Revenue Note for Guidance

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Revenue Note for Guidance

76C Use of different accounting policies within a group of companies

Summary

Section 76C is an anti-avoidance provision which sets aside any ‘tax advantage’ accruing to a company which prepares ‘IAS accounts’ where that ‘tax advantage’ arises as a result of a transaction or a ‘series of transactions’ between that company and another ‘associated company’ which prepares its accounts in accordance with ‘Irish generally accepted accounting practice’. Section 76C operates to deny the ‘tax advantage’ by requiring that the Case I or II profits or gains of that company from that transaction or series of transactions to be computed in accordance with ‘Irish generally accepted accounting practice’. This measure applies without regard to whether or not an avoidance motive is present.

Details

Definitions

Each of the key terms necessary to understand section 76C are explained below.

  • (1)(a) Tax advantage: defined in section 76C as (a) a reduction, avoidance or deferral of any charge or assessment to tax, including any potential or prospective charge or assessment; or (b) a refund of or a payment of an amount of tax, or an increase in an amount of tax refundable or otherwise payable to a person, including any potential or prospective amount so refundable or payable.
  • IAS accounts: defined in section 4 as accounts prepared in accordance with ‘international accounting standards’ (see below).
  • International accounting standards: defined in section 4 as the international accounting standards, within the meaning of Regulation (EC) No. 1606/2002 of the European Parliament and the Council of 19 July 2002 [note: this definition essentially means International Financial Reporting Standards (IFRS).]
  • (1)(b) Series of transactions: section 76C provides that a series of transactions is not prevented from being a series of transactions in relation to companies by reason only of the fact that one or more of the following applies:
    • (1)(b)(i) there is no transaction in the series to which both companies are parties;
    • (1)(b)(ii) parties to any arrangement in pursuance of which the transactions in the series are entered into do not include one or both of the companies;
    • (1)(b)(iii) there are one or more transactions in the series to which neither of the companies is a party.

Associated company: section 76C provides that this term shall be interpreted in accordance with section 432 (see the Notes for Guidance for that section; broadly,

  • companies are associated if they are under common ‘control’ (as defined in that section)).
  • Irish generally accepted accounting practice: defined in section 4 as generally accepted accounting practice (GAAP) with respect to accounts (other than IAS accounts) of companies incorporated or formed under the laws of the State, being accounts that are intended to give a true and fair view.

Special rule for tax purposes

(2) A transaction involving two associated companies must be accounted for by both companies for tax purposes using Irish GAAP where the following conditions are met:

  • (2)(a) one of the companies is within the charge to tax under Case I or Case II and prepares its accounts in accordance with IFRS;
  • (2)(b) the associated company, also within the Case I or II charge, prepares its accounts in accordance with Irish GAAP.
  • (2)(c) there is a transaction between, or a series of transactions involving, those companies; and
  • (2)(d) a tax advantage would otherwise accrue to the company that prepares its accounts in accordance with IFRS compared to its position if it had prepared its accounts in accordance with Irish GAAP in relation to the transaction or series of transactions.

Group relief

A claim to group relief by one company in respect of a loss incurred by another company would not itself be regarded as a transaction between the companies, notwithstanding that a payment for the group relief may be made.

Relevant Date: Finance Act 2019