769C Effect of lapse of capacity rights

Where a company has incurred qualifying expenditure on the purchase of capacity rights, the grant of the writing-down allowances provided for in section 769B would, if continued for the whole of the writing-down period, completely write off that expenditure. It may happen, however, that before the end of that period is reached the rights are allowed to lapse, or the company enjoying the annual allowances in respect of the expenditure in question may sell part or the whole of the rights acquired by incurring that expenditure. This section provides for certain adjustments in such circumstances.

Stop on further allowances

(1) If, before the end of the writing-down period—

• capacity rights cease completely to exercised or come to an end without any prospect of their being renewed at a later time,
• the rights are sold, or
• part of the rights are sold and the proceeds are not less than the amount of qualifying expenditure remaining unallowed,

the company is to receive no further writing-down allowance in respect of the expenditure.

Balancing allowances

(2) Where, before the end of the writing-down period, the capacity rights cease to be exercised by the company which incurred the qualifying expenditure on the purchase of the rights, or the rights are finally ended, or the company sells those rights and the net proceeds of the sale are less than the amount of the qualifying expenditure remaining unallowed (see subsection (5)), a balancing allowance is given. The amount of the balancing allowance is equal to the amount of the qualifying expenditure remaining unallowed or, in the case of a sale, the amount of the qualifying expenditure unallowed less the net proceeds of the sale.

Balancing charges

(3) Where a company which incurred qualifying expenditure on the purchase of the rights sells those rights and the net proceeds of the sale exceed the amount of the qualifying expenditure remaining unallowed (see subsection (5)), if any, a balancing charge is made equal to the amount of the excess or, where the qualifying expenditure remaining unallowed is nil, the net proceeds of the sale.

Part-sale

(4) Where there is a sale of part only of the capacity rights but a balancing charge does not apply because the proceeds of sale are less than the amount of the qualifying expenditure remaining unallowed, no balancing allowance is made. In addition, future writing-down allowances for the seller (who retains part of the rights) over the remaining writing-down period are to be adjusted. They are to be computed by deducting the proceeds of sale from the amount of expenditure unallowed and dividing by the number of years of the writing-down period remaining.

Expenditure remaining unallowed

(5) The expression “expenditure remaining unallowed” is defined as the original qualifying expenditure, less the writing-down allowances already made and less also the net proceeds of any previous sale of a part of the capacity rights on the acquisition of which the original qualifying expenditure was incurred.

Miscellaneous

(6) No balancing allowance is to be granted except where a writing-down allowance has been or could have been made. This ensures that balancing allowances are granted only to the companies mentioned in section 769B, namely, trading companies and other companies liable to Irish tax on income derived from the use of the capacity rights in question. Also, there is the usual stipulation restricting the amount on which a balancing charge may be made to the aggregate of the allowances already enjoyed in respect of the qualifying expenditure (in so far as those have not been withdrawn by any previous balancing charge).

Relevant Date: Finance Act 2019