FINANCE ACT, 1986

AN ACT TO CHARGE AND IMPOSE CERTAIN DUTIES OF CUSTOMS AND INLAND REVENUE (INCLUDING EXCISE), TO AMEND THE LAW RELATING TO CUSTOMS AND INLAND REVENUE (INCLUDING EXCISE) AND TO MAKE FURTHER PROVISIONS IN CONNECTION WITH FINANCE. [27th May, 1986]

BE IT ENACTED BY THE OIREACHTAS AS FOLLOWS:

PART I Income Tax, Corporation Tax and Capital Gains Tax

Chapter I Income Tax

1 Amendment of section 2 (age exemption) of Finance Act, 1980.

1.—Section 2 of the Finance Act, 1980, is hereby amended, as respects the year 1986-87 and subsequent years of assessment, by the substitution in subsection (6) of “£6,300” for “£6,000” (inserted by the Finance Act, 1985), of “£7,350” for “£7,000” (inserted by the Finance Act, 1985), of “£3,150” for “£3,000” (inserted by the Finance Act, 1985) and of “£3,675” for “£3,500” (inserted by the Finance Act, 1985), and the said subsection (6), as so amended, is set out in the Table to this section.

TABLE

• (6) In this section “the specified amount” means—

• (a) in a case where the individual would, apart from this section, be entitled to a deduction specified in paragraph (a) of the said section 138, £6,300:

Provided that, if at any time during the year of assessment either the individual or his spouse was of the age of seventy-five years or upwards, “the specified amount” means £7,350;

• (b) in any other case, £3,150:

Provided that, if at any time during the year of assessment the individual was of the age of seventy-five years or upwards, “the specified amount” means £3,675.

2 Alteration of rates of income tax.

2.—Section 2 of the Finance Act, 1984, is hereby amended, as respects the year 1986-87 and subsequent years of assessment, by the substitution of the following Table for the Table to the said section:

“TABLE

PART I

Part of taxable income	Rate of tax	Rate of tax	Description of rate
(1)	(2)	(2)	(3)
The first £4,700	35 per cent.	35 per cent.	the standard rate
The next £2,800	48 per cent.	}	the higher rates
The remainder	58 per cent.	}	the higher rates

PART II

Part of taxable income	Rate of tax	Rate of tax	Description of rate
(1)	(2)	(2)	(3)
The first £9,400	35 per cent.	35 per cent.	the standard rate
The next £5,600	48 per cent.	}	the higher rates
The remainder	58 per cent.	}	the higher rates

”

3 Personal reliefs.

3.—(1) Where a deduction falls to be made from the total income of an individual for the year 1986-87 or any subsequent year of assessment in respect of relief to which the individual is entitled under a provision mentioned in column (1) of the Table to this subsection and the amount of the deduction would, but for this section, be an amount specified in column (2) of the said Table, the amount of the deduction shall, in lieu of being the amount specified in the said column (2), be the amount specified in column (3) of the said Table opposite the mention of the amount in the said column (2).

TABLE

Statutory provision	Amount to be deducted from total income for 1985-86	Amount to be deducted from total income for 1986-87 and subsequent years
(1)	(2)	(3)
	£	£
Income Tax Act, 1967:
section 138
(married man)	3,800	4,000
(widowed person)	2,400	2,500
(widow bereaved in the year of assessment)	3,800	4,000
(single person)	1,900	2,000
section 138A
(additional allowance for widows and others in respect of children)
(widowed person)	1,400	1,500
(others)	1,900	2,000
section 138B
(employee allowance)	600	700
Finance Act, 1974:
section 8
(age allowance, single or widowed person)	100	200
(age allowance, married man)	200	400

• (2) Section 2 of the Finance Act, 1981, section 2 of the Finance Act, 1982, and sections 3 and 4 of the Finance Act, 1985, shall have effect subject to the provisions of this section.

• (3) The First Schedule shall have effect for the purposes of supplementing subsection (1).

4 Amendment of section 141 (children) of Income Tax Act, 1967.

4.—The Income Tax Act, 1967, is hereby amended, as respects the year 1986-87 and subsequent years of assessment, by the substitution of the following section for section 141:

“Incapacitated children.

141.—(1) If the claimant proves that he has living at any time during the year of assessment any child—

• (a) who is under the age of 16 years and is permanently incapacitated by reason of mental or physical infirmity, or

• (b) who, if over the age of 16 years at the commencement of that year, is permanently incapacitated by reason of mental or physical infirmity from maintaining himself and had become so permanently incapacitated before he had attained the age of 21 years or had become so permanently incapacitated after attaining the age of 21 years but while he had been in receipt of full-time instruction at any university, college, school or other educational establishment,

he shall, subject to the provisions of this section, be entitled in respect of each such child to a deduction of £600:

Provided that—

- (i) a child who is under the age of 16 years shall be regarded as permanently incapacitated by reason of mental or physical infirmity only if the infirmity is such that there would be a reasonable expectation that, if the child were over the age of 16 years, he would be incapacitated from maintaining himself,

- (ii) in the case of a child to whom paragraph (*b*) applies, the deduction shall be £600 or the amount expended by the claimant in the year of assessment on the maintenance of the child, whichever is the lesser, and

- (iii) any deduction under this subsection shall be in substitution for, and not in addition to, any deduction to which the claimant might be entitled in respect of the same child under section 142.

• (2) If the claimant proves that for the year of assessment he has the custody of and maintains at his own expense any child who, but for the fact that he is not a child of the claimant, would be such a child as is referred to in subsection (1) and that neither he nor any other individual is entitled to a deduction in respect of the same child under subsection (1) or under any of the other provisions of this Part, or, if any other individual is entitled to such a deduction, that that other individual has relinquished his claim thereto, he shall be entitled in respect of the child to the same deduction as if the child were a child of his.

• (3)

  • (a) The reference in subsection (1) to a child receiving full-time instruction at an educational establishment shall include a reference to a child undergoing training by any person (hereafter in this subsection referred to as ‘the employer’) for any trade or profession in such circumstances that the child is required to devote the whole of his time to the training for a period of not less than two years.

  • (b) For the purpose of a claim in respect of a child undergoing training the inspector may require the employer to furnish particulars with respect to the training of the child in such form as may be prescribed by the Revenue Commissioners.

• (4) No deduction shall be allowed under this section in respect of any child who is entitled in his own right to an income exceeding £720 a year, except that, if the amount of the excess is less than the deduction which apart from this subsection would be allowable, a deduction reduced by that amount shall be allowed:

Provided that in calculating the income of the child for the purposes of the foregoing provision no account shall be taken of any income to which the child is entitled as the holder of a scholarship, bursary, or other similar educational endowment.

• (5) If any question arises as to whether any person is entitled to an allowance under this section in respect of a child who is over the age of 21 years as being a child who had become permanently incapacitated by reason of mental or physical infirmity from maintaining himself after attaining that age but while in receipt of such full-time instruction as aforesaid, the Revenue Commissioners may consult the Minister for Education.

• (6) Where, for any year of assessment, two or more individuals are or would, but for the provisions of this subsection, be entitled under this section to relief in respect of the same child, the following provisions shall have effect, that is to say:—

  • (a) only one deduction under this section shall be allowed in respect of such child;

  • (b) where such child is maintained by one parent only, that parent only shall be entitled to claim such deduction;

  • (c) where such child is maintained jointly by both parents, each parent shall be entitled to claim such part of such deduction as is proportionate to the amount expended by him or her on the maintenance of such child; and

  • (d) in ascertaining for the purposes of this subsection whether a parent maintains a child and, if so, to what extent, any payment made by such parent for or towards the maintenance of such child which such parent is entitled to deduct in computing his or her total income for the purposes of this Act shall be deemed not to be a payment for or towards the maintenance of such child.

• (7) In the preceding provisions of this section ‘child’ includes a stepchild and an illegitimate child whose parents have married each other after his birth and a child in respect of whom an adoption order under the Adoption Acts, 1952 to 1976, is in force.”.

5 Amendment of section 12 (relief for health expenses) of Finance Act, 1967.

5.—Section 12 of the Finance Act, 1967, is hereby amended, as respects the year 1986-87 and subsequent years of assessment, by the insertion, in the definition of “dependant” in subsection (1), of the following after paragraph (b):

“and

• (c) a child who, for the year of assessment—

• (i) (I) is under the age of 16 years, or

  • (II) if over the age of 16 years at the commencement of the year of assessment, is receiving full-time instruction at any university, college, school or other educational establishment, and

• (ii) is a child of the individual or, not being such a child, is in the custody of the individual and is maintained by the individual at his own expense for the whole or part of the year of assessment:

Provided that the provisions of subsections (3), (4), (5) and (7) of section 141 (inserted by the Finance Act, 1986) shall, with any necessary modifications, apply for the purposes of determining whether relief is to be granted under this section as they apply in determining whether a deduction is to be allowed under that section, except that in a case where the child's income exceeds the amount specified in the said subsection (4) relief under this section shall not be allowed;”.

6 Amendment of section 6 (special allowance in respect of P.R.S.I. for 1982-83) of Finance Act, 1982.

6.—Section 6 of the Finance Act, 1982, shall have effect for the purpose of ascertaining the amount of income on which an individual referred to therein is to be charged to income tax for the year 1986-87, as if in subsection (2)—

• (a) “1986-87” were substituted for “1982-83”, and

• (b) “£286” were substituted for “£312”, in each place where it occurs.

7 Amendment of section 8 (permanent health benefit schemes) of Finance Act, 1979.

7.—Section 8 of the Finance Act, 1979, is hereby amended by the insertion after subsection (5) of the following subsection:

• “(6)

  • (a) A policy of permanent health insurance, sickness insurance or other similar insurance issued in respect of an insurance made on or after the 6th day of April, 1986, shall be a permanent health benefit scheme within the meaning of this section if it conforms with a form which, at the time the policy is issued, is either—

    • (i) a standard form approved by the Revenue Commissioners as a standard form of permanent health benefit scheme; or

    • (ii) a form varying from a standard form so approved in no other respect than by making such alterations thereto as are, at the time the policy is issued, approved by the Revenue Commissioners as being compatible with a permanent health benefit scheme when made to that standard form and satisfying any conditions subject to which the alterations are so approved.

  • (b) In approving a policy as a standard form of permanent health benefit scheme in pursuance of paragraph (a), the Revenue Commissioners may disregard any provision of the policy which appears to them insignificant.”.

8 Relief for gifts to Cospóir.

8.—(1) In this section—

“Cospóir” means the National Sports Council (an Chomhairle Náisiúnta Spóirt) which was established by the Minister of State at the Department of Education on the 10th day of February, 1978;

“tax” means income tax or corporation tax, as the case may be.

• (2)
• (a) This section applies to a gift of money which, on or after the 6th day of April, 1986, is made to the Minister for Education for the benefit of Cospóir and is not deductible in computing for the purposes of tax the profits or gains of a trade or profession or is not income to which the provisions of section 439 of the Income Tax Act, 1967, apply.

• (b) The Revenue Commissioners may consult with the Minister for Education in relation to any question which may arise in connection with paragraph (a).

• (3) Where a person proves that he has made a gift to which this section applies and claims relief from tax by reference thereto, the provisions of subsection (4) or, as the case may be, subsection (5) shall apply:

Provided that, in determining the net amount of the gift for the purposes of those subsections, the amount or value of any consideration received by the said person as a result of making the gift, whether received directly or indirectly from Cospóir or any other person, shall be deducted from the amount of the gift.

• (4) For the purposes of income tax for the year of assessment in which a person makes a gift to which this section applies, the net amount thereof shall, subject to subsection (5), be deducted from or set off against any income of the person chargeable to income tax for that year and tax shall, where necessary, be discharged or repaid accordingly; and the total income of the person or, where the person is a wife whose husband is assessed to income tax in accordance with the provisions of section 194 (inserted by the Finance Act, 1980) of the Income Tax Act, 1967, the total income of the husband shall be calculated accordingly:

Provided that relief under this section shall not be given to a person for a year of assessment—

• (a) if the net amount of the gift (or the aggregate of the net amounts of gifts) made by him in that year, being a gift or gifts, as the case may be, to which this section applies, does not exceed £100, or

• (b) to the extent to which the net amount of the gift (or the aggregate of the net amounts of gifts) made by him in that year, being a gift or gifts, as the case may be, to which this section applies, exceeds £10,000.

• (5) Where a gift to which this section applies is made by a company—

• (a) the net amount thereof shall, for the purposes of corporation tax, be deemed to be a loss incurred by the company in a separate trade in the accounting period of the company in which the gift is made, and

• (b) the references in the proviso to subsection (4) to a year of assessment shall be construed as references to an accounting period of the company.

9 Tax treatment of directors of companies and employees granted rights to acquire shares or other assets.

9.—(1) (a) In this section, save where the context otherwise requires—

“company” has the meaning assigned to it by section 1 of the Corporation Tax Act, 1976;

“director” and “employee” have the meanings respectively assigned to them by section 13 (1) of the Finance Act, 1972;

“right” means a right to acquire any asset or assets including shares in any company;

“market value” shall be construed in accordance with section 49 of the Capital Gains Tax Act, 1975;

“shares” includes securities (within the meaning of Part IX of the Corporation Tax Act, 1976) and stock.

• (b) In this section—

• (i) references to the release of a right include references to agreeing to the restriction of the exercise of the right;

• (ii) any question whether a person is connected with another shall be determined in accordance with the provisions of section 157 of the Corporation Tax Act, 1976;

• (iii) a person shall be regarded as acquiring a right as a director of a company or as an employee—

• (I) if by reason of his office or employment it is granted to him, or to another person who assigns the right to him, and

• (II) if section 76 (3) of the Income Tax Act, 1967, does not apply in charging to tax the profits or gains of that office or employment,

and clauses (I) and (II) shall apply to a right granted by reason of a person's office or employment before he has commenced to hold it or after he has ceased to hold it as they would apply if he had commenced to hold the office or employment or had not ceased to hold the office or employment, as the case may be.

• (2) Where a person realises a gain by the exercise of, or by the assignment or release of, a right obtained by that person on or after the 6th day of April, 1986, as a director of a company or employee, he shall be chargeable to tax under Schedule E for the year of assessment in which the gain is so realised on an amount equal to the amount of his gain, as computed in accordance with this section.

• (3) Subject to subsection (5), where tax may by virtue of this section become chargeable in respect of any gain which may be realised by the exercise of a right, tax shall not be chargeable under any other provision of the Tax Acts in respect of the receipt of the right.

• (4) The gain realised by—

• (a) the exercise of any right at any time shall be taken to be the difference between the market value of the asset or assets, as the case may be, at the time of acquisition and the aggregate amount or value of the consideration, if any, given for the asset or assets and for the grant of the right, and

• (b) the assignment or release of any right shall be taken to be the difference between the amount or value of the consideration for the assignment or release and the amount or value of the consideration, if any, given for the grant of the right,

and for this purpose the inspector may make a just apportionment of any entire consideration given for the grant of the right or for the grant of the right and for something besides:

Provided that neither the consideration given for the grant of the right nor any such entire consideration shall be taken to include the performance of any duties in or in connection with an office or employment, and no part of the amount or value of the consideration given for the grant shall be deducted more than once under this subsection.

• (5)
• (a) Where such a right as is mentioned in subsection (2) is obtained as mentioned therein, and the right is capable of being exercised later than seven years after it is obtained, subsection (3) shall not prevent the charging of tax under any other provisions of the Tax Acts in respect of the receipt of the right; but where tax is charged under any of those provisions it shall be deducted from any tax which, under subsection (2), is chargeable by reference to the gain realised by the exercise, assignment or release of the right.

• (b) For the purpose of any charge to tax enabled to be made by this subsection, the value of a right shall be taken to be not less than the market value at the time the right is obtained of the asset or assets which may be acquired by the exercise of the right or of any asset or assets for which the asset or assets so acquired may be exchanged, reduced by the amount or value (or, if variable, the least amount or value) of the consideration for which the asset or assets may be so acquired.

• (6) Subject to subsection (7), a person shall, in the case of a right granted by reason of his office or employment, be chargeable to tax under this section in respect of a gain realised by another person—

• (a) if the right was granted to that other person, or

• (b) if the other person acquired the right otherwise than by or under an assignment made by way of a bargain at arm's length, or if the two are connected persons at the time when the gain is realised,

but in a case within paragraph (b) the gain realised shall be treated as reduced by the amount of any gain realised by a previous holder on an assignment of the right.

• (7) A person shall not be chargeable to tax by virtue of subsection (6) (b) in respect of any gain realised by another person if the first-mentioned person was divested of the right by operation of law on his bankruptcy or otherwise, but the other person shall be chargeable to tax in respect of the gain under Case IV of Schedule D.

• (8) If a right is assigned or released in whole or in part for a consideration which consists of or comprises another right, that other right shall not be treated as consideration for the assignment or release, but this section shall apply in relation to it as it applies in relation to the right assigned or released and as if the consideration for its acquisition did not include the value of the right assigned or released but did include the amount or value of the consideration given for the grant of the right assigned or released so far as that has not been offset by any valuable consideration for the assignment or release other than the consideration consisting of the other right.

• (9)
• (a) If as a result of two or more transactions a person ceases to hold a right and he or a connected person comes to hold another right (whether or not acquired from the person to whom the other right was assigned) and any of those transactions was effected under arrangements to which two or more persons holding rights in respect of which tax may be chargeable under this section were parties, those transactions shall be treated for the purposes of subsection (8) as a single transaction whereby the one right is assigned for a consideration which consists of or comprises the other right.

• (b) This subsection applies in relation to two or more transactions, whether they involve an assignment preceding, coinciding with, or subsequent to, an acquisition.

• (10) If a gain chargeable to tax under subsection (2) or subsection (6) is realised by the exercise of a right, paragraph 3 of Schedule 1 of the Capital Gains Tax Act, 1975, shall apply as if a sum equal to the amount of the gain so chargeable to tax formed part of the consideration given by the person acquiring the shares for their acquisition by him.

• (11)
• (a) Where, in the year 1986-87 or any subsequent year of assessment, a person grants a right in respect of which tax may become chargeable under this section, or allots any shares or transfers any asset in pursuance of such a right, or gives any consideration for the assignment or release in whole or in part of such a right, or receives written notice of the assignment of such a right, he shall deliver particulars thereof in writing to the inspector not later than thirty days after the end of that year.

• (b) Schedule 15 of the Income Tax Act, 1967, is hereby amended by the insertion in column 2 of “Finance Act, 1986, section 9 (11) (a)”.

10 Approved share option schemes.

10.—(1) The provisions of this section shall apply where, on or after the 6th day of April, 1986, an individual obtains a right to acquire shares in a body corporate—

• (a) by reason of his office or employment as a director or employee of that or any other body corporate; and

• (b) in accordance with the provisions of a scheme approved under the Second Schedule.

• (2) If the individual exercises the right in accordance with the provisions of the scheme at a time when it is approved under the Second Schedule—

• (a) tax shall not be chargeable under section 9 in respect of any gain realised by the exercise of the right,

• (b) if, but for this paragraph, section 9 of the Capital Gains Tax Act, 1975, would apply, that section shall not apply in calculating the consideration for the acquisition of the shares by him or for any corresponding disposal of them to him, and

• (c) as respects shares to which subsection (3) applies, and which were acquired by an individual by the exercise of the right, the period of ownership of those shares for the purposes of subsection (3) of section 3 of the Capital Gains Tax Act, 1975, shall be construed, notwithstanding subsection (4) of that section, as if the shares were acquired by the individual on the date on which he acquired the right.

• (3)
• (a) This subsection applies to shares which are acquired pursuant to the exercise of a right to acquire shares in a company which, at the time the right was obtained, was a qualifying company.

• (b) For the purposes of this subsection, a company is a qualifying company at any time if, throughout the period of twelve months ending at that time or, if the company commenced to trade during that period, throughout the period of twelve months commencing on the date the company so commenced to trade, it existed solely for the carrying on of a specified trade.

• (4) For the purposes of subsection (3), “specified trade” means a trade which consists wholly or mainly of—

• (a) the manufacture of goods (including activities which would, if the company carrying on the trade were to make a claim for relief in respect of the trade under Chapter VI of Part I of the Finance Act, 1980, fall to be regarded for the purposes of that Chapter as the manufacture of goods), or

• (b) exempted trading operations within the meaning of Part V (Profits from Trading within Shannon Airport) of the Corporation Tax Act, 1976.

• (5) For the purposes of subsections (3) and (4), a trade shall be regarded, as respects a period of twelve months, as consisting wholly or mainly of particular activities if, but only if, the total amount receivable by the company carrying on the trade from sales made or, as the case may be, in payment for services rendered in the course of those activities in the period of twelve months is not less than 75 per cent. of the total amount receivable by the company from all sales made or, as the case may be, in payment for all services rendered in the course of the trade in that period.

• (6) Schedule 15 of the Income Tax Act, 1967, is hereby amended by the insertion in Column 2 of “Finance Act, 1986, paragraph 14 of the Second Schedule”.

11 Profit sharing schemes.

11.—Section 52 of the Finance Act, 1982, is hereby amended, as respects the year 1986-87 and subsequent years of assessment, by the substitution of the following subsections for subsections (7) and (8):

• “(7) In this Chapter ‘the release date’, in relation to any of a participant's shares, means the fifth anniversary of the date on which the shares were appropriated to him.

• (8) Subject to section 56 (4), for the purposes of provisions of this Chapter charging an individual to income tax under Schedule E by reason of the occurrence of an event relating to any of his shares, any reference to ‘the appropriate percentage’ in relation to those shares shall be determined according to the time of that event, as follows:—

  • (a) if the event occurs before the fourth anniversary of the date on which the shares were appropriated to the participant and paragraph (c) does not apply, the appropriate percentage is 100 per cent.;

  • (b) if the event occurs on or after the fourth anniversary and before the fifth anniversary of the date on which the shares were appropriated to the participant and paragraph (c) does not apply, the appropriate percentage is 75 per cent.; and

  • (c) if, in a case where at the time of the event the participant—

    • (i) has ceased to be an employee or director of a relevant company as mentioned in subsection (5) (a), or

    • (ii) has reached pensionable age, as defined in section 2 of the Social Welfare (Consolidation) Act, 1981,

    the event occurs before the fifth anniversary of the date on which the shares were appropriated to him, the appropriate percentage is 50 per cent.”.

12 Relief for new shares purchased on issue by employees.

12.—(1) (a) In this section—

“director” has the same meaning as in Chapter III of Part V of the Income Tax Act, 1967;

“eligible employee” in relation to a qualifying company means—

• (i) where the company is a trading company, a full-time director or full-time employee of the company, or

• (ii) where the company is a holding company, a full-time director or full-time employee of the company or of a company which is its 75 per cent. subsidiary;

“eligible shares”, in relation to a qualifying company, means new shares forming part of the ordinary share capital of the company which—

• (i) are issued on or after the 6th day of April, 1986,

• (ii) are fully paid up,

• (iii) throughout the period of five years beginning with the date on which they are issued, carry no present or future preferential right to dividends or to the company's assets on its winding up and no present or future preferential right to be redeemed,

• (iv) are not subject to any restrictions other than restrictions which attach to all shares of the same class, and

• (v) are issued to and acquired by an eligible employee in relation to the company at not less than their market value at the time of issue;

“full-time director” and “full-time employee” have respectively the same meanings as in section 8 of the Finance Act, 1978;

“holding company” means a company whose business consists wholly or mainly of the holding of shares or securities of trading companies which are its 75 per cent. subsidiaries;

“market value” shall be construed in accordance with section 49 of the Capital Gains Tax Act, 1975;

“ordinary share capital” has the meaning assigned to it by section 155 (5) of the Corporation Tax Act, 1976;

“qualifying company” means a company which is at the time the eligible shares are issued—

• (i) incorporated in the State,

• (ii) resident in the State and not resident elsewhere, and

• (iii) (I) a trading company, or

• (II) a holding company;

“trading company” means a company whose business consists wholly or mainly of the carrying on wholly or mainly in the State of a trade or trades.

• (b) In this section “75 per cent. subsidiary”, in relation to a company, has the meaning assigned to it for the purposes of the Corporation Tax Acts by section 156 of the Corporation Tax Act, 1976, as applied for the purposes of section 107 of that Act by subsections (6) and (7) of that section.

• (c) References in this section to a disposal of shares include references to a disposal of an interest or right in or over the shares and an individual shall be treated for the purposes of this section as disposing of any shares which he is treated by virtue of paragraph 5 of Schedule 2 to the Capital Gains Tax Act, 1975, as exchanging for other shares.

• (d) Shares in a company shall not be treated for the purposes of this section as being of the same class unless they would be so treated if dealt in on a stock exchange in the State.

• (2) Subject to the subsequent provisions of this section, where, in the year 1986-87 or any subsequent year of assessment, an eligible employee in relation to a qualifying company subscribes for eligible shares in the qualifying company, he shall be entitled, in estimating the amount of his total income for the year of assessment in which the shares are issued, to have a deduction made of an amount equal to the amount of the subscription:

Provided that a deduction shall not be given to the extent to which the amount subscribed by an eligible employee for eligible shares issued to him in all years of assessment exceeds £750.

• (3) Subsection (2) shall not apply as respects any amount subscribed for eligible shares if within the period of five years from the date of their acquisition—

• (a) they are disposed of, or

• (b) the eligible employee who made the subscription receives in respect of the shares any money or money's worth which does not constitute income in his hands for the purposes of income tax,

and there shall be made all such assessments, additional assessments or adjustments of assessments as are necessary to withdraw any relief from income tax already given under subsection (2) in respect of the amount subscribed:

Provided that where an event mentioned in paragraph (a) or (b) occurs after the fourth anniversary of the date on which the shares were issued to the eligible employee relief shall be withdrawn only to the extent of 75 per cent. of the amount which would otherwise be withdrawn.

• (4) Except where the shares are in a company whose ordinary share capital, at the time of acquisition of the shares by the eligible employee, consists of shares of one class only the majority of the issued shares of the same class as the eligible shares must be shares other than—

• (a) eligible shares, and

• (b) shares held by persons who acquired their shares in pursuance of a right conferred on them or an opportunity afforded to them as a director or employee of the qualifying company or any of its 75 per cent. subsidiaries.

• (5) In relation to shares in respect of which relief has been given under subsection (2) and not withdrawn, any question—

• (a) as to which (if any) such shares issued to an eligible employee at different times a disposal relates, or

• (b) whether a disposal relates to such shares or to other shares,

shall for the purposes of this section be determined as for the purposes of section 17 of the Finance Act, 1984.

• (6) Where there occurs in relation to any of the eligible shares of an eligible employee (hereinafter referred to as “the original holding”) a transaction which results in a new holding, as defined in paragraph 2 (1) (b) of Schedule 2 to the Capital Gains Tax Act, 1975, being equated with the original holding for the purposes of capital gains tax, then for the purposes of subsection (3)—

• (a) the new holding shall be treated as shares in respect of which relief under this section has been given,

• (b) the transaction shall not be treated as involving a disposal of the original holding,

• (c) the consideration for the disposal of the original holding to the extent that it consists of the new holding shall not be treated as money or money's worth, and

• (d) a disposal of the whole or a part of the new holding shall be treated as a disposal of the whole or a corresponding part of the shares in respect of which relief has been given under this section.

• (7) Any amount in respect of which relief is allowed under subsection (2) and not withdrawn shall be treated as a sum which, by reason of paragraph 4 of Schedule 1 to the Capital Gains Tax Act, 1975, is to be excluded from the sums allowable under paragraph 3 of that Schedule.

• (8) An eligible employee shall not be entitled to relief under subsection (2) in respect of any shares unless the shares are subscribed for and issued for bona fide commercial reasons and not as part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax.

• (9) All such provisions of the Income Tax Acts as apply in relation to the deductions specified in sections 138 to 143 of the Income Tax Act, 1967, shall, with any necessary modifications, apply in relation to relief under this section.

13 Amendment of provisions relating to relief for investment in corporate trades.

13.—Section 12 of the Finance Act, 1984, is hereby amended by the substitution in subsection (11) of “any of the six years” for “either of the two years”, and the said subsection (11), as so amended, is set out in the Table to this section.

TABLE

• (11) This section applies only where the shares concerned are issued in the year 1984-85 or any of the six years of assessment immediately following.

14 Taxation treatment of certain dividends.

14.—(1) A dividend which is paid on or after the 6th day of April, 1986, by a company resident in the State and which is a relevant distribution for the purposes of section 45 of the Finance Act, 1980, shall be a qualifying dividend for the purposes of this section.

• (2) Where an individual who is resident in the State and is not resident elsewhere claims and proves that for any year of assessment (being the year 1986-87 or any subsequent year of assessment) he is beneficially entitled to qualifying dividends he shall, for all the purposes of the Income Tax Acts, apart from this section, be entitled, in computing the amount of his total income for that year of assessment, to have the amount of his income for that year which is represented by the qualifying dividends reduced by 50 per cent. of that amount, but the amount of any tax credit to which he is entitled in respect of any qualifying dividend included in his income for that year shall be determined in accordance with section 45 (3) of the Finance Act, 1980, as if this section had not been enacted:

Provided that the amount by which the income of an individual which is represented by qualifying dividends is reduced in accordance with this section for any year of assessment shall not exceed £7,000.

• (3) All such provisions of the Income Tax Acts as apply in relation to the deductions specified in sections 138 to 143 of the Income Tax Act, 1967, shall, with any necessary modifications, apply in relation to relief under this section.

• (4) Section 198 (1) (inserted by the Finance Act, 1980) of the Income Tax Act, 1967, is hereby amended by the insertion in paragraph (a) of the following subparagraph after subparagraph (viii):

• “(ix) so far as it flows from relief under section 14 of the Finance Act, 1986, in the proportions in which they are beneficially entitled to the income from the qualifying dividends giving rise to the relief,”.

Chapter II Taxation of Farming Profits

15 Farming: amendment of provisions relating to relief in respect of increase in stock values.

15.—(1) Section 31A (inserted by the Finance Act, 1976) of the Finance Act, 1975, is hereby amended by the substitution of “1986” for “1985” (inserted by the Finance Act, 1985)—

• (a) in paragraph (iv) (inserted by the Finance Act, 1979) of the proviso to subsection (4) (a), and

• (b) in each place where it occurs in subsections (7) and (9) (inserted by the Finance Act, 1984),

and the said paragraph (iv), the said subsection (7) (apart from the proviso) and the said subsection (9) (apart from the proviso), as so amended, are set out in the Table to this subsection.

TABLE

• (iv) a deduction shall not be allowed under the provisions of this section in computing a company's trading income for any accounting period which ends on or after the 6th day of April, 1986.

• (7) Where in relation to an accounting period a company's opening stock value exceeds its closing stock value, the amount of the excess (in this section referred to as the company's “decrease in stock value”) shall, if the accounting period ends on a date before the 6th day of April, 1986, be treated in the computation of the company's trading income for the purposes of corporation tax, as a trading receipt of the company's trade for that accounting period:

• (9) In the computation of a company's trading income for the purposes of corporation tax for any accounting period which ends on or after the 6th day of April, 1986, in which there is a decrease in stock value, there shall be treated as a trading receipt of the company's trade for that accounting period the amount (if any) by which A exceeds the aggregate of B and C

where—

A is the aggregate amount of the company's decreases in stock value in all accounting periods which ended on or after the 6th day of April, 1986,

B is the aggregate amount of the company's increases in stock value in all accounting periods which ended on or after the 6th day of April, 1986, and

C is the aggregate of the amounts which under this subsection are treated as trading receipts of the company's trade for preceding accounting periods:

• (2) Section 12 of the Finance Act, 1976, is hereby amended—

• (a) by the substitution in subsection (3) of “1986-87” for “1985-86” (inserted by the Finance Act, 1985), and

• (b) by the substitution of “1986” for “1985” (inserted by the Finance Act, 1985) in each place where it occurs in subsections (5) and (6) (inserted by the Finance Act, 1984),

and the said subsection (3), the said subsection (5) (apart from the proviso) and the said subsection (6) (apart from the proviso), as so amended, are set out in the Table to this subsection.

TABLE

• (3) Any deduction allowed by virtue of this section in computing a person's trading profits for an accounting period shall not have effect for any purpose of the Income Tax Acts for any year of assessment prior to the year 1974-75 or later than the year 1986-87.

• (5) In the computation of a person's trading profits for an accounting period in which there is a decrease in stock value and which ends on a date in the period from the 6th day of April, 1976, to the 5th day of April, 1986, the amount of that decrease shall be treated as a trading receipt of the trade for that accounting period:

• (6) In the computation of a person's trading profits for any accounting period in which there is a decrease in stock value and which ends on or after the 6th day of April, 1986, there shall be treated as a trading receipt of the trade for that accounting period the amount (if any) by which A exceeds the aggregate of B and C

where—

A is the aggregate amount of the person's decreases in stock value in all accounting periods which ended on or after the 6th day of April, 1986,

B is the aggregate amount of the person's increases in stock value in all accounting periods which ended on or after the 6th day of April, 1986, and

C is the aggregate of the amounts which are treated as trading receipts of the person's trade for preceding accounting periods which ended on or after the 6th day of April, 1986:

• (3) This section shall have effect only as respects a trade of farming.

16 Credit for farm tax.

16.—(1) Subject to the following provisions of this section, where, for the year 1986-87 or any subsequent year of assessment, an individual is chargeable to income tax in respect of profits or gains from farming and on any date within that year of assessment he is liable, in accordance with the provisions of section 9 of the Farm Tax Act, 1985, for the payment of farm tax in respect of a taxable farm, the amount of income tax so chargeable shall be reduced by—

• (a) where paragraph (a) of subsection (2) of the said section 9 applies, the amount of farm tax paid by him in that year of assessment in accordance with the provisions of that paragraph,

• (b) where paragraph (b) of the said subsection (2) applies—

• (i) if each person jointly and severally liable for payment of the farm tax under that paragraph pays his separate share of the farm tax, the amount of farm tax so paid by him in that year of assessment,

• (ii) if each person so liable for payment does not pay his separate share of that farm tax, such portion of the total farm tax payable under that paragraph as may reasonably be regarded as borne by him in that year of assessment, and

• (c) where paragraph (c) of the said subsection (2) applies—

• (i) if each person jointly and severally liable under that paragraph for payment of the farm tax in respect of so much of the farm as is not apportioned under section 3 (2) of the said Act pays his separate share of that farm tax, the amount of that farm tax so paid by him in that year of assessment,

• (ii) if each person so liable for payment of such farm tax does not pay his separate share of that farm tax, such portion of the total farm tax payable under that paragraph in respect of so much of the farm as is not so apportioned as may reasonably be regarded as borne by him:

Provided that—

• (a) the amount of the reduction granted for any year of assessment under this subsection shall not exceed—

• (i) the amount of the farm tax payable by the individual for the calendar year ending in the year of assessment, and

• (ii) the tax appropriate to the profits or gains from farming in relation to the said individual for that year of assessment, and

• (b) in determining the income chargeable to income tax for any year of assessment no sum shall be deducted in respect of farm tax.

• (2) Subsection (1) shall apply in the case of a husband who is chargeable to tax in accordance with the provisions of section 194 (inserted by the Finance Act, 1980) of the Income Tax Act, 1967, as if references to profits or gains from farming included any such profits or gains of his wife and references to farm tax paid or payable included references to farm tax paid or payable by his wife.

• (3) For the purposes of subsection (1) the tax appropriate to the profits or gains from farming in relation to an individual for a year of assessment shall be determined in accordance with the Third Schedule.

• (4) In this section “farm tax” and “taxable farm” have the meanings respectively assigned to them by section 1 (1) of the Farm Tax Act, 1985.

Chapter III Relief for Investment in Research and Development

17 Interpretation (Chapter III).

17.—(1) In this Chapter—

“associate” has the same meaning in relation to a person as it has by virtue of section 103 (3) of the Corporation Tax Act, 1976, in relation to a participator;

“control”, except in section 20 (7), shall be construed in accordance with subsections (2) to (6) of section 102 of the Corporation Tax Act, 1976;

“director” shall be construed in accordance with section 103 (5) of the Corporation Tax Act, 1976;

“market value” shall be construed in accordance with section 49 of the Capital Gains Tax Act, 1975;

“ordinary shares” means shares forming part of a company's ordinary share capital;

“the project period”, in relation to a qualifying research and development project, means the period commencing on the date on which the work in connection with the project commences to be carried out and ending on the date on which—

• (a) all work in connection with the project has ceased, and

• (b) all amounts of the type referred to in section 24 (b) relating to that project have been received by the qualifying research and development company which carried out the project;

“qualifying research and development project” means a project which—

• (a) has as its sole object the development of new or improved industrial processes, methods or products, and

• (b) is carried out wholly or mainly in the State;

“qualifying trade” means a trade which—

• (a) consists wholly or mainly of the manufacture of goods within the meaning of Chapter VI of Part I of the Finance Act, 1980;

• (b) is conducted on a commercial basis and is carried on with a view to the realisation of profits,

and references to a trade in this Chapter shall be construed without regard to so much of the definition of “trade” in section 1 (1) of the Income Tax Act, 1967, as relates to adventures or concerns in the nature of a trade:

Provided that a trade which during a relevant period consists partly of the manufacture of goods within the said meaning and partly of other trading operations shall be regarded for the purposes of this definition as a trade which consists wholly or mainly of the manufacture of goods within the said meaning if, but only if, the total amount receivable in the relevant period from sales of such goods is not less than 75 per cent. of the total amount receivable by the company from all sales made and services rendered in the course of the trade in the relevant period;

“the relevant period” has the meaning assigned to it by section 18 (7);

and

“the relief” and “relief” mean relief under section 18 and references to the amount of the relief shall be construed in accordance with subsection (3) of that section.

• (2) Section 157 of the Corporation Tax Act, 1976, applies for the purposes of the provisions of this Chapter other than section 20.

• (3) References in this Chapter to a disposal of shares include references to a disposal of an interest or right in or over the shares and an individual shall be treated for the purposes of this Chapter as disposing of any shares which he is treated by virtue of paragraph 5 of Schedule 2 to the Capital Gains Tax Act, 1975, as exchanging for other shares.

• (4) References in this Chapter to the reduction of any amount include references to its reduction to nil.

18 The relief.

18.—(1) This Chapter has effect for affording relief from income tax where—

• (a) an individual who qualifies for the relief subscribes for eligible shares in a qualifying research and development company, and

• (b) those shares are issued to him for the purposes of raising money for a qualifying research and development project which is being carried out by the company or which it intends to carry out.

• (2) In this Chapter “eligible shares” means new ordinary shares which, throughout the period of five years beginning on the date on which they are issued, carry no present or future preferential right to dividends or to a company's assets on its winding up and no present or future preferential right to be redeemed.

• (3) The relief in respect of the amount subscribed by an individual for any eligible shares shall be given as a deduction of that amount from his total income for the year of assessment in which the shares are issued, and references in this Chapter to the amount of the relief are references to the amount of that deduction.

• (4) The relief shall be given on a claim and shall not be allowed—

• (a) unless and until the company has carried out for a period of not less than four months, or for the project period if that is shorter, the qualifying research and development project for which the money was raised by the issue of the shares in respect of which relief is claimed, and

• (b) if the company is not carrying out that qualifying research and development project at the time when the shares are issued, unless the company begins to carry it out within two years after that time.

• (5) A claim for the relief may be allowed at any time after the qualifying research and development project has been carried out by the company for the period referred to in subsection (4) (a) if the conditions for the relief are then satisfied; but no claim shall be allowed before the 1st day of January, 1987.

• (6) In the case of a claim allowed before the end of the relevant period, the relief shall be withdrawn if by reason of any subsequent event it appears that the claimant was not entitled to the relief allowed.

• (7) In this Chapter “the relevant period”, in relation to relief in respect of any eligible shares issued by a qualifying research and development company for the purpose of raising money for a qualifying research and development project, means—

• (a) as respects sections 20 and 25 the period beginning on the incorporation of the qualifying sponsoring company on behalf of which the research and development company carries out, or intends to carry out, the qualifying research and development project (or, if the qualifying sponsoring company was incorporated more than two years before the date on which the shares were issued, beginning two years before that date) and ending on the earlier of the following dates, that is to say—

• (i) the date which is five years after the issue of the shares, and

• (ii) the date on which the project period (hereafter in this subsection referred to as “the relevant project period”) in relation to the qualifying research and development project for which the money raised by the issue of the shares was, or is to be, expended comes to an end,

• (b) as respects section 21 the period which corresponds to the relevant project period or to the period beginning on the date on which the shares were issued and ending on the date which is five years after the issue of the shares, whichever period comes to an end first, and

• (c) as respects section 22 the period beginning on the date the shares were issued and ending on the later of the following dates, that is to say—

• (i) the date which is three years after the commencement of the relevant project period, and

• (ii) the date on which the relevant project period comes to an end.

• (8) Where by reason of its being wound up, or dissolved without winding up, the company carries out the qualifying research and development project for a period of less than that referred to in subsection (4) (a), the said subsection (4) (a) shall have effect as if it referred to that lesser period but only if it is shown that the winding up or dissolution was for bona fide commercial reasons and not as part of a scheme or arrangement the main purpose or one of the main purposes of which was the avoidance of tax.

• (9) All such provisions of the Income Tax Acts as apply in relation to the deductions specified in sections 138 to 143 of the Income Tax Act, 1967, shall, with any necessary modifications, apply in relation to relief under this Chapter.

• (10) Subject to the provisions of section 30, no account shall be taken of the relief, in so far as it is not withdrawn, in determining whether any sums are excluded by virtue of paragraph 4 of Schedule 1 to the Capital Gains Tax Act, 1975, from the sums allowable as a deduction in the computation of gains and losses for the purposes of the Capital Gains Tax Acts.

• (11) This section applies only where the shares concerned are issued in the year 1986-87 or any of the four years of assessment immediately following that year.

19 Limits on relief.

19.—(1) The relief shall not be given in respect of any amounts subscribed by an individual for eligible shares issued to him by any qualifying research and development company in any year of assessment unless the amount or total amount subscribed by him for the eligible shares issued to him by the company in that year is £200 or more:

Provided that in the case of an individual who is a husband assessed to tax for a year of assessment in accordance with the provisions of section 194 (inserted by the Finance Act, 1980) of the Income Tax Act, 1967, any amount subscribed by his spouse for eligible shares issued to her in that year of assessment by the company shall, for the purposes of determining whether this subsection applies, be deemed to have been subscribed by him for eligible shares issued to him by the company.

• (2) The relief shall not be given to the extent to which the amount or total amount subscribed by an individual for eligible shares issued to him in any year of assessment (whether or not by the same company) exceeds £25,000.

• (3) Section 198 (1) (inserted by the Finance Act, 1980) of the Income Tax Act, 1967, is hereby amended by the insertion in paragraph (a) of the following subparagraph after subparagraph (ix) (inserted by section 14):

• “(x) so far as it flows from relief under Chapter III of Part I of the Finance Act, 1986, in the proportions in which they subscribed for the eligible shares giving rise to the relief,”.

20 Individuals qualifying for relief.

20.—(1) (a) An individual qualifies for the relief if he subscribes on his own behalf for the eligible shares in a qualifying research and development company and is not at any time in the relevant period connected with a qualifying sponsoring company on behalf of which the qualifying research and development company carries out a qualifying research and development project.

• (b) For the purposes of this section any question whether an individual is connected with a qualifying sponsoring company shall be determined in accordance with the following provisions of this section.

• (2) An individual is connected with a qualifying sponsoring company if he, or an associate of his, is—

• (a) an employee of the company or of a partner of the company,

• (b) a partner of the company, or

• (c) subject to subsection (3), a director of the company or of another company which is a partner of that company.

• (3) An individual is not connected with a qualifying sponsoring company by reason only that he, or an associate of his, is a director of the company or of another company which is a partner of that company unless he or his associate (or a partnership of which he or his associate is a member) receives a payment from either company during the period of five years beginning on the date on which the shares are issued or is entitled to receive such a payment in respect of that period or any part of it; but for that purpose there shall be disregarded—

• (a) any payment or reimbursement of travelling or other expenses wholly, exclusively and necessarily incurred by him or his associate in the performance of his duties as such director,

• (b) any interest which represents no more than a reasonable commercial return on money lent to either company,

• (c) any dividend or other distribution paid or made by either company which does not exceed a normal return on the investment,

• (d) any payment for the supply of goods to either company which does not exceed their market value, and

• (e) any reasonable and necessary remuneration which—

• (i) is paid for services rendered to either company in the course of a trade or profession (not being secretarial or managerial services or services of a kind provided by the company itself),

and

• (ii) is taken into account in computing the profits or gains of the trade or profession under Case I or II of Schedule D or would be so taken into account if it fell in a period on the basis of which those profits or gains are assessed under that Schedule.

• (4) An individual is connected with a qualifying sponsoring company if he directly or indirectly possesses or is entitled to acquire more than 30 per cent. of—

• (a) the issued ordinary share capital of the company, or

• (b) the loan capital and issued share capital of the company, or

• (c) the voting power in the company.

• (5) For the purposes of subsection (4) (b) and section 21 (7) (b) the loan capital of a company shall be treated as including any debt, other than a debt referred to in subsection (9), incurred by the company—

• (a) for any money borrowed or capital assets acquired by the company, or

• (b) for any right to receive income created in favour of the company, or

• (c) for consideration the value of which to the company was (at the time when the debt was incurred) substantially less than the amount of the debt (including any premium thereon).

• (6) An individual is connected with a qualifying sponsoring company if he directly or indirectly possesses or is entitled to acquire such rights as would, in the event of the winding up of the company or in any other circumstance, entitle him to receive more than 30 per cent. of the assets of the company which would at that time be available for distribution to equity holders of the company, and for the purposes of this subsection—

• (a) the persons who are equity holders of the company, and

• (b) the percentage of the assets of the company to which the individual would be entitled,

shall be determined in accordance with sections 109 and 111 of the Corporation Tax Act, 1976, taking references in the said section 111 to the first company as references to an equity holder and references to a winding up as including references to any other circumstance in which assets of the company are available for distribution to its equity holders.

• (7) An individual is connected with a qualifying sponsoring company if he has control of it within the meaning of section 158 of the Corporation Tax Act, 1976.

• (8) For the purposes of this section an individual shall be treated as entitled to acquire anything which he is entitled to acquire at a future date or will at a future date be entitled to acquire; and there shall be attributed to any person any rights or powers of any other person who is an associate of his.

• (9) In determining, for the purposes of this section, whether an individual is connected with a qualifying sponsoring company, no debt incurred by the company by overdrawing an account with a person carrying on a business of banking shall be treated as loan capital of the company if the debt arose in the ordinary course of that business.

21 Qualifying research and development company.

21.—(1) A company (hereafter in this section and in section 23 referred to as a “research and development company”) is a qualifying research and development company if it is incorporated in the State and complies with the requirements of this section and of section 23.

• (2) The research and development company shall, throughout the relevant period—

• (a) be resident in the State and not resident elsewhere, and

• (b) exist solely for the carrying out of a qualifying research and development project.

• (3) Without prejudice to the generality of subsection (2) but subject to subsection (4), a research and development company ceases to comply with subsection (2) if before the end of the relevant period a resolution is passed, or an order is made, for the winding up of the company (or, in the case of a winding up otherwise than under the Companies Act, 1963, any other act is done for the like purpose) or the company is dissolved without winding up.

• (4) A research and development company shall not be regarded as ceasing to comply with subsection (2) if it does so by reason of being wound up or dissolved without winding up and it is shown that the winding up or dissolution was for bona fide commercial reasons and not part of a scheme or arrangement the main purpose or one of the main purposes of which was the avoidance of tax.

• (5) The research and development company's issued share capital may not, at any time in the relevant period, include any shares which are not eligible shares.

• (6)
• (a) The research and development company may not at any time in the relevant period—

• (i) control (or together with any person connected with it control) another company or be under the control of another company (or of another company and any person connected with that other company), or

• (ii) be a 51 per cent. subsidiary of another company or itself have a 51 per cent. subsidiary,

and no arrangements may be in existence at any time in that period by virtue of which the company could fall within subparagraph (i) or (ii).

• (b) In this subsection “51 per cent. subsidiary”, in relation to any company, has the meaning assigned to it, for the purposes of the Corporation Tax Acts, by section 156 of the Corporation Tax Act, 1976.

• (7) Any qualifying sponsoring company in respect of which the research and development company carries out a qualifying research and development project may not in the relevant period, directly or indirectly, possess or be entitled to acquire more than 49 per cent. of—

• (a) the issued ordinary share capital of the research and development company, or

• (b) the loan capital and issued share capital of the research and development company, or

• (c) the voting power in the research and development company.

• (8) Where at any time a research and development company is or may become entitled to receive any amount by reason of its having carried out a qualifying research and development project it shall, at that time, be treated as existing for the carrying out of that project.

22 Qualifying sponsoring company.

22.—(1) A company is a qualifying sponsoring company if it is incorporated in the State and complies with the requirements of this section.

• (2) The company shall, throughout the relevant period—

• (a) be resident in the State and not resident elsewhere, and

• (b) exist wholly for the purpose of carrying on wholly or mainly in the State one or more qualifying trades.

• (3) As respects any qualifying research and development project, a company shall be a qualifying sponsoring company only if it provides satisfactory evidence and it appears to the satisfaction of the Revenue Commissioners after such consultation, if any, as may seem to them necessary with such person or body of persons as in their opinion may be of assistance to them that any benefits accruing to the company from the qualifying research and development project will be applied by the company wholly or mainly for the purposes of a qualifying trade or trades carried on by the company.

• (4) Without prejudice to the generality of subsection (2) but subject to subsection (5), a company ceases to comply with subsection (2) if before the end of the relevant period a resolution is passed, or an order is made, for the winding up of the company (or, in the case of a winding up otherwise than under the Companies Act, 1963, any other act is done for the like purposes) or the company is dissolved without winding up.

• (5) A company shall not be regarded as ceasing to comply with subsection (2) if it does so by reason of being wound up or dissolved without winding up and it is shown that the winding up or dissolution was for bona fide commercial reasons and not part of a scheme or arrangement the main purpose or one of the main purposes of which was the avoidance of tax.

23 Carrying out of a qualifying research and development project.

23.—(1) Subject to the requirements of this section, a research and development company shall be regarded as carrying out a qualifying research and development project only if it carries out that project on behalf of a qualifying sponsoring company.

• (2) A qualifying research and development project is carried out on behalf of a qualifying sponsoring company only if it is carried out in such circumstances that the benefits of the project accrue wholly or mainly to that company.

• (3) A research and development company shall be regarded, for the purposes of this section, as carrying out a qualifying research and development project on behalf of a qualifying sponsoring company if, and only if—

• (a) any money expended by the research and development company in the course of carrying out that project is so expended at the risk of that research and development company and, without prejudice to the generality of the foregoing, for this purpose money shall not be regarded as expended at the risk of a research and development company if the qualifying sponsoring company on behalf of which the qualifying research and development project is carried out, or any person connected with that qualifying sponsoring company, is or may become, directly or indirectly, liable—

• (i) for any expenditure incurred or any losses sustained by the research and development company in the carrying out of the qualifying research and development project, or

• (ii) to acquire any shares or assets of the research and development company for a price which is greater than the market value of the shares or assets when acquired, and

• (b) it provides satisfactory evidence and it appears to the Revenue Commissioners after such consultation, if any, as may seem to them necessary with such person or body of persons as in their opinion may be of assistance to them and subject to such conditions as to the verification of the purposes for which money is actually expended as they may impose, either on the research and development company or the qualifying sponsoring company, that all money raised by the research and development company from subscriptions for eligible shares by individuals who qualify for relief in respect of such shares was used, is being used or is intended to be used, for a qualifying research and development project.

• (4) References to the carrying out of a qualifying research and development project by a research and development company include references to the carrying out of such a project, or of any work comprised in such a project, by any other person, including the qualifying sponsoring company, under a contract between that person and the research and development company.