection (11), that paragraph shall not apply in relation to so much of that interest as is paid for a specified period in respect of relevant principal advanced and which was, at the time the relevant principal was advanced, specified in the list referred to in subparagraph (ii) if—

(i) the specified trade is a trade which the borrower commenced to carry on after the 31st day of January, 1990, or is a specified trade of the borrower in respect of which the borrower is committed, under a business plan approved by the Industrial Development Authority, the Shannon Free Airport Development Company Limited or Údarás na Gaeltachta, to the creation of additional employment,

(ii) before the 25th day of March, 1992, the specified trade of the borrower was included in a list prepared by the Industrial Development Authority and approved before that day by the Minister for Industry and Commerce and the Minister for Finance, being a list specifying a particular amount of relevant principal in respect of each trade which amount is considered to be essential for the success of that trade, and

(iii) the borrower is not a company which carries on relevant trading operations (within the meaning of section 446 ) or intends to carry on such trading operations.

(11) Subsections (9)(c) and (10)(b) shall not apply to any interest in respect of any relevant principal advanced after the time when the total of the amounts of relevant principal to which those subsections apply, advanced by all lenders who have made such advances, exceeds the aggregate of—

(a) £250,000,000, and

(b) the excess, if any, of £170,000,000 over the total of the amounts of relevant principal to which subsection (8)(c) applies advanced by all lenders who have made such advances.

(12) (a) In this subsection, “scheduled repayment date”, in relation to any relevant principal, means the date on which that relevant principal is to be repaid under the terms of the agreement to advance that relevant principal.

(b) Where at any time before the 7th day of December, 1993—

(i) relevant principal (in this subsection referred to as “the first-mentioned relevant principal”), the interest in respect of which was treated as a distribution by virtue only of subsection (8)(c), (9)(c) or (10)(b), advanced by a company to a borrower was repaid by the borrower before the scheduled repayment date, and

(ii) a further amount or further amounts of relevant principal, the interest in respect of which is to be treated as a distribution by virtue only of subsection (8)(c), (9)(c) or (10)(b), was or were advanced to that borrower,

then, subsection (8)(d)(iii) shall not apply in relation to so much of—

(I) the further amount of relevant principal advanced as does not exceed the amount of relevant principal repaid, or

(II) where there are more further amounts advanced than one, the aggregate of the further amounts of relevant principal advanced as does not exceed the relevant principal repaid.

(c) Where by virtue of paragraph (b) subsection (8)(d)(iii) does not apply in relation to any amount of relevant principal advanced by a company, the company shall be treated as having—

(i) received a repayment of that amount of relevant principal, and

(ii) advanced a corresponding amount of relevant principal,

on the scheduled repayment date of the first-mentioned relevant principal.

(d) For the purposes of this subsection, where there are more further advances of relevant principal than one, the amount to which subsection (8)(d)(iii) does not apply shall be referable as far as possible to an earlier rather than a later such further advance.

(e) Notwithstanding paragraphs (b) to (d), interest which but for this paragraph would not be treated as a distribution by virtue only of subsection (8)(d)(iii) may be treated as a distribution if it is paid in respect of relevant principal advanced before the 7th day of December, 1993.

(13) (a) In this subsection, “relevant period” means a period which commences at a time at which, in accordance with the terms of the agreement under which relevant principal secured by a relevant security is advanced, an amount representing the interest for the use of the relevant principal is to be paid, and ends at a time immediately before the next time at which such an amount is to be paid.

(b) Interest paid to a company in respect of—

(i) relevant principal denominated in a currency other than Irish currency, and

(ii) a relevant period which begins on or after the 30th day of January, 1991,

shall not be a distribution for the purposes of the Corporation Tax Acts in the hands of the company if, at any time during that period, the rate on the basis of which interest is computed exceeds 80 per cent of the rate known as the 3 month Dublin Interbank Offered Rate on Irish pounds (in this subsection referred to as “the 3 month Dublin Interbank Offered Rate”) a record of which is maintained by the Central Bank of Ireland.

(c) Paragraph (b) shall not apply to any interest paid to a company in respect of relevant principal advanced by the company—

(i) before the 30th day of January, 1991, under an agreement entered into before that day if on that day the rate on the basis of which interest in respect of the relevant security is to be computed exceeds 80 per cent of the 3 month Dublin Interbank Offered Rate; but this subparagraph shall not apply as respects any relevant period commencing on or after the 20th day of December, 1991, if in that relevant period that rate exceeds the rate on the basis of which interest would have been computed if the relevant principal had continued to be denominated in the currency in which it was denominated on the 30th day of January, 1991,

(ii) on or after the 30th day of January, 1991—

(I) which is included in a list referred to in subsection (8)(c)(iv), (9)(c)(ii) or (10)(b)(ii), and

(II) for the purposes of a specified trade of a borrower who is certified by the Minister for Enterprise, Trade and Employment as having received an undertaking that the interest would be treated as a distribution;

but this subparagraph shall not apply as respects any relevant period commencing on or after the 20th day of December, 1991, if in that relevant period the rate on the basis of which interest in respect of the relevant security is to be computed exceeds—

(A) a rate approved by the Minister for Finance in consultation with the Minister for Enterprise, Trade and Employment, or

(B) where it is lower than the rate so approved and the relevant principal was advanced on or after the 30th day of January, 1991, and before the 20th day of December, 1991, the rate which would have applied if the relevant principal had continued to be denominated in the currency in which it was denominated when it was advanced,

(iii) on or after the 18th day of April, 1991, where the rate on the basis of which that interest is computed exceeds 80 per cent of the 3 month Dublin Interbank Offered Rate by reason only that the relevant principal advanced is denominated in sterling, or

(iv) to a borrower which is a company carrying on one or more trading operations within the meaning of section 445 (1).

Limitation on meaning of “distribution” in relation to certain payments made in respect of “foreign source” finance.

[CTA76 s84A(1) to (6), (9) and (10); FA84 s41; FA86 s54; FA87 s28(5)(b); FA89 s21(2)(a); FA97 s146(1) and Sch9 PtI par10(2)(a)]

134. —(1) (a) In this section—

agricultural society” and “fishery society” have the meanings respectively assigned to them by section 443 (16);

selling by wholesale” means selling goods of any class to a person who carries on a business of selling goods of that class or uses goods of that class for the purposes of a trade or undertaking carried on by the person;

specified trade” means, subject to paragraphs (b) and (d) and to subsection (6), a trade which consists wholly or mainly of—

(i) the manufacture of goods, including activities which, if the borrower 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, or

(ii) the rendering of services in the course of a service undertaking in respect of which an employment grant was made by the Industrial Development Authority under section 2 of the Industrial Development (No. 2) Act, 1981 .

(b) Where the borrower mentioned in subsection (5) is a 75 per cent subsidiary of—

(i) an agricultural society, or

(ii) a fishery society,

specified trade”, in that subsection, means a trade of the borrower which consists wholly or mainly of either or both of—

(I) the manufacture of goods within the meaning of the definition of “specified trade” in paragraph (a), and

(II) the selling by wholesale of—

(A) where subparagraph (i) applies, agricultural products, or

(B) where subparagraph (ii) applies, fish.

(c) For the purposes of the definition of “specified trade” in paragraph (a) and of paragraph (b), a trade shall be regarded, as respects an accounting period, as consisting wholly or mainly of particular activities only if the total amount receivable by the borrower from sales made or, as the case may be, in payment for services rendered in the course of those activities in the accounting period is not less than 75 per cent of the total amount receivable by the borrower from all sales made in the course of the trade in that period.

(d) A qualifying shipping trade (within the meaning of section 407 ) shall not be regarded as a specified trade for the purposes of this section.

(2) This section shall apply only where the principal secured has been advanced by a company out of money subscribed for the share capital of the company and that share capital is beneficially owned directly or indirectly by a person or persons resident outside the State.

(3) Any interest or other distribution which—

(a) is paid out of assets of a company (in this section referred to as “the borrower”) to another company within the charge to corporation tax, and

(b) is so paid in respect of a security (in this section referred to as a “relevant security”) within subparagraph (ii), (iii)(I) or (v) of section 130 (2)(d),

shall not be a distribution for the purposes of the Corporation Tax Acts unless the application of this subsection is excluded by subsection (4) or (5).

(4) Subsection (3) shall not apply in a case where the consideration given by the borrower for the use of the principal secured represents more than a reasonable commercial return for the use of that principal; but, where this subsection applies, nothing in subparagraph (ii), (iii)(I) or (v) of section 130 (2)(d) shall operate so as to treat as a distribution for the purposes of the Corporation Tax Acts so much of the interest or other distribution as represents a reasonable commercial return for the use of that principal.

(5) Subsection (3) shall not apply to any interest paid by the borrower, in an accounting period of the borrower, to another company the ordinary trading activities of which include the lending of money, where—

(a) in that accounting period the borrower carries on in the State a specified trade, and

(b) the interest, if it were not a distribution, would be treated as a trading expense of that trade for that accounting period.

(6) (a) This subsection shall apply to any interest or other distribution which apart from this subsection would be a distribution for the purposes of the Corporation Tax Acts, other than any interest or other distribution which is paid by the borrower under an obligation entered into—

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

(ii) before the 1st day of September, 1986, in accordance with negotiations which were in progress between the borrower and a lender before the 13th day of May, 1986.

(b) Subsection (5) shall apply as respects any interest or other distribution to which this subsection applies as if paragraph (ii) of the definition of “specified trade” in subsection (1)(a) were deleted.

(c) For the purposes of paragraph (a)

(i) 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

(ii) negotiations in accordance with which an obligation was entered into shall not be regarded as having been in progress before the 13th day of May, 1986, unless on or before that date preliminary commitments or agreements in relation to that obligation had been entered into between the lender referred to in that paragraph and the borrower.

Distributions: supplemental.

[CTA76 s87; FA91 s29]

135. —(1) (a) In this Chapter, “new consideration” means consideration not provided directly or indirectly out of the assets of the company, but does not include amounts retained by the company by means of capitalising a distribution.

(b) Notwithstanding paragraph (a), where share capital has been issued at a premium representing new consideration, any part of that premium applied afterwards in paying up share capital shall also be treated as new consideration for that share capital, except in so far as the premium has been taken into account under section 132 (3) so as to enable a distribution to be treated as a repayment of share capital.

(2) (a) No consideration derived from the value of any share capital or security of a company, or from voting or other rights in a company, shall be regarded for the purposes of this Chapter as new consideration received by the company unless the consideration consists of—

(i) money or value received from the company as a distribution,

(ii) money received from the company as a payment which for those purposes constitutes a repayment of that share capital or of the principal secured by that security, or

(iii) the giving up of the right to that share capital or security on its cancellation, extinguishment or acquisition by the company.

(b) No amount shall be regarded as new consideration by virtue of subparagraph (ii) or (iii) of paragraph (a) in so far as it exceeds any new consideration received by the company for the issue of the share capital or security in question or, in the case of share capital which constituted a distribution on issue, the nominal value of that share capital.

(3) Where 2 or more companies enter into arrangements to make distributions to each other's members, all parties concerned may for the purposes of this Chapter be treated as if anything done by any of those companies had been done by any other, and this subsection shall apply however many companies participate in the arrangements.

(4) (a) In this Chapter and in section 137 , “in respect of shares in the company” and “in respect of securities of the company”, in relation to a company which is a member of a 90 per cent group, mean respectively in respect of shares in that company or any other company in the group and in respect of securities of that company or any other company in the group.

(b) Without prejudice to section 130 (2)(b) as extended by paragraph (a), in relation to a company which is a member of a 90 per cent group, “distribution” includes anything distributed out of assets of the company (whether in cash or otherwise) in respect of shares in or securities of another company in the group.

(c) Nothing in this subsection shall require a company to be treated as making a distribution to any other company which is in the same group and is resident in the State.

(d) For the purposes of this subsection, a principal company and all its 90 per cent subsidiaries form a 90 per cent group, and “principal company” means a company of which another company is a subsidiary.

(e) Nothing in this subsection shall require any company which is a subsidiary (within the meaning of section 155 of the Companies Act, 1963 ) of another company to be treated as making a distribution where it acquires shares in the other company in accordance with section 9 (1) of the Insurance Act, 1990 .

(5) A distribution shall be treated under this Chapter as made, or consideration as provided, out of assets of a company if the cost falls on the company.

(6) In this Chapter and in section 137 , “share” includes stock and any other interest of a member in a company.

(7) References in this Chapter to issuing share capital as paid up apply also to the paying up of any issued share capital.

(8) For the purposes of this Chapter and of section 137 , “security” includes securities not creating or evidencing a charge on assets, and interest paid by a company on money advanced without the issue of a security for the advance, or other consideration given by a company for the use of money so advanced, shall be treated as if paid or given in respect of a security issued for the advance by the company.

(9) Where securities are issued at a price less than the amount repayable on them and are not quoted on a recognised stock exchange, the principal secured shall not be taken for the purposes of this Chapter to exceed the issue price unless the securities are issued on terms reasonably comparable with the terms of issue of securities so quoted.

(10) For the purposes of this Chapter and of section 137 , a thing shall be regarded as done in respect of a share if it is done to a person as being the holder of the share, or as having at a particular time been the holder of the share, or is done in pursuance of a right granted or offer made in respect of a share, and anything done in respect of shares by reference to share holdings at a particular time shall be regarded as done to the then holder of the shares or the personal representatives of any shareholder then dead.

(11) Subsection (10) shall apply in relation to securities as it applies in relation to shares.