Expenses of management of investment companies: clarification on non-deductibility of interest payments on capital borrowings as an expense of management

Revenue's Tax and Duty Manual Part 4.6.11 Expenses of management of investment companies has been updated to insert a new instruction (m) under the list of instructions relating to Expenses of Management. Instruction (m) clarifies that interest paid on borrowings relating to capital acquisitions is not deductible as an expense of management.

Background

Section 83 of the Taxes Consolidation Act 1997 is concerned with the expenses of management of investment companies. Investment companies are companies whose business consists wholly or mainly of the making of investments and the principal part of whose income is derived therefrom. Section 83 permits an investment company, resident in the State, to deduct, in computing its total profits for corporation tax, any sums disbursed as expenses of management. "Expenses of management" are not defined in Section 83. Revenue has, however, set out a list of instructions to be observed when considering whether a deduction is allowable. Broadly, for an expense to be an expense of management, it must be an expense incurred in the managing of the business. Interest incurred on capital acquisitions is part of the activity of raising finance and is not regarded as an expense of management. The new instruction (m), inserted into Tax and Duty Manual < Part 4.6.11, clarifies this.

12 May 2015