Following discussions on this CCAB-I driven issue at TALC Technical, Revenue have issued an eBrief advising that, subject to general anti-avoidance, a company does not have to take account of the loans to participators provisions in relation to the charge to income tax where the participator or associate of the participator repays the loan/advance by the due date for filing of the company's corporation tax return.

TCA97 s438 imposes on a close company a charge to income tax at the standard rate on the grossed-up equivalent of a loan or advance made by the company to a participator or associate of a participator. Income tax so deducted forms part of the company's corporation tax liability and must be included on the company's corporation tax return.

A practical problem existed where the loan had been repaid after the year end but before the due date for the corporation tax return – based on the legislation, the tax on the loan had to be paid as part of the preliminary corporation tax, with a refund of the tax sought when the return had been submitted. This anomaly caused administrative problems for both taxpayers and Revenue.

While there seemed to be an unofficial practice linking the tax on the loan to the old preliminary tax rules where preliminary tax was paid six months after the year end (i.e. where the loan was repaid within six months of the end of the accounting period), the new rules of payment of preliminary tax within one month before the year end raised some issues.

ICAI, under the umbrella body CCAB-I, brought these issues to the attention of TALC Technical. Following detailed discussion and sharing of practical concerns from both sides, Revenue have issued eBrief No. 56/2007 outlining the current practice linking preliminary corporation tax and loans to participators. ICAI welcomes this practical approach taken by Revenue.

A copy of the Revenue eBrief No. 56/2007 is reproduced at Section 2.04.