Revenue Note for Guidance

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Revenue Note for Guidance

494 Qualifying companies

Summary

This section sets out the rules which a company must comply with in order to be a qualifying company for the purpose of raising Employment and Investment Incentive (EII) funds and/or SURE funds.

Definitions

“EEA Agreement” is defined as is “EEA State” which is a contracting party to that Agreement.

A “qualifying subsidiary” of a company is a company which complies with the conditions of section 505.

Qualifying companies

A qualifying company is one which —

  • (2) is incorporated in the State or in an EEA State other than the State and complies with this section,
  • (3)(a) is throughout the period (in this note and in the section referred to as the “relevant period”) —
    • of 3 years beginning on the date of issue of the shares, or
    • if the company was not at that time carrying on qualifying trading activities, of 3 years beginning from the date the company begins to carry on such a trade,

    unquoted (but for the purposes of this section a company listed on the Enterprise Securities Market of the Irish Stock Exchange or a similar market of another EU Member State stock exchange may be categorised as unquoted) and is resident in the State, or is resident in an EEA State other than the State and carries on business in the State through a branch or agency.

In addition, the company must throughout the relevant period either —

  • exist wholly for the purpose of carrying on qualifying trading activities and which carries on relevant trading activities from a fixed place of business in the State
  • be a company whose business consists wholly of the holding of shares or securities of, or the making of loans to, one or more qualifying subsidiaries of the company. Such a company can, in addition to these activities also carry on relevant trading activities where the company carries on qualifying trading activities from a fixed place of business in the State.

(3)(b) Where a company issues eligible shares for the purposes of raising money for relevant trading activities which are, or are intended to be, carried on by a qualifying subsidiary the amount so raised can be used only for the purpose of acquiring eligible shares in the qualifying subsidiary and for no other purpose.

(4) The company shall be a micro, small or medium-sized enterprise within the meaning of Annex 1 to Commission Regulation (EU) No. 651/201 of 17 June 2014 (commonly referred to as “GBER”):

(4A) The company shall meet the requirements of paragraphs 5 and 6 of Article 21 of Commission Regulation (EU) No. 651/201 of 17 June 2014 (commonly referred to as “GBER”) is not a qualifying company.

Internationally Traded Financial Services

(5) A company whose relevant trading activities includes internationally traded financial services must be in receipt of a certificate from Enterprise Ireland confirming that the company’s activities are of a kind specified in the schedule to the Industrial Development (Service Industry) Order 2010 (S..I. No. 81 of 2010).

Tourist traffic undertakings

(6)(a) A company engaged in tourism activities, within the meaning of section 488, is not to be a qualifying company unless and until it has satisfied the Revenue Commissioners that the National Tourism Development Authority (trading as Fáilte Ireland) has approved a 3 year development and marketing plan prepared by it which is primarily designed and formulated to increase tourist traffic and revenue from outside the State.

(6)(b) In considering whether to approve such a plan, the National Tourism Development Authority (trading as Fáilte Ireland) shall have regard only to such guidelines in relation to such approval as are agreed between it and the Minister for Tourism, Culture and Sport with the consent of the Minister for Finance. These guidelines may set out —

  • the extent to which the company’s interest in land and buildings may form part of its total assets,
  • specific requirements which have to be met in order to comply with the objective of increasing tourist traffic and revenue from outside the State, and
  • the extent to which, EII, and or SURE funds raised should be used on promotional work abroad.

Green energy activities

(7) A company whose relevant trading activities includes green energy activities shall cease to be a qualifying company unless it has expended all of the money subscribed for eligible shares on such activities, within a period ending 1 month before the end of the relevant period.

Nursing Home extensions

(7A) A company whose relevant trading activities includes operating a qualifying nursing home and is engaged in enlarging the capacity of the nursing home will cease to be a qualifying company if, before 30 days of the end of the relevant period, it has expended all of the funds subscribed for eligible shares on enlarging the capacity of the nursing home.

Research and development activities

(8)(a) Where a company raised funds through the scheme at a time when it had not commenced to trade, and such funds were used to fund expenditure on research and development, that company will cease to be a qualifying company unless it has:

  • within a period ending 1 month before the end of the 3 year holding period-
    1. expended all the funds raised on research and development, and
    2. disposed of a specified intangible asset which has arisen as a result of such research and development, to another person for the purposes of that other person’s trade, or

(b) Within 2 years commenced to carry on relevant trading activities and has expended all the funds raised on relevant trading activities or research and development

Company winding up

(9) Without interfering with the general conditions for a company to be a qualifying company, a qualifying company ceases to retain that status if at any time in the relevant period a resolution is passed, or an order is made, for the winding up of the company (or any act is done for the same purpose) or the company is dissolved without winding up.

(10) However, a company does not cease to be a qualifying company by reason of being wound up, or dissolved without winding up, if it can be demonstrated that the winding up or dissolution was for genuine commercial reasons (and not part of an arrangement mainly for avoiding tax) and steps are taken to distribute the company’s net assets, if any, to its members within the relevant period or within 3 years of the commencement of the winding up.

Genuine commercial reasons need not be limited to insolvency but could include other matters, for example, a falling off of trade or a bona fide reconstruction.

Issued share capital

(11) A qualifying company’s share capital must not at any time in the relevant period include any issued share capital which is not fully paid up. This is consistent with the objective of the relief, that is, the issue of shares solely to provide additional capital for the company.

Control

(12)(a)(b) The existence of some form of direct or indirect control over, or by, a company may disqualify that company from being treated as a qualifying company. This status will be lost if, at any time in the relevant period the company —

  • controls a second company,
  • together with any person connected with the company, controls a second company,
  • is under the control of a second company,
  • is under the control of a second company and any person connected with that second company,
  • is a 51 per cent subsidiary of a second company, or
  • has a 51 per cent subsidiary.

Additionally, if at any time within the relevant period arrangements are in existence whereby one of these prohibitions could apply, the qualifying company status will be relinquished.

This provision does not apply to qualifying subsidiaries within the meaning of section 505. It also does not apply where the company is controlled by the National Asset Management Agency (NAMA) or a company referred to in section 616(1)(g) or where the company is a 51 per cent subsidiary of NAMA or a company referred to in section 616(1)(g).

Anti-avoidance

(13)(a) & (16) A company in which a SURE investment has been made, is not to be a qualifying company, if during the relevant period, the company engages in dealings with the investor’s immediate former employer company and such dealings are conducted on a non-arm’s length basis. A company is also not to be a qualifying company where it carried on a trade which is similar to another trade which is under common control (that is, if an individual acquires a controlling interest in the company’s trade after 5 April, 1984, and has had a controlling interest in another similar trade at any time in the period beginning 2 years before and ending 3 years after the date the shares issued or, if later, the date the company begins to trade).

(13)(b) A similar trade is one which —

  • is concerned with the same or similar types of property (or parts of property),
  • provides the same or similar services or facilities, or
  • serves substantially the same or similar outlets or markets, as the company’s trade (or a substantial part of it).

The purpose of this rule is to prevent relief being given where, for instance, the proprietor of company A channels all new contracts to company B after the shareholders of A had subscribed for B’s shares. Company A can then be wound up and its shareholders reimbursed. Without this rule, the minority shareholders of A would effectively get relief on the transfer of an existing business from one company to another without the injection of any new venture capital.

(17) A company’s trade for these purposes includes the trade carried on by any of its subsidiaries.

Controlling interest

(14) An individual for the purposes of this section, is treated as having a controlling interest in a trade if —

  • in the case of a trade carried on by a company —
    • he/she controls the company,
    • the company is a close company and he/she (or an associate of him/her) is both a director of the company and is the beneficial owner of, or able directly or through the medium of other companies (or by any other indirect means) to control, more than 30 per cent of its ordinary share capital, or
    • he/she owns at least one half of the trade by reference to the test of ownership set out in section 400(2),
  • in any other case, he/she is entitled to not less than half of the assets used for, or the income arising from, the trade.

Associates

(15) The rights or powers of any person’s associate count as his/her rights or powers for the purposes of the controlling interest tests.

Firms in difficulty

(18) Excluded from the scope of “qualifying companies” are companies while they are regarded as firms in difficulty for the purposes of the relevant EU Guidelines on State Aid for rescuing and restructuring such firms.

Relevant Date: Finance Act 2019