^[15]>

“intermediate holding company” means a company whose business consists wholly or mainly of the holding of stocks, shares or securities and is, in relation to an investee company referred to in subsection (2)(a)(iv), a company through which the investee company holds stocks, shares or securities in a company referred to in subsection (2)(a)(i);

^<[15]

^[7]>

“trading stock” has the same meaning as in section 89.

^<[7]

^[16]>

(a) in acquiring any part of the ordinary share capital of—

(i) a company which exists wholly or mainly for the purpose of carrying on a trade or trades,

(ii) a company whose income consists wholly or mainly of profits or gains chargeable under Case V of Schedule D,

(iii) a company whose business consists wholly or mainly of the holding of stocks, shares or securities directly in a company referred to in subparagraph (i),

(iv) a company whose business consists wholly or mainly of the holding of stocks, shares or securities of a company referred to in subparagraph (i) indirectly through an intermediate holding company or companies, or

(v) a company whose business consists wholly or mainly of the holding of stocks, shares or securities directly in a company referred to in subparagraph (ii),

^<[16]

^[9]>

(b) in lending to a company referred to in paragraph (a) money which is used wholly and exclusively—

(i) where the company is a company which exists wholly or mainly for the purpose of carrying on a trade or trades, for the purposes of that trade or those trades,

(ii) where the company is a company whose income consists wholly or mainly of profits or gains chargeable under Case V of Schedule D, in the purchase, improvement or repair of premises to which the profits or gains ^[17]>relate, or^<[17][17]>relate,^<[17]

(iii) where the company is a company whose business consists wholly or mainly of the holding of stocks, shares or securities ^[18]>of a company^<[18][18]>directly in a company^<[18] referred to in paragraph (a)(i), for the purposes of holding such stocks, shares or securities,

(ba) in lending to a company referred to ^[20]>in paragraph (a)^<[20][20]>in paragraph (a) (other than a company referred to in paragraph (a)(iv))^<[20] money which is used wholly and exclusively by a connected company—

(i) where the connected company is a company which exists wholly or mainly for the purpose of carrying on a trade or trades, for the purposes of that trade or those trades,

(ii) where the connected company is a company whose income consists wholly or mainly of profits or gains chargeable under Case V of Schedule D, in the purchase, improvement or repair of premises to which the profits or gains ^[21]>relate, or^<[21][21]>relate,^<[21]

(iii) where the connected company is a company whose business consists wholly or mainly of the holding of stocks, shares or securities ^[22]>of a company^<[22][22]>directly in a company^<[22] referred to in paragraph (a)(i), for the purposes of holding such stocks, shares or securities, or

^<[9]

^[23]>

(iv) where the connected company is a company whose business consists wholly or mainly of the holding of stocks, shares or securities directly in a company referred to in paragraph (a)(ii), for the purposes of holding such stocks, shares or securities,

^<[23]

^[24]>

(bb) in lending to a company referred to in paragraph (a)(iv) money which is on-lent by that company to a connected company and is used wholly and exclusively by that connected company—

(i) where the connected company is a company referred to in paragraph (a)(iii), for the purposes of acquiring and holding any part of the ordinary share capital of a company referred to in paragraph (a)(i), or

(ii) where the connected company is a company referred to in paragraph (a)(iv), for the purposes of acquiring and holding any part of the ordinary share capital of a company referred to in paragraph (a)(iii), or

^<[24]

^[10]>

(2A) Subsection (2) shall not apply to a loan to an investing company to defray money applied in subscribing for share capital of another company on the issue of share capital by that other company unless the capital is used by that other company or by a connected company wholly and exclusively—

(a) where the company which uses the capital is a company which exists wholly or mainly for the purpose of carrying on a trade or trades, for the purposes of that trade or those trades,

(b) where the company which uses the capital is a company whose income consists wholly or mainly of profits or gains chargeable under Case V of Schedule D, in the purchase, improvement or repair of premises to which the profits or gains relate, or

(c) where the company which uses the capital is a company whose business consists wholly or mainly of the holding of stocks, shares or securities of a companydirectly or indirectly in a company referred to in paragraph (a)(i) ^[14]>of subsection (2)^<[14], for the purposes of holding such stocks, shares or securities.securities, or

^<[10]

^[27]>

(d) where the company which uses the capital is a company whose business consists wholly or mainly of the holding of stocks, shares or securities directly in a company referred to in paragraph (a)(ii) of subsection (2), for the purposes of holding such stocks, shares or securities.

^<[27]

^[28]>

(2B) Subsection (2)(a)(iv), (b)(iv) and (bb) shall apply only to a company, being a company whose business consists wholly or mainly of the holding of stocks, shares or securities of a company referred to in subsection (2)(a)(i) indirectly through an intermediate holding company or companies, where the company and each intermediate holding company exists for bona fide commercial reasons and not as part of a scheme or arrangement the purpose of which or one of the purposes of which is the avoidance of tax.

^<[28]

^[3]>

(4A) (a) Subject to the following paragraphs of this subsection, subsection (2) shall not apply to a loan to the investing company to defray money applied—

(i) in acquiring any part of the ordinary share capital of, or

(ii) in lending to a company money which is used directly or indirectly for the purposes of acquiring any part of the capital of,

a company (from such company or another company, being in either case a company which, at the time of the acquiring of the capital or immediately after that time, was connected with the investing company) if the loan is made to the investing company by a person who is connected with the investing company.

(b) Where, as a part of, or in connection with, any scheme or arrangement for the making of a loan to the investing company by a person (in this paragraph referred to as the “first-mentioned person”) who is not connected with the investing company, another person who is connected with the investing company directly or indirectly makes a loan to, a deposit with, or otherwise provides funds to the first-mentioned person or to a person who is connected with the first-mentioned person, then the loan made to the investing company shall be treated for the purposes of paragraph (a) as being a loan made to the investing company by a person with whom it is connected.

(c) Paragraph (a) shall not apply to interest on a loan (in this paragraph referred to as the “original loan”) made to a company if—

(i) the original loan is used to defray money applied—

(I) in acquiring ordinary share capital of another company on the issue of the share capital by the other company, or

(II) in lending to a company money which is used directly or indirectly for the purposes of acquiring ordinary share capital of another company on the issue of the share capital by the other company,

and

(ii) the share capital is issued for the purposes of increasing the aggregate of the capital available to the other company for the use by the other company wholly and exclusively for the purposes of its trade or business and not as part of any arrangement or understanding, entered into in connection with the original loan, the purpose or one of the purposes of which is to provide moneys, directly or indirectly—

(I) to the person (referred to in clause (II) as the “original lender”) who made the original loan and to thereby achieve directly or indirectly the effective repayment of the original loan or the greater part of it, or

(II) to another person who is connected with the original lender and to thereby achieve a provision of moneys that is, notwithstanding that the moneys are being provided (as part of the arrangement or understanding) to a person other than the original lender, equivalent to the achievement directly or indirectly of the effective repayment, referred to in clause (I), of the original loan or the greater part of it,

at a time before interest ceased to be payable by the investing company in respect of the original loan or such greater part of it.

(d) Where the use, whether direct use (in this paragraph referred to as the “direct use”) by the investing company or subsequent indirect use (in this paragraph referred to as the “indirect use”) through another company as investee or borrower or through a sequence of companies acting, in turn, as investees or borrowers, of a loan (in this paragraph and paragraph (e) referred to as the “original loan”) received by an investing company involves lending or acquisition of shares so that such use results in—

(i) interest (which is not deductible in computing income or profits under any provision of the Corporation Tax Acts by the investing company or any company connected with it) being received in, or being receivable in respect of, an accounting period, so as to be income, or as the case may be an amount credited in computing income, chargeable to corporation tax for that period, or

(ii) dividends or other distributions chargeable to corporation tax being received in an accounting period,

and the interest mentioned in subparagraph (i) is, or the dividends or distributions mentioned in subparagraph (ii) are, income of the investing company or a company connected with the investing company, being income which would not have arisen but for the direct use or indirect use of the original loan, then that income shall be relevant income for the purposes of paragraph (e) and shall be referred to in that paragraph as “relevant income”.

(e) If relief for interest paid (in this paragraph referred to as the “relevant interest”) by the investing company in an accounting period (in this paragraph referred to as the “relevant accounting period”) in respect of the original loan would, apart from this paragraph, be denied by virtue of paragraph (a), relief shall not be denied in respect of so much of the relevant interest as does not exceed the relevant income of the investing company for the relevant accounting period and where—

(i) the relevant interest exceeds the relevant income of the investing company for the relevant accounting period, by an amount referred to in this paragraph as the “relevant excess”,

(ii) apart from relief by virtue of an election under subparagraph (iii), relief could not be claimed under the Corporation Tax Acts in respect of the relevant interest represented by the relevant excess,

(iii) the investing company and a company (in this paragraph referred to as the “electing company”) connected with it jointly so elect and notify the inspector of that election in such form as the Revenue Commissioners may require, and

(iv) the aggregate value of relevant interest that may be deducted by virtue of elections under subparagraph (iii), by one or more companies other than the investing company, does not exceed the relevant excess, then so much of the relevant interest represented by the relevant excess may be deducted from the total profits, reduced by any other relief from corporation tax, of the electing company, for the accounting period (in this paragraph referred to as the “second-mentioned period”) for which the relevant income of the electing company is chargeable to corporation tax, as does not exceed the lesser of—

(I) the part of the relevant income of the electing company for the second-mentioned period which may be apportioned to the relevant accounting period (by reference to the proportion which the length of the period common to the relevant accounting period and the second-mentioned accounting period bears to the length of the second-mentioned accounting period), and

(II) the amount by which such part of that relevant income of the electing company exceeds the aggregate of any amounts, being—

(A) amounts of any relief, which is referable to the second-mentioned period, surrendered at any time by the electing company under Chapter 5 of Part 12, or

(B) amounts, which are not amounts referred to in clause (A), of any losses which could have been set off under section 396(2) against profits of the second-mentioned period but which were not set off against those profits,

but relief, for interest paid by the investing company, which has been allowed by virtue of this paragraph shall be deemed for the purposes mentioned in Paragraph 4(5) of Schedule 24 ^[4]>to the Principal Act^<[4] to have been allocated by the company concerned to the relevant income of the company by reference to which the relief for the interest was allowed, and the foreign tax in respect of that relevant income shall be disregarded for the purposes of paragraph 9E and 9F of Schedule 24.

(f) Where, as a part of, or in connection with, any scheme or arrangement for the making of a loan to any company (in this paragraph referred to as the “borrower”), which is connected with the investing company, by a person (in this paragraph referred to as the “first-mentioned person”) who is not connected with the investing company, another person who is connected with the investing company directly or indirectly makes a loan to, a deposit with, or otherwise provides funds to the first-mentioned person or to a person who is connected with the first-mentioned person, then interest payable by the first-mentioned person to the other person in respect of the loan, deposit or other funds shall be treated for the purposes of paragraph (d)(i) as interest which is deductible in computing income or profits under provisions of the Corporation Tax Acts by the investing company or a company connected with it.

(g) For the purposes of paragraph (e), “relevant income” of a company shall be increased or reduced by any amount of profit or gain or, as the case may be, loss directly related to that income or to the source of that income which is an amount arising—

(i) by virtue of a change in a rate of exchange (within the meaning of section 79), or

(ii) from any contract entered into by the company for the purpose of eliminating or reducing the risk of loss being incurred by the company due to a change in a rate of exchange (within the meaning of section 79) or in a rate of interest.

(h) For the purposes of paragraph (c), share capital shall not be treated as issued by a company as part of an arrangement or understanding of a type described in that paragraph, entered into in connection with an original loan (within the meaning of that paragraph), solely because that share capital is used directly or indirectly in paying off, to the person who made the original loan (within that meaning) or to a person connected with that person, a loan, advance or debt (in this paragraph referred to as the “other loan”) other than the original loan where—

(i) the other loan was used wholly and exclusively for the purposes of a trade or business of the company and not as part of any arrangement or understanding, entered into in connection with the other loan, the purpose or one of the purposes of which was to provide moneys, directly or indirectly—

(I) to a person (referred to in clause (II) as the “original lender”) who made, or directly or indirectly funded, the other loan and to thereby achieve directly or indirectly the effective repayment of the other loan or the greater part of it, or

(II) to another person who is connected with the original lender and to thereby achieve a provision of moneys that is, notwithstanding that the moneys are being provided (as part of the arrangement or understanding) to a person other than the original lender, equivalent to the achievement directly or indirectly of the effective repayment, referred to in clause (I), of the other loan or the greater part of it,

at a time before interest ceased to be payable by the company in respect of the other loan or such greater part of it, and

(ii) interest on the other loan, if that other loan had been made on or after 2 February 2006, would have been deductible in computing profits, or any description of profits, for the purposes of corporation tax—

(I) if the other loan had not been paid off, and

(II) on the assumption, if the other loan was free of interest, that it carried interest.

^<[3]

^[5]>

(4B) Where a loan, or part of a loan, to an investing company has been applied—

(a) to subscriptions for the share capital of another company on the issue of the share capital by the other company, or

(b) in lending moneys to another company,

and such other company (in this subsection and subsection (4D) referred to as the “other company”) uses those subscriptions or moneys to provide specified intangible assets (within the meaning of section 291A) in respect of which allowances are to be made to it under section 284 as applied by section 291A, then, notwithstanding subsection (3) and section 243, the amount of the relief to be given in respect of so much (in this subsection and subsections (4C) and (4D) referred to as the “relevant interest”) of the interest paid in an accounting period by the investing company on the loan, or the part of the loan, as the case may be, as exceeds the sum of—

(i) any dividends or other distributions chargeable to corporation tax received by the investing company from the other company in that accounting period in respect of that share capital, and

(ii) any interest received by the investing company for that accounting period in respect of those moneys lent to the other company,

shall not exceed the amount of interest that would be—

(I) the amount of the relevant interest to be deducted for the corresponding accounting period (within the meaning of subsection (4D)) by the other company—

(A) if that relevant interest had been incurred by the other company in connection with the provision of a specified intangible asset by reference to which allowances were to be made to it under section 284 as applied by section 291A in addition to any other interest so incurred by it, and

(B) notwithstanding subsection (6) of section 291A, if any additional restrictions of deductions, whether for allowances or interest, which would then be required by that subsection, were to be made solely by restriction of the deduction for that relevant interest,

or

(II) where the corresponding accounting period is not the same as the accounting period of the investing company or there is more than one corresponding accounting period, the aggregate of the amounts of relevant interest to be deducted for the corresponding period or periods by the other company if that relevant interest had been incurred by the other company, which amounts are computed by apportionment in accordance with paragraph (d) of subsection (4D) and are interest paid or treated as paid in the accounting period of the investing company.

(4C) The amount (in this paragraph referred to as the “excess amount”) of the interest paid in an accounting period by the investing company in respect of which, in accordance with subsection (4B), relief is not given under this section for that accounting period shall not be deducted or otherwise relieved for that period under any other provision of the Tax Acts but that excess amount of interest paid shall be carried forward and treated as an amount of relevant interest paid in the succeeding accounting period to be added to the relevant interest, if any, actually paid in that accounting period, for which, subject to subsection (4B), relief can be given for that accounting period and any excess amount of interest paid or treated as paid in that next succeeding accounting period shall, in turn, be carried forward and treated as an amount of relevant interest paid in the next succeeding accounting period to be added to the relevant interest, if any, actually paid in that accounting period for which, subject to subsection (4B), relief can be given for that accounting period and so on for each succeeding accounting period.

(4D) For the purposes of computing any restriction of relief to be given for an accounting period required by subsection (4B)—

(a) any accounting period (in this subsection referred to as the “corresponding accounting period”) of the other company which falls wholly or partly within an accounting period of the investing company corresponds to the accounting period of the investing company,

(b) if an accounting period of the investing company and the corresponding accounting period of the other company are not the same relevant interest will be apportioned to corresponding accounting periods on a time basis according to the proportion which the period common to the accounting period of the investing company and the corresponding accounting period bears to the accounting period of the investing company,

(c) the total relevant interest referable to a corresponding accounting period shall be the aggregate of each of the amounts of relevant interest apportioned to that corresponding accounting period under paragraph (b), and

(d) the amount of the total relevant interest referred to in paragraph (c) which, subject to subsection (4B)(I)(A) and (B), would have been deducted if it had been incurred by the other company for the corresponding accounting period shall be apportioned to each of the amounts of relevant interest referred to in paragraph (c) by reference to the proportion which each of those amounts bears to that total relevant interest.

^<[5]

^[13]>

(4E) (a) In this subsection “asset” means any asset other than—

(i) share capital in a company,

(ii) an asset referred to in subsection (4B) which is treated by the provisions of section 291A(2) as plant and machinery for the purposes of Chapters 2 and 4 of Part 9, or

(iii) an asset acquired as trading stock.

(b) Subject to paragraphs (c)to (f), subsection (2) shall not apply to a loan to the investing company to defray money applied in lending to a company money which is used directly or indirectly for the purposes of acquiring an asset from a company which, at the time of the acquiring of the asset, was connected with the investing company if the loan is made to the investing company by a person who is connected with the investing company.

(c) (i) Where, in an accounting period, interest is paid by an investing company on a loan to defray money applied in lending to another company (in this paragraph referred to as the “other company”) money which is used wholly and exclusively for the purposes of acquiring a trade (in this subsection referred to as an “acquired trade”) which immediately before its acquisition by the other company was carried on by a company which was not within the charge to corporation tax, then paragraph (b) shall not apply to that loan and, notwithstanding subsection (3) and section 243, the amount of the relief to be given in respect of the interest paid in an accounting period by the investing company on the loan shall not exceed the amount of the profits or gains of the other company in respect of the acquired trade for the corresponding period.

(ii) This paragraph shall apply where a company acquires part of a trade as if that part were a separate trade.

(iii) Where the other company begins to carry on the activities of an acquired trade as part of its trade then that part of its trade shall, for the purposes of this subsection, be treated as a separate trade and any necessary apportionment shall be made so that profits or gains shall be attributed to the separate trade on a just and reasonable basis and the amount of those profits or gains shall not exceed the amount which would be attributed to a distinct and separate company, engaged in those activities, if it were independent of, and dealing at arm’s length with, the investing company.

(d) (i) Where, in an accounting period, interest is paid by an investing company on a loan to defray money applied in lending to another company (in this paragraph referred to as the “other company”) money which is used wholly and exclusively for the purposes of acquiring an asset (in this paragraph referred to as an “acquired asset”) which is leased by the other company for that accounting period in the course of a trade (in this paragraph referred to as the “first-mentioned trade”) then, if immediately before that asset was acquired by the other company it was not in use for the purposes of a trade carried on by a company which was within the charge to corporation tax, paragraph (b) shall not apply to that loan and, notwithstanding subsection (3) and section 243, the amount of the relief to be given in respect of the interest paid in the accounting period by the investing company on the loan shall not exceed the amount of the profits or gains of the first-mentioned trade for the corresponding period as is attributable to the acquired asset.

(ii) For the purposes of subparagraph (i), in arriving at the profits or gains of a trade attributable to an acquired asset, any necessary apportionment shall be made of the expenses and receipts of the trade.

(e) For the purposes of computing any restriction of relief to be given for an accounting period required by paragraphs (c) and (d)—

(i) where an accounting period of the investing company and an accounting period of the other company coincide then the profits or gains of the other company in respect of the acquired trade for the corresponding period shall be the amount of the profits or gains of the acquired trade, for that accounting period, which are chargeable to tax under Case I of Schedule D, and

(ii) (I) any accounting period of the other company which, without coinciding with that accounting period, falls wholly or partly within an accounting period of the investing company shall correspond to that accounting period, and

(II) where an accounting period of the investing company and an accounting period of the other company do not coincide then the profits or gains of the other company in respect of the acquired trade for the corresponding period shall be the aggregate of the profits or gains in respect of the acquired trade which are chargeable to corporation tax under Case I of Schedule D for accounting periods of the other company that correspond to the accounting period of the investing company as reduced in each case by applying the fraction—

(if the fraction is less than unity)

where—

A is the length of the period common to the two accounting periods, and

B is the length of the accounting period of the other company.

(f) Where, as a part of, or in connection with, any scheme or arrangement for the making of a loan to the investing company by a person (in this paragraph referred to as the “first-mentioned person”) who is not connected with the investing company, another person who is connected with the investing company directly or indirectly makes a loan to, a deposit with, or otherwise provides funds to the first-mentioned person or to a person who is connected with the first-mentioned person, then the loan made to the investing company shall be treated for the purposes of paragraph (a) as being a loan made to the investing company by a person with whom it is connected.

(4F) (a) In this subsection “relevant period”, in relation to interest paid by an investing company, means the period to which that interest relates.

(b) Where a loan to an investing company, to which subsection (2) applies, has been applied in lending to another company (in this paragraph referred to as the “other company”) not within the charge to corporation tax money which is used wholly and exclusively for the purposes of the trade or business of the other company then, notwithstanding subsection (3) and section 243, the amount of the relief to be given in respect of so much of the interest paid (referred to in this paragraph as the “interest paid”) in an accounting period by the investing company on the loan, as exceeds the amount (including a nil amount) of any interest, arising to the investing company on the money lent to the other company, for the relevant period, shall not exceed the amount by which the interest paid exceeds the interest (if any) arising to the other company in that relevant period in respect of the money so used.

(c) Where a loan to an investing company, to which subsection (2) applies, has been applied in lending to another company (in this paragraph referred to as the “other company”) money which is used wholly and exclusively for the purposes of the trade or business of a connected company not within the charge to corporation tax then, notwithstanding subsection (3) and section 243—

(i) where the other company is within the charge to corporation tax, the amount of the relief to be given in respect of so much of the interest paid (referred to in this subparagraph as the “interest paid”) in an accounting period by the investing company on the loan, as exceeds the amount (including a nil amount) of any interest, arising to the investing company on the money lent to the other company, for the relevant period, shall not exceed the amount by which the interest paid exceeds the interest (if any) arising to the connected company in that relevant period in respect of the money so used, and

(ii) where the other company is not within the charge to corporation tax, the amount of the relief to be given in respect of so much of the interest paid (referred to in this subparagraph as the “interest paid”) in an accounting period by the investing company on the loan, as exceeds the amount (including a nil amount) of any interest, arising to the investing company on the money lent to the other company, for the relevant period, shall not exceed the amount by which the interest paid exceeds the greater of—

(I) the interest (if any) receivable by the other company from the connected company (in respect of the use by the other company of the money lent to it by the investing company), and

(II) the interest receivable by the connected company in that relevant period in respect of the money so used.

(4G) Where a loan to an investing company, to which subsection (2) applies, has been applied in lending to a company money which is used wholly and exclusively for the purposes of the trade of the company or of a connected company, the interest on the loan shall be treated for the purposes of Chapter 5 of Part 12 as relevant trading charges on income within the meaning of section 243A.

^<[13]

^[1]>

(5) Interest eligible for relief under this section shall be deducted from or set off against the income (not being income referred to in subsection (2)(a) of section 25) of the borrower for the year of assessment in which the interest is paid and tax shall be discharged or repaid accordingly.

(6) Where relief is given under this section in respect of interest on a loan, no relief or deduction under any other provision of the Tax Acts shall be given or allowed in respect of interest on the loan.

^<[1]